By Siobhan Kennedy
Following in the footsteps of rival Oracle Corp, SAP AG yesterday made its first foray into the online hosted marketplace with the announcement of an e-commerce exchange for the chemical and pharmaceuticals industry. The German software giant is to provide the infrastructure, software and technology to host an online trading environment to enable the leading chemical and pharmaceutical companies and their suppliers to buy and sell products over the internet.
As part of the announcement, SAP named BASF AG, Bayer AG, Degussa-Huls AG, Henkel KgaA and Wacker-Chemie GmbH as the initial companies that will participate on the buy side of the exchange procuring production goods from key suppliers including KSB AG, Linde AG, Sartorius AG, Siemens AG and Heinz Wollschlager GmbH & Co. KG. SAP will host the exchange, which is due to go live at the beginning of the second quarter of 2000, at its Palo Alto, California facilities. To help roll out the exchange SAP is enlisting the help of EDS to provide technology and integration support, along with KPMG for additional e-commerce integration consulting.
The move follows hot on the heels of a similar announcement by rival software giant Oracle Corp in November. Under that agreement, Oracle supplied Ford with the necessary procurement and supply chain software to link all its partners in what the two claim will be the world’s largest supply chain. As part of the agreement, the two companies set up a joint venture, called AutoXchange in which Ford has a majority holding while revenues from purchasing and procurement operations will be shared with Oracle.
SAP’s announcement is very similar, although the ERP vendor won’t be setting up a separate company to manage the exchange, according to Prashanth Narasimha, SAP’s director of corporate marketing. Narasimha said that SAP will be responsible for the overall management of the marketplace including attracting both new buyers and sellers to the exchange as well as handling security and quality assurance, procurement applications, content and services. The aim, he said, is to enable the sellers to globally standardize and simplify their sales channels as well as get access to a broad base of potential customers. For buyers, the exchange will result in reduced costs for business processes as well as simplified handling of agreements and tendering.
SAP and Oracle aren’t the only two vendors to have jumped on the lucrative e-commerce exchange bandwagon. On-line procurement vendor Commerce One recently signed a deal with General Motors to run its trading community and there are currently some 300 similar ventures on the web today. Analysts predict hundreds more will emerge over the next few months and big software vendors, like SAP and Oracle, are anxious to get a slice of that pie. Oracle is known to have more deals in the pipeline and rumor on the street has it that it’s about to sign deals with American Express, Boeing and GE Motors. Meanwhile, SAP this week said it has at least 10 exchange partnerships to announce by early next year.
In terms of pricing, Narasimha said SAP wasn’t exactly clear about it intends to charge for the service. He said the company was currently evaluating a number of different direct and indirect pricing models which it will use to charge suppliers for the service. Among them are one-off subscription fees to suppliers for entering the exchange, transaction-based fees (where SAP will take a cut of each transaction based on its value and volume) as well as indirect revenues from advertising and service paybacks where additional third parties, such as Fedex, are brought in. To help decide the best way forward, Narasimha said SAP will offer the exchange for free for the first six months.
The aim is to drive growth, he said. But also, we think it’s only possible to charge for something once the value proposition has been made clear. Whatever the outcome for sellers, buyers will be allowed to access the marketplace for free, he sai
d. It’s widely known that SAP is due to announce more of these types of partnerships over the next couple of weeks, although Narasimha refused to give specific details about the plans. He did say SAP would look to form similar vertical market exchanges in its key industries of utilities, consumer packaged goods and aerospace as well as selling the technology to companies and letting them set up and run their own on-line communities.
To that end, he said SAP had also announced a deal yesterday with Neoforma.com, a company which provides business to business e- commerce services for the healthcare market. Under that deal, SAP will provide Neoforma with software and technology to set up what the two say will become a multi-billion dollar healthcare marketplace. SAP will have no say in the management of the exchange and, somewhat confusingly, Narasimha said the software vendor might still consider setting up a rival exchange which SAP itself will host.
In addition, he said SAP will look to start online communities in geographic markets where there might be special linguistic or legal requirements as well as hosting horizontal exchanges for the procurement of non-production goods. Under its mySAP.com initiative, the company effectively launched just that with its mySAP.com workplace; an open marketplace for buyers and sellers of any type of goods. Narasimha said that SAP has now got 2,500 registered suppliers on board as well as 30,000 users accessing the system. The site is currently getting two million hits per day, he said.
