Hoping to capture a piece of the rapidly-growing price management application software market before it's too late, SAP AG today announced a rare partnership in which it will sell and support software created by a small Silicon Valley developer, Vendavo Inc. The deal means that SAP intends to make the Vendavo product its exclusive price management software across several vertical industries, including chemicals, high tech manufacturing and oil and gas, according to Chris Rooney, CRM business development principal with SAP. The Vendavo software will be sold by SAP as SAP Price and Margin Management by Vendavo. As part of the agreement, Rooney said, SAP is developing deeper integration between Vendavo's software and SAP's various enterprise applications. Prior to the new agreement, Vendavo was already a "Powered by SAP NetWeaver" partner, meaning the company had built several of SAP's NetWeaver services-oriented architecture infrastructure products into its own solution. Vendavo, for example, currently uses SAP's Application Server, Business Intelligence, Enterprise Portal and Exchange Infrastructure NetWeaver technologies to integrate its applications, primarily with SAP's Sales and Distribution module. SAP and Vendavo plan to integrate the Vendavo product more extensively with SAP's enterprise application suite The plan, said Rooney, is to enable Vendavo to, for example, pull product and cost data from SAP's master data management modules and, after pricing has been established on a given deal, seamlessly integrate that information into SAP's order-to-cash execution processes. SAP also plans to integrate Vendavo with its CRM modules to allow manufacturers to create and execute custom pricing based on a specific customer's purchase history or strategic importance, said Rooney. SAP is currently developing industry-specific business process scenarios that will define exactly how the integration will take place. SAP began to seriously consider how it would enter the price management software market about a year ago as increasing numbers of its customers began pushing for a solution, said Rooney. "We began to see that price management was turning into a compelling problem and a process that was going to be adopted across manufacturing." In fact, AMR Research Inc. (Boston) has projected that the market for price management software will grow at a 45% annual rate over the next five years. Most vendors in the space today are small companies. Vendavo, a privately-owned company based in Palo Alto, CA, currently claims about 20 customers and has said its 2005 sales will be double what it generated in 2004. About two-thirds of its customers use SAP enterprise applications, said Vendavo Vice President of Marketing Rafael Gonzalez Caloni. Major shared customers include BP Petrochemicals, Georgia-Pacific Corp., Hexion Specialty Chemicals Inc. and Eastman Chemical Co. Besides Vendavo, other software vendors currently addressing the price and margin management market include Rapt Inc. (San Francisco), Zilliant Inc. (Austin, TX) and Metreo Inc. (Palo Alto, CA). Intense competition in most manufacturing industries as well as an increasing focus on profitability are pushing many companies to automate the management of price lists, product profitability analysis and the quoting of prices to specific customers, said Rooney. "At this point, most manufacturing companies are not getting any relief from the equity markets based on their ability to grow top line revenues," said Rooney. "The focus is on growing margins. Manufacturers must deliver on their margin plans." Rooney said SAP did consider developing its own price management solution, but the company concluded that it might not have the internal expertise necessary to deliver such a product quickly. "This is a timely problem, and we couldn't wait to do something two or three years down the line," said Rooney. SAP considered a number of potential price management software partners, said Rooney. The company evaluated Vendavo and others based on their financial viability, their support for NetWeaver and their product architectures, particularly their ability to expose services in such a way that would fit with SAP's Enterprise Services Architecture. "For SAP there is a risk of getting involved with something like this," said Rooney. "We had to have a discussion with our customers and do a technology review." Under the deal, SAP will collect license and maintenance revenues and deliver support through its traditional support channels. Such a reseller deal is unusual for SAP. In March, the company announced a similar arrangement with Virsa Inc. (Fremont, CA), a maker of Sarbanes-Oxley compliance software. But that and the Vendavo deal are the only other major, cross-industry reseller deals on SAP's books, according to a company spokeswoman. SAP has been actively evaluating investment opportunities in software development companies to help build a bustling NetWeaver ecosystem but its deal with Vendavo did not include equity financing, said Rooney.