Why do corporate software makers want portals?

As enterprise resource planning companies press ahead with plans to establish Yahoo-like sites for their markets, analysts are still scratching their heads and wondering what these business software makers are trying to accomplish.

Most of the major so-called enterprise resource planning companies--including SAP and PeopleSoft--have embarked on some sort of portal strategy to provide a one-stop Web-based location for features such as ordering from an online catalog, scheduling corporate meetings internally, and communicating with suppliers. And for third-party partners, these portals offer exposure to a ready and willing base of potential customers--in theory, anyway.

Building portal sites is an attempt by these software companies to parlay their well-heeled corporate customers into additional revenues by giving other software companies, e-commerce sites, and businesses a potential fish-in-a-barrel scenario for selling their wares.

But in the rush to cash in among enterprise resource planning makers, which are facing decreasing demand for their core products, one problem has emerged: "[The portal plans] don't make a lot of sense," said Joshua Greenbaum, an analyst with Enterprise Applications Consulting in Berkeley, California. "I don't see how these ERP vendors expect to capture revenue or bring in new people" through these portals.

And the existing customers of even the largest of enterprise resource planning sellers don't represent a wide enough pool to generate significant sales of third-party services, said Greenbaum, who is preparing a report on the subject.

Early indications seem to support some of Greenbaum's criticisms. This week, PeopleSoft said it was reworking its PeopleSoft Business Network (PSBN) plan, announced with much fanfare last fall as the cornerstone of the company's long-awaited Internet strategy. While PeopleSoft doesn't admit to any failure in the plan, it is clear that the company is still searching for a winning formula.

PeopleSoft's decision to revamp its portal strategy underscores the volatile nature of the new market that most big enterprise resource planning players have entered, one that analysts wonder whether they should have jumped into at all.

All the major players in this market are testing the e-commerce waters in one form or another, scrambling to expand their business beyond their customers' walls. The goal, through partnerships and the building of new applications, like portals, is to link front-office Web-based sales applications--including catalogs, purchase orders, and online approvals--to back-end accounts receivable, shipping, and receiving applications.

Like PeopleSoft, only two other companies--SAP and Oracle--have a portal strategy in place, while Dutch firm Baan has opted out of the business.

mySAP.com, SAP's portal, which employees can use through SAP's new "Enjoy SAP" graphical user interface, serves as a marketplace for customized third-party content, including personalized news and travel information for job market opportunities.

Although it has not yet rolled out an official portal strategy, Oracle said it provided a portal-like service with release 11 of its ERP software, in which it includes a Web interface that is customizable, where users can add links to third-party offerings and Oracle services according to their needs.

"We see the enterprise portal as being a central location where a user can access information and an integration of applications and data," said Paula Lubet, senior director of business strategy.

Jan Reinhart, business developer for mySAP.com, said SAP should integrate side services as well as integrate with applications.

But this is where analysts see a possible pitfall.

Greenbaum questions whether enterprise resource planning vendors have enough of a market to make a portal strategy viable. "If you look 12 months from now, you could sell it to 15 or 20 percent of the customer base maximum. Is this really an ERP vendor's model? Selling advertising space? The business model doesn't hold water."

Reinhart said SAP expects its portal to make some revenue through ad banners and through royalties collected through third-parties who pitch their services on SAP's portal.

Greenbaum estimates that five enterprise resource planning portals will be competing for the same space.

In all, he believes that there isn't enough opportunity for ad sales and other revenues.

"Let's say you are an online travel service and finance service. And SAP Oracle and PeopleSoft are all courting you to be on the Web site. Guess who's in the catbird seat? The ERP vendors need travel.com more than [the other way around]," he said