Microsoft is to release a new version of its CRM software by the end of this year. The new version will include a special edition for small businesses, a subscription-based licence for hosting services, and support for more languages.

The software will come with two new modules: one to automate the management of direct marketing campaigns, and one to manage complex personnel and resource scheduling requests, the company said. The new version is a great leap forward in at least one other respect, as the company is moving directly from the existing version 1.2 and numbering the new version 3.0. Customers have had a long wait: the last release was in December 2003 and that still had gaps in areas like synchronisation and data de-duplication that have frustrated customers

Microsoft is still deciding how the new modules will be priced and packaged, but customers running the higher-end Professional edition and subscribed to Microsoft's Software Assurance maintenance plan will be able to add on the new modules for free, according to Brad Wilson, general manager of Microsoft CRM.

The decision to skip ahead to version 3.0 reflects the magnitude of the updates, Wilson said. Late last year, Microsoft had been preparing to release Microsoft CRM 2.0, but feedback from partners during the alpha period convinced Microsoft it should delay the software.

"A lot of what our partners had asked for were things that were already in our 3.0 road map," Wilson said. "With this release, we really hit the vast majority of our goals that we announced a year ago."

Microsoft plans to demonstrate CRM 3.0's new capabilities in Amsterdam at TechEd Europe, its conference for software developers, and at its Worldwide Partner Conference in the US, both later this week.

The company also said it would reduce the time and effort required to create tailored versions of the software for vertical markets, or to integrate it with other applications. Partners will be able to obtain the necessary software development kit for CRM 3.0 through the Microsoft Developer Network later this year.

Customers will be able to buy and run the CRM 3.0 tool in two ways: either as a packaged product they run themselves, or as a hosted service they pay for through the new subscription-based licence. They'll be able to change their minds later, too, as the code for the hosted and on-site versions will be the same: only the licence will change, Microsoft said.

Microsoft has always made Microsoft CRM available for partners to offer as a hosted service, but that market has remained small, while prices have remained higher. In the US, NaviSite is one of the few companies offering hosted Microsoft CRM services. On a monthly subscription basis, NaviSite's hosting prices start at US$99 per month for users who already own their Microsoft CRM licenses - notably higher than the $65 per month starting price of Salesforce.com, the industry's most popular hosted CRM provider.

NaviSite's prices may drop with the release of Microsoft CRM 3.0, according to NaviSite Vice-President of Marketing Bernd Leger. The company has been working with Microsoft on software changes that will lower the cost of hosting it by, for example, allowing more software to be installed on each server. Eventually, NaviSite would like to see Microsoft move to a multitenant architecture, allowing multiple instances of the software to share the same infrastructure.

Andover, Massachusetts-based NaviSite has about 40 customers running Microsoft CRM, about half of which are using a hosted version. Leger doesn't see the software's higher cost compared to Salesforce.com as a problem: Most of NaviSite's prospects that choose hosted versions of Microsoft CRM already know they want Microsoft's software and aren't looking at other vendors, he said.

"Typically, a lot of organisations want the hosted model but are not sure they want to maintain it down the road. The advantage we offer is that we can migrate them in-house," Leger said. "Customers want the flexibility."

Analysts said the new version, which will begin going out to Microsoft's partners this month, looks, at long last, to make Microsoft's features competitive with those of other midmarket CRM systems. "The new product has fixed a lot of the holes," said Yankee Group analyst Sheryl Kingstone.

One area Microsoft targeted for improvement was Microsoft CRM's integration with Outlook: Customers said they preferred that the two programs look as much alike as possible, according to Microsoft's Wilson. Kingstone said the user-interface changes look good.

"It's much more integrated and more familiar," Wilson said. Microsoft has also worked to streamline the software's deployment process, a change Kingstone expects to appeal to small businesses looking to support the software with minimal IT resources.

Microsoft claims a customer base of around 4,000 organisations running Microsoft CRM, and some analyst research suggests that number could grow rapidly. In a recent Forrester survey of 1,000 small and medium-size businesses, Microsoft was the most commonly named vendor by those who said they're evaluating CRM software.

"In that segment, we see a lot of people wanting to reduce the number of vendors in their portfolio," Forrester analyst Liz Herbert said. Since so many businesses already use Microsoft products, the company has an advantage in getting customers' attention.

Also on Tuesday, Microsoft reiterated that it plans to ship its SQL Server 2005, Visual Studio 2005 and BizTalk Server 2006 products on 7 November, with launch events planned in 50 countries.