Microsoft has mothballed the second version of its customer relationship management (CRM) system which has been plagued by extensive delays, and will instead jump straight to version three, which will be generally available in the first quarter of 2006.

Microsoft had initially planned to release its CRM 2.0 software at the beginning of 2005, but feedback from customers during its testing phase delayed the launch, and has ultimately resulted in such a radical redesign that Microsoft will skip a generation.

The most noticeable change in the roadmap is for Microsoft to start offering a hosted model of its CRM software. Clearly it has seen the impact that Salesforce.com has made in the market and is setting itself up as an alternative.

Other new features include a redesigned user interface, modelled on Microsoft’s Outlook client interface to such an extent it is “indistinguishable”, said Brad Wilson, general manager of Microsoft’s CRM unit. Automation applications, such as list and campaign management, marketing resource management and response management, are also set to bolster the highly-anticipated release.

“Every business – whether large or small – needs a fast, flexible and affordable way to manage and grow their relationships with current and prospective customers,” said Wilson.

Microsoft’s CRM software has attracted a great deal of interest from market watchers. It forms a central tenet of the software giant’s business application plans, alongside its Navision and Great Plains applications under the Microsoft Business Solutions umbrella.

Microsoft executives are looking to expand its cash generating businesses, and have identified the business applications market as an area of potential growth. The success of its CRM software will be monitored closely.