SAP Gives Up, Declares Victory. Again.

Event Summary

SAP AG and Commerce One are joining together to build what SAP wasn't able to build alone: the mySAP.com business suite. Widely perceived as lagging behind in the development of the marketplace capabilities that were an essential part of the image of mySAP, SAP has now solved its problem by bringing Commerce One, a leader in the deployment of e-procurement marketplaces, into the picture.

Commerce One operates a global network of marketplaces called the Global Trading Web; most of the individual regional marketplaces outside the U.S. that comprise it are jointly owned with large local companies. The regional marketplaces in turn bring together individual company-based or vertical marketplaces. Commerce One also sells the software that allows individual companies to build their own marketplaces. In the long run, Commerce One hopes to garner a significant portion of its revenues from transaction fees. (See Commerce One: Everything But Profits)

The arrangement with SAP will certainly help Commerce One achieve its revenue objectives, as SAP itself is expected by both parties to join the Global Trading Web. It was not explained why this was not settled in time for the announcement; we'd guess that SAP wants some kind of preferential pricing, and will probably get it. In addition, it is inevitable that many of the trading exchanges built with Commerce One's tools under mySAP will also join the Global Trading Web.

A third partner in the deal is SAP's Silicon Valley subsidiary SAPMarkets Inc. SAPMarkets will be responsible for the bulk of the effort required to integrate the mySAP applications with those offered by Commerce One. As part of this integration SAP will teach its own application interfaces to speak Commerce One's version of XML.

This announcement marks the second time that SAP has gone out of house recently to add capabilities to mySAP. In May the company announced that it would integrate customer relations management software from the Clarify unit of Nortel Networks (see SAP Gives in to CRM (Part Time) Matrimony ).

The two companies will share royalties during the three years that the agreement is in force. Revenues will be derived from both software licenses and transaction fees. In addition, SAP will contribute $250 million by purchasing Commerce One stock; this is a drop in the bucket of Commerce One's $7.9 billion market capitalization.

Commerce One had earlier taken steps that might have led to a similar partnership with SAP's rival PeopleSoft (see Commerce One Goes High, Wide and PeopleSoft). Perhaps only coincidentally, the week before SAP and Commerce One made their announcement at SAP's Sapphire 2000 user conference, PeopleSoft intended to sell 1.2 million shares of Commerce One. Commerce One assured TEC that the technical and marketing arrangements with PeopleSoft are still in place.

Market Impact

Both SAP and Commerce One can smile from ear to ear (or, from "e-" to "e-"). Commerce One gets access to SAP's 13,000 existing customer base and to the leverage of its mySAP efforts, including SAP's help in reaching 22 industries in which SAP has expertise. Best of all, it doesn't seem to have to do much that it wouldn't do anyway. In theory SAPMarkets will do the heavy lifting of the integration, and the combined solution will be sold by SAP's notably assertive sales force.

SAP, of course, has a chance to put content behind its extensive advertising campaign for mySAP. The companies would like us to think of this as the creation of a Yuppie automobile. In their words, "Commerce One + SAP Markets = very fast car. SAP = high performance fuel & stable engine."

We think of it more in terms of the classic Rock Hudson and Doris Day movie Send Me No Flowers, in which Rock is an advertising agent who creates a giant campaign for a product that doesn't exist, even as a concept, and Doris is a rival who brings him up on ethics charges before the "Advertising Board." In the end, a product magically appears in the nick of time and well, who are we to spoil the predictable ending.

In the case of SAP and Commerce One the ending may not be quite as totally predictable, but it is hard to see it ending as a tragedy. Certainly, both mySAP and the ASP market in general gain a lot of credibility from this announcement - not that SAP needed it in its traditional markets but, as the company has discovered, the Internet is a different world. Today, it seems to be one that SAP may own a large piece of.

Some analysts have predicted that dot-com retail companies will be absorbed or eclipsed by the larger bricks-and-mortar dinosaurs. This partnership, like the one that Ariba and i2 made with IBM (see B2Big Deal for IBM, Ariba, and i2) suggests that the B2B world will be less about predation than symbiosis, and may suggest a similar model to the B2C analysts.

User Recommendations

The reason this partnership looks good is because it makes sense for current and potential customers of both companies. Because the possible advantages are obvious, we think it important to issue some cautions. First, the combined offering does not exist; it will be "rolled out on a phased basis, beginning immediately." Second, SAP software has been historically difficult to integrate with. This difficulty exists both at the level that Commerce One will be working and at the level that you will need to work to make SAP's products work with your existing systems.

On the other hand, the makers of e-procurement and market infrastructure software have always known that it was their job to learn how to work with the leading ERP systems, especially SAP's. So while each of the products is a proven winner and there will potentially be convenience in working with this new offering, even existing customers of one of these vendors should evaluate a number of vendors for future software rentals or purchases. It could turn out that there's a better match for you with no increase in integration pain.