March 21, 2000 9:20 AM PST

Compaq, HP, IBM vie for e-commerce niche

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Big server hardware makers are jockeying for e-commerce customers in a major way, with Compaq Computer and HP today announcing major programs and IBM planning a similar move next week.

While the three manufacturers take different approaches, they are planning similar services: bankrolling start-ups and e-commerce firms through a combination of discounted products, product financing and joint-marketing help.

The plans are hardly altruistic. HP, Compaq and IBM, along with Sun Microsystems, are investing in their own futures in essence by helping booming e-commerce operations--which have quickly grown into some of their best customers--to buy more servers.

HP has turned its sights on Internet start-ups, putting aside $1.5 billion for financing and discounts aimed at generating more server sales.

Compaq and IBM are targeting Internet service providers (ISPs) and application service providers (ASPs). ISPs, which provide Internet access, and ASPs--companies that host data or software applications for large corporations--are some of the biggest consumers of big-iron servers and storage devices.

They are likely to consume more as their businesses expand, say analysts. ASP spending, for example, will jump 94 percent to $7.8 billion by 2004, according to market researcher Dataquest.

Compaq today said it will set aside $1 billion for wooing ISPs and ASPs--$600 million in financing provided through Compaq Financial Services and $400 million in equity investments--and $150 million for partner marketing and co-marketing programs.

IBM is expected to announce a similar initiative next week, although the financial terms of the company's program have not been disclosed.

All three computer manufacturers are following the lead of Sun Microsystems, which has proven to be a tough competitor in the market for selling servers to Internet companies. While Sun trails other suppliers selling servers overall, it is a top seller to ISPs. In server shipments overall, Compaq in the third quarter had 27.2 percent market share, followed by IBM at 14.9 percent, HP at 14.1 percent and Sun at 9.1 percent, according to Dataquest.

Compaq's $1 billion commitment fits into a broader server strategy CEO Michael Capellas calls "e-Generation." With e-Generation, Compaq plans to extend its Intel server line and accompanying storage to larger markets.

The Houston-based PC maker also plans to build on its strengths selling PC servers, where it has had good success wooing ISPs and ASPs.

Besides financing and other incentives, Compaq unveiled ancillary programs specifically for ISPs, ASPs and Network Service Providers (NSPs). These include financial asset management tools with Web-based lease reporting and consulting services for established service providers; training, consulting and marketing services under the Service Provider Advantage Program; and simplified sales access through a single toll-free number and email address.

While Compaq will focus on making it easier for service providers to buy servers, the company also plans to selectively spread the $400 million for equity investments. Those investments could generate additional hardware and server sales.

Other computer makers also recognize the importance of investing in new companies and locking in their business. Dell Computer, for example, joined Microsoft and others backing CenterBeam, which buys all its hardware from the Round Rock, Texas-based PC maker.

HP has made similar investments, which typically bind the companies to buying servers and other products from the manufacturer making the investment.

 

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