SAP CEO: Oracle's bid for PeopleSoft driving prices down

But "desperate pricing" by software companies as a result of the bid are hurting SAP in the short term, Kagermann told reporters at SAP's Innovation Congress in Switzerland on Monday.

Forty percent of the deals that SAP loses are lost because it was beaten on price, he said. Kagermann promised more details on the bid's effect on SAP when the US$7.8 billion German software maker reports third-quarter results 17 October.

"We lose more on price than anything," he said. "If the whole industry starts to compete on price, price will never come back."

As for the deal's health, Kagermann said an increase in Oracle's bid price over recent months and PeopleSoft's continued market strength mean CEO Larry Ellison's strategy isn't working. Pretending to take over a company and saying, 'We'll replace their product with ours' is not what customers want." Oracle execs weren't available for comment at deadline.

SAP is discussing its research-and-development efforts with business and academic partners at the conference.

Kagermann said the company will spend nearly 14 percent of revenue on R&D this year. Three-quarters of the company's software development takes place in Germany, and SAP will likely shift more of that work to Asia than to its US development centre in Palo Alto, California.

Kagermann also said it's "not proven so far" whether SAP's customers will benefit from web services, a new architecture for developing corporate software. Most projects are "simple examples" of the technology, he said, and lack the security, reliability, and performance to run large business applications.