On the Opportunities and Threats of e-Marketplaces

1. On the Opportunities and Threats of e-Marketplaces Dr. Bernd-Uwe Pagel SVP Marketplaces SAP AG

2. E-Marketplaces @ SAP The Evolution of B2B Networks Software Provisioning vs. Service Provisioning Summary Agenda

3. E-Marketplaces @ SAP The Evolution of B2B Networks Software Provisioning vs. Service Provisioning Summary Agenda

4. SAP has 2,5 Years History ine-Marketplace Business Delivery of three versions of MarketSet, the joint solution of SAP Markets and Commerce One SAP becomes a member of the GTWA Reintegration of SAP Markets into SAP and Foundation of the Business Unit Marketplaces Foundation of SAP Markets, an SAP subsidiary to develop and market solutions for e-Marketplaces Announce-ment of the partnership between SAP Markets and Commerce One March 2000 June 2000 Fall 2000 -Spring 2002 April 2002 Today

5. SAP has Achieved a Strong Market Share

6. SAP Stays Committed • e-Marketplaces will play a substantial role in the business strategy of SAP customers • e-Marketplaces requires different engagements compared to the classical software business • SAP has established a separate Business Unit focussing on e-Marketplaces only • Customer care and partner management • Solution development and support • Knowledge and skill sharing across all SAP e-Marketplaces and their participants • Joint business development w/ successful customers

7. Key Success Factors of e-Marketplaces Quick decision-making and little politics on Board level Experienced, industry-networked management team with strong backing of investors A value proposition which is sustainable andattractive for ALL Marketplace participants Technology partnerships with long-term perspective and sufficient inhouse skills Simple services and a focused offering, not “everything for all” Governance Execution Business Model Reliability Focus

8. E-Marketplaces @ SAP The Evolution of B2B Networks Software Provisioning vs. Service Provisioning Summary Agenda

9. SAP Believes in Open B2B Networks and Supports their Evolution • Build an open community of Exchanges • Interoperability governed by SLAs and contracts • Pooling of Services to lower cost • Faster ramp-up of ww transaction volume • Deliver additional values to participants • Accelerating global roll-out of on-ramp solutions (e.g., e-Procurement, Private Exchanges) • Enabling a global consolidation of the supplier base • Cost-efficient offering of value-addedservices (e.g., SupplierIntegration and Activation, Content Services) • Supporting global sourcing efforts (e.g.,Global Spend Reporting)

10. Portals and Exchanges are Complementary • Company-internal end-userinformation Service • User Interface canconsolidate visibility andaccessibility of internalsystems • Collaboration Services betweeninternal operational companyunits • Process Integration Enablement(e.g., master data harmonization) Private Privacy • Community Knowledge and Content • Intercompany ConnectivityServices (e.g., Document Routing,Mapping, Roundtrip Procurement) • Value Added Services (e.g. ASP, Sourcing, Financial andLogistics Services) Public Portal Exchange IntegrationIntensity ProcessIntegration InformationIntegration

11. Nature of Services and Complexity of the Eco-system are Controlling the Deployment Options Unique Private Nature of Service Public & Private (Scope, connectivity, complexity, cross-industry,strategic importance) eAEC Complex Relationships,Direct Procurement Public Shell GIG Complex Corporation,Catalogue Procurement Standardized Products,Catalogue Procurement Standardized high low Complexity of Ecosystem (External business partner relationships, product structure, corporation structure)

