April 14, 2005 3:51 PM PDT

SAP says it won't join the on-demand crowd

As more companies toy with the idea of having their software applications run by on-demand hosting companies, applications giant SAP has no plans to enter the hosting market, the company's chief executive said Thursday.

SAP's directors discussed their views on everything from the hosting of applications to merger strategies to competitors Microsoft and Oracle during a press briefing at their Palo Alto, Calif., office. SAP faces increased competition these days following Oracle's acquisition of former rival PeopleSoft and an increasingly heated battleground for dominance in the North American market.

"When on-demand came up, we at SAP felt we should be careful...that on-demand is not the next locked-in strategy," said Henning Kagermann, SAP's chief executive. "With on-demand, the customer hands his destiny to someone else and then he finds out after two or three years he cannot get his destiny back."

SAP executives noted that on-demand customers may find they're restricted in their ability to change and innovate their business practices, should the on-demand applications service provider prohibit such changes. SAP wants to give customers the ability to own the structure that will hold the applications and the opportunity to pick which applications they will have hosted by an on-demand service and which ones will remain under their control.

"We don't want to become a hosting company," Kagermann said.

The executives' comments contradict a Prudential Financial report released Thursday. The report, written by Prudential analyst Brent Thill, says SAP is readying a subscription software service that would be SAP's direct answer to Salesforce.com.

"We believe SAP is close to announcing a new hosted CRM (customer relationship management) application that is priced on a subscription basis--possibly as early as April 27 during the Sapphire '05 Copenhagen conference," Thill said in his research note.

According to Thill, the new SAP service is designed to help businesses track sales leads and customer profiles. He noted, however, that SAP would not confirm the rumored plan.

"Over time, we believe, SAP's hosted CRM offering could hamper Siebel Systems' fledgling CRM OnDemand business and interfere with Salesforce.com's upward inroads into the enterprise segment," Thill added in the note.

SAP's last move in this direction was an agreement with longtime partner Hewlett-Packard, under which the two companies planned to jointly sell SAP's small-business software for a monthly fee of $325 per user. As part of the agreement, announced in October, HP planned to host the applications at its data centers.

Though rumors of Siebel being an acquisition target have intensified in

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