Microsoft has signaled its intent to challenge Salseforce.com in hosted customer relationship management (CRM) systems, by announcing a new version of its own Dynamics CRM product to be hosted by members of its global partner community.

The Dynamics CRM Professional Edition for Service Providers, announced at Microsoft’s Convergence event in Dallas, will feature the same roles-based user interface and integration with Outlook as the on-premises version, and will provide enhanced manageability, said Dynamics CRM product marketing director Kevin Faulkner.

Microsoft has been working with service providers, software vendors and resellers on an early-adopter programme since it announced its decision to target the sector last December, according to Faulkner.

The product shares the same code base and business logic as the on-premises version, enabling firms to migrate easily from one to the other, as their business needs change. There are also options to deploy all or just some of the capabilities, because the software is “location independent”, Faulkner said.

“Because we do both [on-premises and hosted versions] we have created a hybrid model, and the user never knows if it is hosted or not,” he said. “By working with partners we can provide [industry-specific] and customised solutions – it’s not just a generic offering.”

The fact that many IT staff are familiar with the standard Microsoft tools and technology in the product will make it simpler to manage and enable easy in-house customisation, Faulkner added.

The current offering operates on a “single-tenant model”, so each deployment supports a single customer, but Microsoft’s plans to offer a multitenant version in about 12 months time, as part of the next version of Dynamics CRM, codenamed Titan.

Bo Lykkegaard of analyst IDC said that although Microsoft has good relationships with its partners, Salesforce’s AppExchange had “raised the bar” by creating a more self-contained, collaborative model with its partner community, which should benefit users by providing better-tailored systems.

“AppExchange offers certain advantages the [Microsoft] model doesn’t and is more scalable in terms of maintaining a visible partner community,” Lykkegaard added. “Microsoft doesn’t have the same community feel and user feedback.”

In his keynote speech at the Convergence event, chairman Bill Gates stressed that Microsoft would continue to provide traditional on-premises software as well as hosted offerings.

“We're going to make [our software] available on a server basis and a service basis,” Gates said. “A lot of people are going to find … the on-premises stuff very attractive [but] as you get smaller in size, maybe the off-premises becomes relatively more attractive, and we just want to give people that choice.”

Also at the event, the software giant announced a range of packaged connectors designed to enable firms to integrate their Dynamics CRM applications with Microsoft and third-party enterprise resource planning (ERP) and CRM products.

The connectors for Dynamics ERP applications will be introduced over the coming year. Integration with Oracle, SAP, Siebel and other applications via BizTalk server will be available in the third quarter.

Faulkner argued that Microsoft’s strategy could attract dissatisfied SAP, Oracle and Siebel users and eventually encourage them to move completely to its products.