One major focus of the new release is managing compliance obligations, providing what Microsoft calls a "one-stop shop for compliance-related information." CRM 4.0 also includes enhanced global capabilities (such as multiple language support) that will give international businesses real-time visibility into operations such as overseas inventory of global locations.

Chris Alliegro, lead analyst with Directions on Microsoft (an independent research firm focused exclusively on Microsoft strategy and technology), said that Dynamics offers a big advantage over competing products: a familiar interface. "If you're a Microsoft shop, it's an interface you're already familiar with. Having your CRM functionality visible, accessible, and built into Outlook is a huge selling point for Microsoft."

Salesforce.com: The One To Beat

Alliegro told us that Microsoft is directly challenging Salesforce.com with its new hosted CRM service, which is in beta testing now and should be launched for general sign-up in the middle of this year. All indications are that Microsoft will launch a full-scale attack.

"They're coming at the market very aggressively," particularly in terms of pricing, Alliegro said. One version of the hosted product is expected to be $44 per month per subscriber, and $15 higher for the more enhanced version. (The main differences between the two versions, he said, are storage amount and the ability to support offline synchronizations.) He said that Salesforce.com's similar offerings cost about 50 percent more.

"It's fair to ask if Microsoft can even make money at that price point. That's something they're going to learn. I think that companies getting into this kind of business are caught off-guard by how small the margins actually are -- it's a much smaller-margin business than selling packaged software," Alliegro said.

But Microsoft has both the deep pockets and the staying power needed to compete. "Microsoft is the kind of company that has proved that if it believes in something, it's willing to lose money on it for a long time to win the market, and they're a company that's as well positioned as any company to operate in that kind of environment," Alliegro said.

The Future of xRM

Alliegro noted that Microsoft has been talking up the idea of "xRM," where its CRM platform can have far more uses than simply managing sales, customer service and marketing. "It's also a generic platform that can be tailored to a wide range of functions or applications that are managing relations," Alliegro said. For example, the U.S. Air Force used the platform to build an application to help them manage personnel deployment -- which is not a customer-service application.

Microsoft will be looking hard at ways to exploit xRM and find other uses -- and customers -- for it. "They haven't said anything about what that functionality might be, but they hinted that they're thinking about that. If Microsoft starts to work through the feature specs of the next version, it wouldn't surprise me to see other functional domain areas surfacing, where they're taking this product and trying to make it specific to some applications other than strictly CRM."