Microsoft (MSFT, Financial) pulled the rug out from Salesforce (CRM, Financial) Monday by announcing that it has struck a six-year deal with HP Inc. (HPQ) [this was wrongly posted as HPE, now corrected to HP Inc.] to deploy Microsoft Dynamics, the company’s CRM software, to thousands of HP’s employees.
It’s a big win for Microsoft to snatch a big-name customer from right under Salesforce’s nose, but it underscores the importance of the enterprise ecosystem that Microsoft is building. That’s something I’ve written about in great detail in earlier articles, and after the Facebook (FB, Financial) announcement of signing up for Office 365 for its global workforce, this is one of the first real-life examples of how this model is making gains for Microsoft. Other recent clients include Carvajal (BOG:PFCARPK, Financial) and World Bank.
"We have chosen Microsoft Dynamics as our CRM solution for our direct selling, partners and services," said Jon Flaxman, chief operating officer, HP. "This brings us a cloud-based solution that delivers a more effective and efficient collaboration engine across our business.
"Complementing Dynamics CRM, Office 365 provides worldwide sales, service and marketing professionals at HP with an immersive, connected productivity experience for teamwork and collaboration. In addition, Power BI will empower HP marketers to uncover powerful business insights and predictions. Azure will provide the IT organization with a global, open, hybrid cloud for all of the solutions while also giving HP a platform for new capabilities and services at a low total cost of ownership."–Microsoft
Until this agreement HP was one of Salesforce’s largest customers, having been a client for more than four years. At the time, Salesforce CEO Marc Benioff noted that HP was using Sales Cloud, Service Cloud, Chatter and Force.com. It also represented the company’s biggest client acquisition in the fourth quarter of 2011.
It is understandable why HP chose Salesforce at that point. The company was already the leader in CRM, having trounced old hats Oracle (ORCL, Financial) and SAP (SAP, Financial), and it was expanding its skills and offerings at a rapid pace. Naturally, HP chose the fastest-growing company in that space.
But the recent change of heart at HP points to a different future for Microsoft. The company’s bundling of products focused toward enterprises is expanding by the day. With cloud solutions its strongest, followed by productivity suites and then business management software such as Microsoft Dynamics, Power BI and so on, these ancillary businesses are only now getting their fair share of attention in a company that was being overshadowed by Windows.
Even now Microsoft Dynamics isn’t anywhere near Salesforce in terms of market share. The CRM leader has a market share 4½ times bigger than Dynamics. In face, Oracle and SAP are still significantly bigger players in this space.
So getting HP as a client is a big validation of the Microsoft-as-a-Service model that Nadella is creating within the company. But unless it keeps building on its strengths, such a deal could turn out to be a one-time event.
As such, Microsoft is off to a great start, but there’s still a lot of work to be done. The CRM market is changing because of the increased need for analytics and artificial intelligence capabilities. This is something Salesforce isn’t yet ready to deliver, but Microsoft is well on its way to providing not only CRM solutions but also a host of cloud-based services that meet the needs of growing enterprises.
With Oracle and Salesforce racing toward a head-on collision in the SaaS space, they’ve brought themselves right into Microsoft’s line of fire. So it’s not surprising that clients are starting to gravitate toward the company that is more well-rounded from a cloud services perspective. With Microsoft’s focus now squarely on the enterprise segment, we may well see more of these deals being signed in the months to come.
Disclosure: I have no positions in any of the stocks mentioned above and no intention to initiate a position in the next 72 hours.
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