12. Service Catagories Public Private Horizontal e-MP Vertical e-MP PrivateExchange Supply Chain Event Management    SCEM& Logistics Logistics & Transportation Services    Settlement, Payment & Clearinghouse Financials    Sourcing & RFx/Auctions (Non-strategic)    SRM Procurement (Indirect / Non-strategic)    Sourcing & RFx Services (Direct / Strategic)    Procurement (Direct / Strategic)    CollaborativeBusiness Applications PLM Asset Maintenance & Management    Collaborative Design & Engineering    Collaborative Project Management    Supply Chain Collaboration (e.g. CPFR) SCM    Order Fulfilment    ContentMgmt Catalogs & Content Services (Non-strategic)    Catalogs & Content Services (Strategic)    Community Content & Industry Registry    Customer Service and Support CRM    eAnalytics (Performance Monitoring+Reporting)    BI B2B Transactional Integration/Mapping Services    Middle- ware B2B Document Routing & Security Services    B2B EDI VAN Replacement & Registry Services    IT Integration Source: PwC Research and Ascet, 2002. Creating B2B Portfolios Content & DataManagement

13. Public Private Horizontal e-MP Vertical e-MP PrivateExchange                                                             Current Sweet Spots of e-Marketplaces Service Catagories Supply Chain Event Management SCEMLogistics ProcessStandardization& Optimization Logistics & Transportation Services Settlement, Payment & Clearinghouse Financials Sourcing & RFx/Auctions (Non-strategic) SRM Procurement (Indirect / Non-strategic) Process& Opera-tionsStandard-ization Sourcing & RFx Services (Direct / Strategic) Procurement (Direct / Strategic) CollaborativeBusiness Applications PLM Asset Maintenance & Management Collaborative Design & Engineering Collaborative Project Management Supply Chain Collaboration (e.g. CPFR) SCM Order Fulfilment ContentStandardization& Aggregation ContentMgmt Catalogs & Content Services (Non-strategic) Catalogs & Content Services (Strategic) Community Content & Industry Registry Content & DataManagement Customer Service and Support CRM eAnalytics (Performance Monitoring+Reporting) BI ConnectivityStandardization B2B Transactional Integration/Mapping Services Middle-ware B2B Document Routing & Security Services B2B EDI VAN Replacement & Registry Services IT Integration Source: PwC Research and Ascet, 2002.

14. Interoperability Between e-Marketplaces and Private Exchangesis Generating Business Unique eAEC Private Shared Services/ Technical platform Nature of Service (Scope, connectivity, complexity, cross-industry,strategic importance) Shell Private Public Supplier Gateway/Content Management Services Standardized high low Complexity of Ecosystem (External business partner relationships, product structure, corporation structure)

15. eAECglobal – Private Areas on a Public Platform Subcontractor Supplier Supplier Supplier Supplier Public Exchange (AECglobal’s Procira) Supplier Portals eProcurement & Collaborative Projects: MulticompanyExchange eProcurement & Collaborative Projects: Private Exchanges „Shared Applications“ eProcurement & Collaborative Project Private Exchange Skanska Hochtief

16. Supplier B Supplier C Supplier A Supplier x Objectives >1000 suppliers worldwide • Reduction of content management cost • Industry-wide content • standardization • Supplier connectivity TradeRanger Shell Private Exchange MarketSet 5 business areas > 130 countries > 90.000 employees • Global spend visibility • Process integrationwith back-end systems • Harmonization of material and supplier master data ... EBP Non- SAP EBP EBP EBP Operating Unit 1 Operating Unit 2 Operating Unit 3 Operating Unit n Shell– Enabling a Complex Coorporation to Transact High Volumes on an e-Marketplace

17. Public Private Horizontal e-MP Vertical e-MP PrivateExchange    SCEMLogistics       Financials    SRM             PLM          SCM       ContentMgmt          CRM    BI    Middle-ware       Future Sweet Spots of e-Marketplaces Web Services technology eases integrationof e-Marketplace services into corporateprocesses and drives standardization ProcessStandardization& Optimization + More processes become standardized - Strong competition by hosting and outsourcing providers Process& Opera-tionsStandard-ization + Content standardization, aggregation, distribution, and maintenance are key- Suppliers self-manage their catalogs ContentStandardization& Aggregation < Web Service technology reduces cost ofB2B connectivity; e-Marketplaces offermapping services and process consulting ConnectivityStandardization

