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SAP plans to launch hosted CRM

SAP CEO Henning Kagermann confirms plans to launch a hosted CRM product.

After long denying the company would release a hosted CRM application, SAP's CEO changed direction and said today what many had suspected all along.

In comments to financial analysts Thursday, SAP CEO Henning Kagermann indicated the company plans to launch a hosted CRM product later this year.

Sales of SAP's mySAP CRM software were down in the second quarter, and some financial analysts believe it could have been the result of pressure from hosted CRM provider But Kagermann disputed the assertion, saying a lag in CRM software sales in one quarter does not indicate a trend.

"We are in preparation," Kagermann said of SAP's hosted CRM plans. "You'll see something soon. We're making our business models right at this time."

The market for CRM applications delivered via the Internet has proved lucrative in recent years, spurring the rapid growth of companies like San Francisco's, Bozeman, Mont.-based RightNow Technologies Inc., San Mateo, Calif.-based NetSuite Inc. and Boston-based Salesnet Inc.

Established CRM vendors have rushed to include a hosted offering, most notably market leader Siebel Systems Inc. which launched its Siebel OnDemand more than a year ago.

SAP executives hinted in May at the SAPphire conference in Boston that the company would release a hosted offering.

SAP also reported strong second quarter license sales, indicating it continues to take market share away from rival Oracle Corp.

Software license sales rose to $695 million in the second quarter, a 16% increase over the same period last year. SAP reported a 27% increase in sales in the United States, while in Europe, license sales grew 8%.

"The enterprise service architecture is the next big thing for IT," said Kagermann. "SAP is in very strong position, because we're delivering first to the market."

SAP said it signed about 2,000 contracts in the quarter; its major deals were with Home Depot, Procter & Gamble, Amgen and Fuji Photo Film.

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The company said it had won more market share in the quarter from Oracle, Siebel and Microsoft. SAP's market share in the U.S. remained steady at 41%; its global market share stands at 58%.

SAP's new Safe Passage Program, launched this year to win companies over to SAP from Oracle, has been slowly gaining traction since January, according to Leo Apotheker, a member of SAP's executive board who oversees global sales.

Apotheker said 21 safe passage deals were signed in the first half of the year, including luggage manufacturer Samsonite and drug maker Amgen, which have both signed deals to migrate over to SAP. The program targets retailers, small and midsized businesses, and J.D. Edwards & Co. and PeopleSoft customers with incentives and credits toward a mySAP ERP license.

Midsized and smaller deals also accounted for larger share of overall revenue, Apotheker said. SAP signed 2,400 new customers to licenses in the SMB segment in the first half of 2005.

The increase in market share comes despite Oracle's buying spree. Oracle spent $10.6 billion in December to acquire PeopleSoft and in March outbid SAP with a $670 million offer for Retek Inc., which makes business software for the retail industry.

SAP also said it plans to grow organically, meaning it will hire new staff rather than acquire large businesses. The company plans to increase its target for new hires this year by 50% to 4,500 more employees.

But Kagermann did not rule out any future acquisitions.

"We will continue to do acquisitions," he said. "We will do smart acquisitions focused on product innovation."

News Editor Barney Beal contributed to this story.

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