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Technology Stocks : SAP A.G. -- Ignore unavailable to you. Want to Upgrade?

To: MulhollandDrive who wrote (2288)	8/14/1998 3:39:00 PM
From: Barry Grossman	Read Replies (2) \| Respond to of 3424

bp & all, dailynews.yahoo.com Friday August 14 3:07 PM ET Promise of e-commerce hits a wall By Tom Steinert-Threlkeld, ZDNet This marriage was to put a stamp of authenticity on the Web as a viable form of electronic commerce for big business. One parent, Intel Corp., is the world's largest maker of the electronic brains in computing. This company records profit margins of about 20 percent after tax on quarterly revenue of nearly $6 billion. The other parent is SAP AG, the company largely seen as giving birth to the hottest software market of the past decade. This is the so-called enterprise resource planning that ties together everything in an organization -- from human resources to finance to manufacturing to product distribution. SAP may generate only upward of $4 billion in annual sales, but its after-tax profit margin -- 15 percent -- is still stout. SAP's software originally was designed for mainframe computers. But its flagship now is R/3 software that runs on networks of servers and their desktop "clients." And the clientele for R/3 is decidedly blue-chip, with more than 1 million users at 7,000 companies, such as Chevron Corp., Colgate-Palmolive Co., General Motors Corp. and Microsoft Corp. So, last summer when Intel and SAP America Inc. announced the formation of Pandesic LLC, the natural assumption was that the combination would spur development of e-commerce ventures among corporate giants. Intel, after all, had to find ways to generate new uses for its microprocessors or there would be little reasonfor companies to keep upgrading servers and clients. And SAP's lineage clearly indicated more comfort with Fortune 500 companies than the small-fry type. Indeed, only the big guns generally could afford the multimillion-dollar expense of installing R/3 software. But checking in on Pandesic's client roster one year later, there is no Chevron, Colgate-Palmolive or GM to be found. The list is populated by such names as DVD Express Inc., a 16-month-old online seller of digital discs; Kosher Grocer Inc., a two-person shop hoping to sell $1 million worth of religiously correct food over the Net in its first year; and Wild Oats Markets Inc., a Boulder, Colo.-based retailer of health foods. In little more than a year, Pandesic has found itself repeatedly befuddled on the issue that plagues many would-be kings of e-commerce: How do you create a business model that works where none existed before? Early on, recalls Forrester Research Inc. analyst Stacie McCullough, Pandesic made noise about being a "community of commerce'' company. The idea: Take all the manufacturers, suppliers and distributors in an industry, put them together, create online standards and make the Web their next marketplace. Sounds a bit like Nets Inc., the Jim Manzi-led industrial networking venture that failed at just about the time Intel and SAP were getting together, doesn't it? The next strategy was to focus on SAP's natural ally: the large corporation. In theory, the path of least resistance would seem to lie with customers of R/3, which would then just extend their operations to the Web. But Pandesic Vice President of Sales and Marketing Catherine Yetts says it wasn't a simple task to break apart pieces of Pandesic's software and mix them into a company's existing soup of manufacturing and distribution software. When Pandesic realized that what it really had to sell was a complete set of software for Web commerce and internal operations, the ambition had to change. Indeed, ambitions had to be lowered, which may have played a role in the spring departure of President Bryan Plug. Now, Pandesic is focused on companies with annual revenue of between $10 million and $100 million. These are the organizations in a position to start from scratch -- from the storefront they put on the Web, to the back-office operations that fulfill orders. This is the "virtual company" marketplace. And it's more consumer-oriented than Pandesic probably had planned. So don't look for Pandesic to go public anytime soon. Although investors seem to applaud money-losing Net ventures, it will be a long march before Pandesic approaches either the top-line or bottom-line success of either of its parents. In the Kosher Grocer and Wild Oats deals, for instance, Pandesic pockets only $25,000 up front. The rest is on the come, with Pandesic taking 1 percent to 6 percent of sales. One percent of Wild Oats' $311 million in annual revenue would be a respectable $3 million. But 6 percent of Kosher Grocer's $1 million is only $60,000. No one in a 110-person company like Pandesic is going to get rich quick on those kinds of deals. The trick will be to show there are enough "virtual companies" to warrant such effort -- before Pandesic itself and its idea of one-stop integration of e-commerce and business operations virtually vanishes. ------------------- Barry