With the announcement on Tuesday that Microsoft will open its datacenters for hosting of its Dynamics CRM solution, the obvious conclusion might be that Salesforce.com will have a major competitor to contend with.
However, Salesforce still holds one very important ace up its sleeve, according to one industry analyst: Salesforce offers the benefits of a true multi-tenant architecture while Microsoft appears to be tap dancing around the multi-tenant architecture issue.
"I can hear Fats Waller playing the piano right now," said Denis Pombriant, principal at Beagle Research, explaining that Microsoft is indeed marching, if not dancing, to a different drummer.
By its own definition, Microsoft is offering is a different architecture than what Salesforce.com is offering. Bill Patterson, director of product management at Microsoft Dynamic CRM Online says that SQL Server is designed to be "one database server that runs lots of database instances."
In terms of multi-tenancy this means Microsoft has one architecture that handles everything from customer requests to report generation and business processes.
But while Patterson says it is all done through one common architecture, he adds, "the only area where we physically isolate the data is at the database level," Patterson said.
Enter the tap dance, says Pombriant, who says this design will cause nothing short of vendor lock-in. The reason, Pombriant claims, is because each customer has its own version of the database while in a true multi-tenant model there is only one version of the software running, one application to patch, one application to upgrade.
As a consequence, any vendor delivering a multi-tenant architecture as Microsoft defines it, will have a hard time keeping all of its customers -- and especially partners -- in synch with the same version. In order to work in this situation, the partner will have to keep up with all the versions.
"The danger is that much of the software development organization will have to support multiple versions," said Pombriant.
This is not the case with Salesforce, where there is one image, one piece of code to update, patch, and modify, and as a consequence all of the customers get all of the benefits and updates at the same time.
With the Microsoft version, if a vendor is running multiple instances of the software on multiple blade servers, whenever there is a patch or improvement each image has to be upgraded individually, whether manually or automated. Or, if a customer doesn't want an update, the complexity of the service model begins to increase.
Nevertheless, the lasting impression of Tuesday's announcement may be that Microsoft has finally jumped into the software as a service (SaaS) market with both feet.
Dana Gardner, chief analyst with Interabor Solutions, believes Microsoft picked the most obvious point at which to jump in.
"CRM is the poster child for SaaS because salespeople need distributed data, they need it quickly and CRM is critical to most organizations," said Gardner.
For Microsoft this is a bellwether announcement and is meant to tell the business world that it is going down this road with other applications.
Indeed, the rumors of a SaaS version of Office have been floating around since cloud computing began capturing the imagination of IT.
Last week Microsoft confirmed that it has plans for a low-cost suite of Office that would compete with Google Apps.
But Gardner believes the hosted version of Dynamics will also be used to bring users back to the on-premise solution.
Pombriant agrees, saying that at the end of the day this announcement is as much about finance as it is about technology.
"This is about doing everything you can to preserve your existing business while at the same time beginning a transition to a new paradigm, the information utility and on demand," said Pombriant.
Microsoft, like a lot of traditional vendors, is trying to finesse the cloud computing trend by offering it as an alternative delivery option to its software solutions. If the trend continues it will be positioned to transition, but if the trend tops out it can go back to business as usual.