Kagermann: SAP to expand on-demand offerings

SAP will never cannibalize its enterprise software business to support on-demand services, but it will expand them, executives said.

SAP will not "cannibalize" its enterprise software business to support the burgeoning software-as-a-service trend, but it will branch out beyond hosted CRM (customer relationship management) to offer other applications on-demand, Chief Executive Officer (CEO) Henning Kagermann said Thursday.

Speaking at a press event as part of SAP's annual executive board meeting in Silicon Valley, Kagermann -- along with fellow members of the SAP Executive Board Shai Agassi and Leo Apotheker -- said SAP plans to continue its strategy to grow organically rather than embrace the latest industry fads, such as software-on-demand, with too much gusto.

However, SAP will continue to grow its on-demand software model as necessary to keep up with competitors such as Oracle and Microsoft. "We'll never substitute our core business, but [on-demand] will be an additional revenue stream," Kagermann said.

Both Oracle and Microsoft have expressed plans to take much of their software on-demand in the future. SAP, which has a large install base for its legacy ERP (enterprise resource planning) applications to which it must cater, has been more cautious in its approach.

In addition to CRM-on-demand, which SAP already offers, the company also is eyeing plans to offer other software on a hosted basis, he said.

"Everything that is applicable to consumption can be there for this type of on-demand model," Kagermann said. However, he did not elaborate on what those offerings might look like.

Until those plans become more clear, a hybrid model of offering both its traditional enterprise applications and on-demand services, and allowing customers to choose one, the other or both options, is the key to SAP's near-term strategy, Agassi said.

"We're not just looking at the on-demand model as a stand-alone business," he said. "We are looking at companies that want to go to a hybrid model and have some of these applications on premise as well as on-demand. They don't want to be a hostage [to either model]."

Kagermann also acknowledged that at some point SAP will drop its 100-or-more user limit that currently is in place for its CRM-on-demand service, though he did not give a time frame for this move.

With the emphasis Kagermann and fellow executives put Thursday on seeking greater adoption for SAP applications in the midmarket, it doesn't seem the ceiling will come down too soon for its on-demand CRM. According to Kagermann, the midmarket is the sweet spot for the company, and where it hopes to see the most growth as far as customer acquisition in the next several years.

One SAP goal is to earn nearly 45 percent of its revenue from the midmarket by 2010. Currently, about 31 percent of the company's revenue is in that space, Kagermann said.

Other goals for 2010 that he outlined on Thursday include earning 50 percent of software revenue from new products and reaching the 100,000-customer milestone.

Though rumors of acquisition have swirled around SAP, executives hinted Thursday that the company has no plans at the moment to change its independent status. Both top partner IBM -- as well as rival and occasional partner Microsoft -- have been rumored to have interest in purchasing the German software vendor. SAP executives said Thursday that they do not foresee any changes to SAP's partnerships with either IBM or Microsoft in the near future.

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