SAP and the Online Procurement Market

This business case study describes the efforts of the German software giant SAP AG in late 1999 to extend its business beyond its core market for enterprise resource planning (ERP) applications. Faced with a slowing growth rate in the demand for ERP software, SAP was trying to enter the market for inter-enterprise applications, including online-procurement software and services. These solutions were designed to enable businesses to purchase indirect goods and services over the Internet-a potentially enormous business-to-business e-commerce market. Several young companies had already taken leading positions in that space, including high-fliers Ariba and Commerce One. Each of these firms, however, had secured only a few dozen customers, and each had revenues that were only tiny fraction of SAP’s. By contrast, SAP had an installed base of more than 12,000 customers that used its ERP applications. SAP had developed procurement software that integrated with its ERP systems, and had created an Internet-based marketplace called mySAP.com Marketplace to enable business-to-business electronic commerce. The case describes Ariba’s and Commerce One’s product offerings and strategies in the online procurement market; readers can compare and contrast the competitive advantages and disadvantages of all three companies as they vie for this market. In addition, the case provides background information on the ERP industry in 1999 and on the role of ERP systems in large organizations. It also describes the emerging online procurement opportunity and why it is a potentially attractive market. This information sets the context for examining SAP’s strategic logic in venturing beyond its core market into business-to-business e-commerce.