After launching in a blaze of hype early last year, Microsoft Corp.'s CRM (customer relationship management) software is on a slower-than-expected development path, frustrating some partners and customers.

Microsoft now expects to have version 2 of the software ready in mid-2005, more than two years after it released the first version. In the interim, the company has issued point upgrades to fix bugs and expand functionality, but the current release, Microsoft CRM 1.2, still lacks features found in rival midmarket products.

"I think Microsoft CRM wasn't ready when it was released," said one customer, Jeremy Whiteley, who switched from GoldMine to Microsoft CRM, then switched back.

Whiteley, chief executive officer of Promarketing Gear Inc., bought 10 Microsoft CRM licenses for his company, a Kirkland, Washington, vendor of branded promotional products. But he quickly ran into what he saw as a deal-breaking glitch in the software: Its insertion of a long string of characters in the subject line of every e-mail sent through the system. Intended as a feature to help with tracking, the ID string annoyed many customers, and Microsoft issued a patch to let users turn it off.

That patch came only after Whiteley had decided to stop using the software. Microsoft refunded the US$7,000 he'd spent on it. Though he found the initial version riddled with problems, he's still interested in returning when the software matures.

"I understand they're releasing a new, complicated product. I think there's potential if they do it right," he said. "We'll evaluate 2.0 when it comes out."

Getting 2.0 out the door will be a major milestone for Microsoft. Microsoft CRM was the first internally created product from Microsoft Business Solutions, the built-through-acquisitions group intended to gain Microsoft entry to the back-end business applications market. Microsoft already dominates in the operating system and desktop applications market; adding software to run sales, marketing, accounting and human resources systems opens up a new frontier for the company.

For CRM functionality, the high end of the market is dominated by SAP AG, PeopleSoft Inc., Oracle Corp. and Siebel Systems Inc. The lower end is served by ASPs (application service providers) like Salesforce.com Inc. and inexpensive contact management systems like FrontRange Solutions Inc.'s GoldMine and Best Software Inc.'s SalesLogix. In the middle, for companies looking to spend perhaps $100,000 on a CRM system for a few dozen employees, is an open market, according to analysts and consultants.

"There are two areas that are really lacking something. One is the really small market, and the other is a viable, low-cost alternative, something that's not hosted, in the midmarket," said Yankee Group Inc. analyst Sheryl Kingstone. "Microsoft is doing okay -- they're still generating interest -- but they have to stay active in the market so that they don't look like they're not prioritizing it. A lot of their competition is becoming very active with the channel, and the channel is getting frustrated with Microsoft."

Green Beacon Solutions LLC Chief Executive Officer Ben Holtz is one of those channel partners getting impatient. He's a big

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