Microsoft is set to transition one of its largest business software suites away from traditional hosting methods to the online arena, pitting its latest offering against entrenched competitors which include Oracle, SAP AG, along with burgeoning Salesforce.com.

The new customer relations management (CRM) software, dubbed Microsoft Dynamics CRM Live, will allow companies to manage their sales teams and keep track of current sales leads. This is much like their existing CRM software, but instead of companies setting up their own IT infrastructure to support it, Microsoft will host the information and companies will access it via the web.

The Redmond giant unveiled the plan on Tuesday at its Worldwide Partners Conference in Boston, an event touted as one of the most exciting times in Microsoft's history.

Not Alone

The transition had been expected as Microsoft head Steve Ballmer called CRM Live maybe the single most inevitable announcement in the history of Microsoft.

Microsoft has been offering enterprise level CRM software to its partners for years. Even as recently as this previous March they outlined plans to update and revamp its CRM solutions at the Convergence conference in Dallas.

So far the software offerings have been traditional, requiring customers to buy both the server software to host the backend, and the client for the sales team. While it worked well until now, the competition has innovated and turned customers to web-based solutions that are easier to use and maintain.

SAP launched its version of the hosted system earlier this year promising to deliver more flexibility to customers.' Shortly thereafter, Oracle followed suit with Siebel OnDemand, a hosted CRM it received from acquisition of Seibel systems.

The SAP model, however, hosts each of its customers separately in a method known as isolated tenants. An alternate method, called multi-tenAnt, puts those customers onto the same servers.

While Microsoft has yet to disclose which method it will use Goldman Sachs analyst Rick Sherlund feels it will likely be built on a new multi-tenant architecture which was introduced in Microsoft's Titan CRM.

If this is the case, the company will see itself more closely in competition with upstart Salesforce.com, a company widely seen as the leader in hosted CRM. The core of Salesforce's user base is small and medium-sized businesses, an area where according to Shuland, Microsoft is likely to be most competitive.

Breathing Room

Competition is fierce but for now there is room for these competitors to breathe. Right now, for example, Salesforce has 350,000 U.S. users, versus 28 million customer-facing employees. The opportunity outside the U.S. is likely 2-3 times as large.

"The SMB [small- and medium-sized business] market for OnDemand applications is relatively untapped,' Kash Rangan, the software analyst at Merrill Lynch, said.

Microsoft has yet to reveal a pricing scheme, but stated it would keep its prices competitive, and would use monthly subscriptions.

Push to be Live

The new offering also is part of a larger Microsoft push into Web services. Microsoft live consists of two families of web services, one for consumers and the other for businesses.

Each comes with tools and applications that can be executed from any web-browser. For the consumer, Microsoft offers Windows live - with email, instant messaging, and custom portals. However, for the businesses, Office Live offers productivity tools; presumably where Dynamics would dwell.

The Live era is just starting, Gates said in November. It's a new way to look at software and a better way to create opportunities.

Steve Ballmer Marketing Microsoft Oracle