CIO — Enterprise software analysts and industry observers usually refer to the competition in the ERP and CRM space as essentially a two-horse race between Oracle and SAP. The breadth of applications in both vendors' stables, their collective R&D budgets, and the fact that these giants aren't shy about buying up the competition cements that market reality.

But watch out, SAP and Oracle. While continuing to bludgeon and attack each other as they go after SMBs, both vendors now must look over their shoulders at hard-charging Microsoft and its burgeoning Dynamics set of business applications.

"Microsoft remains a relative newcomer to the business applications market," notes Warren Wilson, a research director at Ovum, in a report. "However, it is committing more and more resources to its Dynamics solutions, and its ability to integrate Dynamics with its ubiquitous Windows applications—especially Office—makes Microsoft a threat that neither SAP nor Oracle can afford to take lightly."

CIO.com Senior Editor Thomas Wailgum recently talked with Chris Caren, general manager of product management and marketing for Microsoft's Dynamics line of ERP and CRM products. Caren described the overriding strategy for the Dynamics line and how the software will take advantage of users' familiarity with the Office suite. He also explained why he thinks on-premise and cloud computing options won't hurt Microsoft's business, and offered his take on how Microsoft is competing—and winning—against Oracle and SAP in midmarket and large organizations.

CIO.com: What's been Microsoft's strategy with Dynamics so far?

Microsoft's Chris Caren

Chris Caren: Whether it's us talking to our customers or analysts like AMR, or doing studies of the market, we view business applications—and I'd say this both applies to ERP and CRM—as long-existing categories of software that are woefully underutilized and underused inside of organizations.

I think AMR did a poll and found on average about 10 percent of employees are licensed to use a business application, and of those 10 percent, only about half actually access the application as part of their job. So, the footprint inside of organizations is incredibly limited.

Whether it's business applications or other categories of software like business intelligence, we really believe there's a huge opportunity to democratize the application and get it much more broadly used in organizations for both increasing the productivity of employees and letting them be more effective in their jobs. But also to give them, in the case of business applications, better information for decision-making—just to help them work a lot more intelligently and a lot smarter.

CIO.com: Does that tie into Microsoft's existing product sets?

Caren: The core approach to our product strategy is to overcome the inflexibility and the ease-of-use issues that have limited adoption of business applications, and for us that means really blurring the lines between what a business application is and what the world of Microsoft Office is.

And by that I mean not just Microsoft Office, the desktop suite of products, like Outlook and Excel and Word, but more and more the business server applications like SharePoint for collaboration, PerformancePoint for business intelligence, or Office Communications Server for instant messaging, presence, and voice over IP.

CIO.com: So making sure that the user interface and basic tools were easy to use has been a huge part of Dynamics' roadmap?

Caren: Yeah, one big part of it is just that: making the user experience really approachable, familiar. Part of our strategy is preconfiguring it to the types of things you'd likely want to do if you're a salesperson or a payroll manager or a marketing manager. So, we focus on kind of consumerizing the user experience so it looks a lot more like a consumer Web application, a lot less like business software. And we're building what we call these role-tailored user experiences, which is prepackaging what we think a vast majority of employees are going to want to do with the business applications.

CIO.com: Clearly you have a huge advantage in the SMB space, because people's familiarity with Office and Excel. But you also have to show some power behind those applications?

Caren: Yes, definitely. If you look, for example, at our CRM application, the majority of the revenue for that business comes out of the enterprise space. So, to your point, while our product strategy really resonates with mid-market customers, we're having a lot of success at the large enterprise and in the public sector where we have very large projects as well.

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