RealTime IT News

SAP CEO Defends Price Hikes as Customers Gripe

Hanning Kagermann

PALO ALTO, Calif. – Full speed ahead. SAP executives at a media event here today, shrugged off questions about its recent price increases and a legal battle with Oracle and instead emphasized its bottom line results and competitive advantages.

"Our share prices are outperforming most of our peers, outperforming all indices," said long-time SAP CEO Henning Kagermann, who is stepping down in March and will be succeed by co-CEO Leo Apotheker.

"The second quarter was our 18th consecutive quarter of double digit growth, unheard of in this industry," Kagermann said at today's meeting held at the company's Palo Alto, Calif. campus. "Compared against ourselves, product revenue was up 32 per cent in Euro, and 44 per cent in US dollars."

That constant growth is due to two factors, Kagermann said. One is an "extremely strategic relationship with lots of clients worldwide," and the other that SAP has "the right solutions in place to help CEOs do the best possible."

But there have been rumblings of discontent among SAP's customer base since it announced in May plans to raise its support fees from 17 percent to 22 percent of license fees by 2012. The move was widely seen as a bid to match archrival Oracle's pricing structure.

User groups in the United States, the United Kingdom and Ireland, and the German-speaking SAP user group, whose members are companies in Germany, Austria and Switzerland, have strongly criticized the increase.

That's not something SAP's management thinks it's hearing. "We feel the uptake of enterprise support will be successful from talking to customers," Apotheker said. "We got a tremendous response from new customers and we feel rather at ease, and will be working with each of our customers and user groups to make sure they recognize the value of this offering."

Kagermann put it a little more strongly. "We are not raising prices," he said. "For the first time, we're offering these services, and we're doing so because we believe it's necessary in this new environment."

The environment he was referring to is the current economic situation, where customers are more demanding. "We're offering a new service which is much larger than before, has a certain value and a certain price," Kagermann said. "The cost for us is higher, and so we believe it's a fair price," he added.

SAP was sending a message to the financial markets, which see Apotheker appointment as replacing a technology-driven CEO with one who is more profit-driven. Apotheker's background is in sales.

The goal for 2010

"This week, the most important purpose of all our meetings [among top management] are all about how we'll meet or exceed our 2010 objectives," Apotheker said. SAP plans to reach 100,000 customers by 2010.

The company now has 75,000 customers including numerous blue chip, well known global companies. In order to hit the 100,000 mark, it will have to focus strongly on the Small-to-Medium-size business (SMB) market, Apotheker said. "We're adding about 30 new SMB customers every day," he said.

Apotheker predicted that SAP will continue to see double-digit growth for the rest of the year. "In today's environment, if you have a strong value proposition and can answer very demanding requirements from customers, you'll have good results," he added.

Another reason for the strong growth is that SAP has a "very nicely balanced global operation and can operate on all cylinders in all markets," he said.

Company officials declined to answer questions about the lawsuit between SAP and Oracle. "We can't discuss that issue," Kagermann said.

Oracle has filed suit against SAP over what it claims was "corporate theft on a grand scale" involving an SAP subsidiary, TomorrowNow, that SAP plans to shut down by October 31.