18. E-Marketplaces @ SAP The Evolution of B2B Networks Software Provisioning vs. Service Provisioning Summary Agenda

19. To Unterstand this modelis crucial for every e-MP doingbusiness with a std sw vendor! The Standard Software Model (1) • License revenues are the health indicator of a sw vendor • Mirror the actual value of the SW (flat fee + usage fee) • Have to refund initial CODev and cover COS • Revenue and cost not proportional (one time development cost; neglectable production cost; the higher and more tangible the value, the lower the COS) • Drive multiple follow-on revenues (maintenance, ProServ) • Maintenance rev provide a predictable recurring rev stream • Follow license revenue pattern with delay • Balance out seasonal und economic rev variation • Retain value of sold software • Have to cover cost of support and further development

20. The Standard Software Model (2) • ProServ provisioning mandatory for vendor • Assure quality of implementation and customer satisfaction • Unlock value of SW and drive usage revenues as well as up- and cross-sales • Revenues proportional to cost • COS have to follow deal size • Direct sales to „Fortune 10,000“ • Channel sales to SMB via partners who cross-sell complemen-tary (!) products & services • Market potential has to justify initial investment!

21. Public Private Horizontal e-MP Vertical e-MP PrivateExchange    Content Management &Data Warehousing tools EAI / B2B IntegrationPlatform SCEMLogistics       Financials    SRM             PLM          SCM       ContentMgmt          CRM    BI    Middle-ware       Future Sweet Spots of Std SW Vendors Low number of surviving e-Marketplacesand revenue potential only in some caseswill match the business model requirementsof large standard sw vendors E-Market-placespecificservices Collabora-tive applica-tions& tools Revenue potential for behind-firewallsolutions much bigger due to strategicnature of solutions (value) and # sellablecopies; several applications and tools willbe deployable on e-Marketplaces as well < Content tools and core exchange technologywill be suitable for e-Marketplaces as well ascorporate customers; market for preintegra-ted generic mp-specific services and contentdepends on # of remaining mps

22. E-Marketplaces are Responsible for their Solutions – No Software Vendor can be! • There will be no out-of-the-box marketplace solution • Select a reliable vendor for platform services • Select a strategic vendor for application services and tools to keep integration cost low, but do not expect extra flexibility and focus from this vendor • Shop, customize, or build missing functionality, but watch TCO and ROI carefully • e-Marketplaces need technology and integration expertise • to blueprint the solution required to do business • to select vendors and consultants • to oversee implementation and operate/maintain the solution, but must not become tech shops!

23. For solution detailsplease see appendix Coll. Apps Suited for e-MP Deployment • SRM: Central Supplier Directory • Self-service registration of suppliers and assignment to product catagories; questionnaire-based search functionality • Consolidated view on corporate-wide supply base • Extended and monitored supplier community through mp-deployment • PLM: Project Collaboration • Project, document & folder management • Communication channel consolidation and better project controlling • “Pay by project” cost advantage through mp deployment • SCM: Collaborative Inventory Management • Visualization of inventory status • Reduced inventory stock (manufact.) resp. out-of-stock rate (CPG) • Complete view (all materials, all suppliers, all customers) through mp deployment

24. Relationships between SW Vendors and e-Marketplaces are Manifold • Supplier-customer relationship • E-Marketplace buys solutions of sw vendor; operationsof this sw has no adverse affect on other business of sw vendor (e.g., platform technology, content tools like Central Supplier Dir.) • E-Marketplaces as partner for value-added services • E-Marketplace complements „on-ramp“ solutions ofthe sw vendor and gets access to his customer base (e.g., connectivity services, industry content) • E-Marketplace as channel partner • E-Marketplace resells sw solutions into its community(e.g., on-ramps for SMB like SAP BusinessOne) • E-Marketplace offers solutions of the sw vendor as ASP (e.g., Project Collaboration, Coll. Inventory Mgmt., eProc.) Uncritical No competitionelsewhere! Needs synchronized sales strategy and ops

25. ASP Partnerships Require Alignment of Business Cases, Trust, and „Creativity“ • Careful segmentation of the target market to avoid channel conflicts • End-customer buys sw license from sw vendor and can freely chose whether to access a hosted version on a MP (for add‘l service fee) or a Private Exchange deployment • Differentiation between a lightweight version for e-Marketplace ASP (less integration, less functionality) and a full-fledged version for Private Exchange deployment • Solution hosted on e-Marketplace is only used temporarily until inhouse impl. is ready in order to reach a quicker ROI • ...

