SAP sends Commerce One about its business

NEW YORK, Jan 16 (Reuters) - SAP AG, Europe's biggest software maker, has canceled part of its agreement to sell software jointly with its U.S. partner Commerce One Inc., an SAP executive said on Wednesday

Commerce One stock tumbled 24 percent, or 94 cents, to $2.92 on the Nasdaq, where it was among the biggest percentage losers. SAP shares were down about 2 percent on the New York Stock Exchange.

The decision reflects SAP's increasing separation from Commerce One, analysts said, and follows a published report that quoted SAP executives as saying Commerce One should seek business independent of the partnership.

"We are going to discontinue the joint brand Enterprise Buyer," Gary Fromer, chief strategist of SAP Markets, told Reuters in an interview. Enterprise Buyer is the online procurement software sold by both SAP and Commerce One.

Commerce One Chief Executive Mark Hoffman denied the licensing agreement had been canceled, but said Enterprise Buyer would no longer be sold as a joint product and that both companies had agreed verbally to sell their products independently.

"We couldn't touch base on a combined strategy or on a combined product on the purchasing side," Hoffman told Reuters in a telephone interview on Wednesday.

SAP and Commerce One, a Pleasanton, California-based provider of electronic-commerce software, got together in 2000 to form an alliance to go after the then booming market for business-to-business marketplaces and online procurement.

The companies have since signed about 40 joint customers and Commerce One has become heavily reliant on SAP -- and SAP's customer base of about 17,000 companies -- for its revenues.

Commerce One and SAP, which owns a 20 percent stake in Commerce One, combined their online marketplace efforts into a single offering called MarketSet and agreed to sell jointly each other's online procurement software.

That joint reselling agreement has now been called off, said Fromer, chief strategist of the SAP division set up to target B2B marketplaces.

Enterprise Buyer was a combination of SAP's high-end professional purchasing software -- Enterprise Buyer Professional -- and Commerce One's scaled-down desktop procurement offering, Enterprise Buyer Desktop.

"What's happening is ... the Professional edition is continuing to be developed, sold and maintained by SAP Markets and the Enterprise Buyer Desktop edition will be developed, sold and maintained by Commerce One," Fromer said.

SAP and Commerce One will no longer have the right to resell each other's procurement software, Fromer added.

The joint B2B marketplace product, MarketSet, which makes up the majority of the companies' joint revenues will continue to be sold by both companies, Fromer said.

Break up seen in the cards
Analysts said the decision to end part of the reselling agreement was in the cards for some time.

"There was a huge disagreement over who was going to do what," said Bruce Richardson, an analyst with Boston-based AMR Research. He said a break between the two software companies has been approaching since last year.

"They (Commerce One) knew this was coming ... they should have been out there educating people on why this was no big deal," Richardson added.

Fromer said the decision to call off the joint licensing agreement resulted from a conflict of interest between the sales forces of the two companies.

"I had very intense discussions with Commerce One ... and what we discovered was that both SAP and Commerce One sales forces went after the same customer base," Fromer said.

He said those customers were mostly SAP's existing business software customers in the manufacturing sector.

Commerce One's Hoffman said the decision gave both companies an opportunity to expand its customer base.

"As we pursue the independent strategy, we now have the ability to go after a broader set of customers ... that we couldn't touch based on a combined strategy," Hoffman said.

But Richardson also pointed to more fundamental sticking points.

"SAP wanted to own all the applications and they wanted Commerce One to do all the tough stuff," he said, referring to the underlying technical work involved with getting suppliers and their computer systems linked to B2B marketplaces.

For that reason, Commerce One has been gradually redefining its strategy and building out its own set of software applications, independent of SAP.

In December, Commerce One introduced a new suite of "sourcing" software, which lets companies use the Web to find suppliers and conduct auctions online. That puts Commerce One into direct competition with rivals Ariba Inc. and FreeMarkets Inc.

Then, last week, SAP announced its own supplier sourcing suite, placing the German software group in direct competition with Commerce One and signaling that relations between the partners were far from rosy. The Financial Times Wednesday quoted SAP executives as saying Commerce One should seek business independent of the partnership.