CIO.com: So, when you're going into the RFPs, who is your competition?

Caren: It's typically SAP or Oracle, and then it probably is a combination of two or three mid-market specialists, these firms like a Sage or an Epicor, and in the case of many international deals a local French competitor, a German competitor. In the enterprise ERP and CRM market, obviously there are a few players that have high share. In the case of the mid-market it's an extremely long tail and a very small head in terms of the share of markets from different ISVs.

CIO.com: You had previously worked on Duet, Microsoft's product partnership with SAP. What's the status of that partnership? It seems to me that, in the future, if you're going in and selling against SAP's product, to have kind of this complementary product, maybe that's not great for either of you.

Caren: I'd say Duet was one of the hottest products I think SAP ever saw when it showed it to its installed base, because of the great ease-of-use story it brought to their customers. Duet today serves a narrow set of scenarios. Of the hundreds of different workflows that SAP enables, probably a dozen, at most, are handled today by Duet. So, for some customers it's a great fit; for many it's a great vision, but not yet delivering on what they as an organization most need.

Duet is all about SAP's large enterprise business suite, and there we really don't focus our ERP business. Our ERP business is much more mid-market up through the enterprise segment and more like subsidiaries or divisions of global 2,000 companies. So, where SAP is [selling] at the headquarters of Global 2000, we're at the subsidiaries of those organization or in the mid-market.

CIO.com: As Microsoft expands its Live on-demand and cloud computing product lines, do you see those as just different product offerings for different types of businesses, on a different service? Or products at fundamental odds with each other?

Caren: For CRM, where we have obviously an on-premise business and we have CRM Online, which has been in market for nine months, we see the sort of same representation of customers using either offering—meaning CRM Online is not about small business where CRM on-premise is about enterprise and mid-market. We see the same representation across enterprise, mid-market and small business for our CRM on-premise business and for our CRM Online business.

The deployment decision tends to be secondary to the vendor decision from what we're seeing, versus customers saying I want to go on-premise or in the cloud, and then have a list that's just more mapped to those companies with those kinds of solutions.

CIO.com: So, in your mind and in Microsoft's mind, those two business models can coexist? Some of these pure SaaS vendors contend that these are like apples and oranges—they're so different that for Microsoft to offer both just seems not right or doesn't seem like it's good business.

Caren: We see a certain segment of customers that say: I want to be in the cloud, maybe because I don't have an IT department or I can't wait for IT to serve my needs. So cloud-based is the only way for me to go.

Other [customers] tend to have more of a traditional view of liking the on-premise deployment method for a number of reasons, whether it's ownership of the data inside their four walls or owning the application start to finish.

We see more and more customers that like that flexibility to be able to start with a hosted service and either over time stay there but always have the flexibility to pull it in-house if they end up wanting to do a lot of deep integration between the CRM application and the other legacy applications they have. That flexibility is more and more becoming a big selling point for our customers.

CIO.com: We know that Vista and operating systems and Office garner a lot of the attention from the press and certainly from everyone who thinks of Microsoft, but just how much going forward is Microsoft looking to Dynamics to contribute?

Caren: The aspiration is definitely to become a multibillion-dollar organization, and right now we're over a billion but not yet at multibillion, which means high growth rates. Right now I think our latest reported growth was 21 percent year over year, which is about triple the growth of the market overall.

For people like Steve Ballmer, it's an incredibly strategic business, because it really is the linchpin of the overall solution Microsoft hopes to deliver to customers. It's the application leveraged by our platform, if you look at our Windows and BizTalk and SQL platform business, and it becomes more and more a showcase application to be delivered to end users through the Microsoft Office business, which is just another very important core to our business strategy.

So the platform beneath it, the world of Office on top of it, makes it a really important part of the solution we're trying to encourage our customers to adopt.