26. E-Marketplaces @ SAP Evolution of B2B Networks Software Provisioning vs. Service Provisioning Summary Agenda

27. Summary – SAP stays committed! • e-Marketplaces will play a significant role in the ecosystem and therefore also in the business strategy of SAP customers • SAP remains a committed software partner for e-Marketplaces and will provide new services, but cannot take full responsibility for the technical evolution of a marketplace • SAP is open to discuss all kinds of business partnerships • SAP has established a separate Business Unit responsible for SAP‘sworldwide marketplace acitivites and central point of contact

28. Questions?

29. Appendix

30. SAP Central Supplier Directory (SRM) – Selected Features • Supplier • self-service functionality for registrationand data maintenance • Flexible introduction of new supplier attributes • Supplier relationships • Products • Assignment of suppliers to product categories • Questionnaires by category • Buyer • Private data areas for buying organizations to capture specific supplier information • Advanced search functionalities byquestionnaires • Supplier evaluation based on questionnaires

31. SAP Central Supplier Directory (SRM) – Value Proposition • If deployed on a Private Exchange • Consolidated view on corporate supply base • Process improvements • Supplier evaluation and selection (e.g., RFI) • Spend and performance analysis • Supplier monitoring • Supplier data maintenance through self-service • If deployed on a Public Marketplace (in addition) • Access to worldwide supplier information • Ongoing monitoring of the supplier market • Sales tool for suppliers

32. SAP Project Collaboration (PLM) – Selected Features • Overall Project Modelling • Virtual teams • Role-based authorization concept • Definition of communication channels • Tracking and archiving of user contributions • Notification mechanisms for users • Document and Folder Management • Versioning • Hierarchical structures/multiple views • Various content types (documents, discussions,datasheets, bookmarks, notes) • User-dependent definition of folder areas • Markup and Redlining • WebEX integration

33. SAP Project Collaboration (PLM) – Value Proposition • If deployed on a Private Exchange • Consolidated communication channels • Process improvements • Well-defined roles and communication mechanisms • Consistent and traceable access and exchange of documents • Project progress controlling • If deployed on a Public Marketplace (in addition) • Operational cost advantages through ASP(„Pay per project“) • No upfront investments and immediate benefits (faster ROI) • Neutral administrator of cross-company projects

34. SAP Coll. Inventory Mgmt (SCM) –Selected Features • Visualization of inventory status and predefined industry-standard replenishment processes • Enterprise-internal inventory visibility • Supplier Managed Inventory (SMI) indiscrete industries • Visibility into inventories of contractmanufacturers (High-Tech and Automotive) • Visibility into distribution centers (all industries) • Distributors offering visibility to theircustomers (Service) • Customizable alerts • Depending on quantity, percentages, or trends • Multiple delivery methods (e-mail, pager, WSDL) • ASN responds from suppliers via browser or Web Service

35. SAP Coll. Inventory Mgmt (SCM) – Value Proposition • If deployed on a Private Exchange • Reduced stock (discrete industries) • Reduced capital consumption risk • Reduced capital cost • Reduced inventory cost • Increased accuracy of production schedules and steady utilization (less overtime) on supplier side • Reduced out-of-stock rate (CPG/Retail) • If deployed on a Public Marketplace (in addition) • Minimized connectivity cost through hub concept • Availability of consolidated data about all inventory-managed commodities of the participants • Additional services to provide complete and personalized views for the individual agent (by commodity, by supplier, by customer)