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SAP forms group to focus on business e-commerce

The business software company plans to form a subsidiary focused solely on the company's projects for the business-to-business sector.

Business software company SAP today said it plans to form a subsidiary focused solely on the company's projects for the business-to-business sector.

The new company, called SAPMarkets, will build online marketplaces to facilitate transactions between businesses and their partners or suppliers over the Internet. Interest in e-commerce marketplaces has grown tremendously, as companies turn to the Web to cut purchasing costs and speed transactions.

Initially, SAP plans to invest about $484.3 million in the new firm, which will be based in the technology hotbed of Silicon Valley in California. SAP chief executive Hasso Plattner will head the company until a permanent CEO is announced.

Slated to focus on business both in the United States and abroad, SAPMarkets will open its doors in May. SAP, which employs more than 20,000 workers worldwide, said it has already hired 200 employees to staff the subsidiary and anticipates that number will grow to 400 by next year.

The German software giant's move comes at a time when enterprise resource planning (ERP) software makers, including Oracle, J.D. Edwards and PeopleSoft, have been stepping up their efforts to gain a share of the lucrative business-to-business e-commerce market. Analysts predict the value of the market will surpass the trillion-dollar mark by 2003.

Byron Miller, an industry analyst at Giga Information Group, said SAP's decision to create a separate company focused on creating online marketplaces is a smart one, but could be a risky move as well.

"It certainly has potential for the company to better compete in this space with standalone companies (such as Ariba and CommerceOne)," said Miller. "But, there have been very few commercially successful dot-com strategies so far. A lot of them have been very good in raising awareness for companies and creating a lot of excitement but not very good in creating return."

SAP plans to run its new marketplace independently or in partnerships with companies involved. For the most part, SAP said its using a transaction-based revenues model, meaning it will collect fees per transaction conducted in the marketplace.

Historically, ERP companies made their fortunes selling back office software, such as human resources, supply-chain management and financial applications, to big businesses. Those companies are tackling the transformation to e-commerce as sales of ERP software slow.

Yesterday, J.D. Edwards said it is forming its own business unit focused on building online trading exchanges. Oracle and SAP have been noisier, inking a number of deals to build online marketplaces that serve the automotive, chemical, gas, health and pharmaceutical industries.

PeopleSoft last year formed an online apparel marketplace with clothing designer Guess and software partner Commerce One.

SAPMarkets will be responsible for all of SAP's new and existing online marketplaces. SAP has already inked an alliance with crude oil supplier Statoil to build an online marketplace for the natural fuel industry. Separately, the firm cut a deal with Neoforma.com to create a global exchange for the health care industry.

SAP announced similar plans last year for the chemical and pharmaceutical industries with companies including BASF and health care equipment manufacturer Siemens.