Mar 21st 2000: Compaq today committed over $1bn to ASPs, ISPs and software developers, part of a game plan to gain ground in the lucrative server supply market.

Compaq Computer Corp said the project includes $600 million designated for service provider financing programs, $400 million for equity investments in service providers and independent software vendors (ISVs), and $150 million for joint marketing programs to bring new application services to market.

Michael Capellas, Compaq chairman and chief executive officer, earlier this year predicted that by the end of 2001 as much as 20 percent of its revenues would come from the Internet service provider and application service provider (ASP) market segments.

But Compaq faces stiff competition from industry leader Sun Microsystems, as well as rival firms Hewlett-Packard and Dell Computer.

CE Unterberg, Towbin analyst Bill Dering told ASP News Review that it is no surprise that companies such as Compaq are investing in ASPs now.

"Compaq has pretty deep pockets and does a lot of investing," Dering said. "It isn't surprising from a strategic standpoint that Compaq is prepared to make investments in its future customers."

Sun has struck equipment and equity deals with leading hosting providers and ASPs such as Corio, Digex and Interliant, while Dell recently invested in Interliant, CenterBeam and eOnline. HP has strong partnerships with Qwest Communications and USinternetworking.

Compaq meanwhile has invested in ASP ventures by Cable & Wireless, FutureLink and DataReturn, and last month sank $50m into Digex.

Dering said it just makes good business sense for Compaq to align its server supplies with burgeoning ASP companies now.

"Big vendors spend on ASPs as key customers of the future," Dering added. "Rather than focusing on 20,000 medium-sized customers, they can focus on serving 5,000 larger clients through ASPs."

Its close relationship with Microsoft gives Compaq one advantage over Sun. Its Microsoft accreditation program provides Compaq with an extensive portfolio of solutions for Exchange 2000, Windows 2000 and Windows NT 4.0 servers. The ability to deliver worldwide services to help ASPs design, deploy and maintain messaging and collaboration solutions based on Microsoft technologies is a competitive edge for Compaq.

A second advantage lies in Compaq's financing strategy to sell storage-on-demand to ASPs. Its ability to deliver mission critical rapid storage expansion to e-commerce companies served by ASPs makes it easy for providers to ramp-up seasonal sales services. Flexible financing packages from Compaq may outperform Dell's ability to provide the same services.

Looking to tap into lucrative revenue streams from the software rental market, Compaq says its goal is to provide a "whole new level of premier global enablement services" to ASPs. But it faces stiff competition from other vendors equally committed to building relationships with providers.

Report by Patricia Fusco, InternetNews.com

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