SAP is making online marketplaces a focus of a multifaceted E-business initiative called mySAP.com. Last week, it unveiled an online exchange for oil and gas companies, managed in partnership with Norwegian petroleum company Statoil. Since September, SAP has announced plans for three other electronic marketplaces-for the chemical and pharmaceutical industries, the health-care equipment market, and general business services and supplies.

SAP also revealed last month that it will sell its marketplace software to customers that want to own and operate their own marketplaces. The product, to be released in the third quarter, lets sellers set up product directories that buyers can browse, and handles purchases electronically, routing transaction information to buyers and sellers. Support for request-for-proposals and auctions is in the works.

SAP won't say how many marketplaces it plans to introduce this year, or in which industries-but automotive, aerospace, and construction are likely targets, given SAP's strong presence in those sectors. "This is at the top of our list," says SAP America president Chris Larsen. "You'll see SAP get very aggressive in vertical industry exchanges this year."

But SAP is lags specialists such as Ariba Inc. and Commerce One Inc., which have been developing marketplaces for nearly a year. In November, two of SAP's top U.S. customers-General Motors Corp. and Ford Motor Co.-teamed with Commerce One and Oracle, respectively, to create separate automotive trading exchanges on the Web. And a day after SAP launched its oil and gas marketplace, Ariba unveiled an alliance with Chevron Corp. to create a similar exchange. Both deals come on the heels of an E-marketplace partnership between Commerce One and Royal Dutch/Shell Group earlier this month.

SAP says its knowledge of vertical industries, experience at back-end integration, and 12,000 business customers give it a competitive advantage. For the oil and gas exchange, SAP will provide the data management, business-process automation, and integration, and host the marketplace. Statoil will bring many of its suppliers to the marketplace.

SAP customer Elf Atochem, a French chemicals producer, is evaluating several marketplaces for the chemicals industry, including SAP's. Says Robert Rubin, CIO of Elf Atochem North America in Philadelphia, "With chemicals, you must have material safety-data sheets for every country you ship to. It's not like shipping a fountain pen." That said, SAP's vertical-industry expertise could be a plus, he says.

To play to its strength, SAP America recently reorganized its marketing, sales, and development teams around seven key sectors-process manufacturing (including chemicals and pharmaceuticals), discrete manufacturing (including electronics and automotive), financial services, service industries, consumer products, public sector/education, and human resources-to tailor mySAP.com products and services to the requirements of each market. Larsen says "getting our team educated and aligned" is a major priority.

Still, SAP has been slow in bringing at least one important E-business application to market. The vendor said in May that it planned to create a Web portal as an entry point to its suite of ERP applications. It just began shipping the product, mySAP.com Workplace, to the first 50 customers last month. "The size of the company makes development a challenge," says Kevin McDonald, a former SAP product manager involved in the early development of Workplace.

SAP promises to move more quickly with its marketplaces. For its chemicals and pharmaceutical marketplace, unveiled in December, it has signed up several major European chemical suppliers and purchasers, including BASF, Bayer, and Siemens. The exchange is slated to go live in the second quarter.

SAP has one marketplace up and running: mySAP.com Marketplace, a general business-to-business site for office supplies and services that went live in October. SAP claims more than 3,000 companies as participants, including large companies such as Compaq, Hewlett-Packard, and W.W. Grainger. The marketplace is open to anyone who wants to register and participate as a buyer or seller; 40,000 individual users have registered.

SAP won't disclose the level of trading activity on the site, and says it isn't charging users yet. One partner says SAP has a well-defined pricing structure for the marketplace, including a registration fee, a transaction fee, and additional licensing fees for SAP users. But SAP is letting companies register on www.mySAP.com free for the first half of the year. When SAP does charge for the use of the site, it says, sellers will be able to choose to pay a fee based on a percentage of the transaction volume, a flat fee per transaction, or a monthly or yearly subscription fee. That model is similar to the vertical marketplaces in which SAP is joint owner and operator.

Haht Software Inc., a mySAP.com partner, is working with 10 companies registered on mySAP.com Market to integrate their business systems with the site. The integration is key for enabling what SAP calls "one-step business," designed to let users browse a business directory, then execute an order electronically and have the system route orders, invoices, and confirmations electronically to parties on both sides of the transaction. A source at Haht says few registered companies have completed the integration, so transaction volume is light, and support for online auctions and request-for-quotes is still in development.

SAP struggled to boost revenue for most of last year due to a weak market for ERP systems and its inability to offer competitive front-office applications. But this week, the company is expected to report strong fourth-quarter revenue and earnings due to a 40% increase in software license revenue over the last quarter of 1998. SAP attributes the growth to the popularity of its broad mySAP.com initiative. "It created opportunities in our installed base where there were none before," says Larsen.

Observers are skeptical. There has been general confusion about exactly what mySAP.com is (see story, below). SAP's two key products under the mySAP.com banner-mySAP.com Workplace and mySAP.com Marketplace-have just been launched.

Some analysts attribute the strong fourth quarter to rekindled demand for SAP's core ERP products. Others say SAP is making money by converting contracts with existing customers to mySAP.com contracts, which typically require customers to pay a premium in exchange for giving more users access to new and previously installed SAP applications.

"SAP went back to its customers to get them to move to the new model," says Benchmarking Partners analyst David Dobrin. "I helped some customers through it. There was an effort to convert people and get revenue up in the fourth quarter."

SAP has a large ERP customer base, but that doesn't guarantee sales of its portal, procurement, and other E-business apps under the mySAP.com banner. Sports apparel retailer Reebok Corp. is looking at the business-intelligence and supply-chain apps under mySAP.com as it continues to roll out its SAP ERP package. "If all things are equal, I'll go to SAP before a third party for the integration," says CIO Peter Burrows. "But if they don't measure up, you go with the best solution. There's no automatic-SAP has to compete for my business."

And that's where SAP's trouble has been; it has failed to offer E-business applications with as much functionality as competitors' products. Apparel maker VF Corp., an SAP customer, evaluated its Business-to-Business Procurement product, which SAP considers a key mySAP.com component, but had concerns about its maturity. "We'd like to go to one vendor for everything, but the reality is different vendors have different strengths and come out with products at different times," says John Davis, VP of business systems, who didn't buy the software.

Some customers say they are frustrated by the lack of a clear E-business message from SAP. Westell Technologies Inc., a telecommunications equipment manufacturer in Aurora, Ill., wants to link its business systems to those of its suppliers and partners. "I'm not clear they're doing that yet," says CIO Brian Marshall. "We're still figuring out what SAP does in the business-to-business space. I have a hard time finding people at SAP who can talk to me about it."

But Marshall is keeping an open mind because of SAP's ability to integrate marketplace software and other E-business apps with its core ERP systems. Says Marshall, "We're willing to give up a little sex and sizzle on the front end for integration on the back end."

With additional reporting by Clinton Wilder