A
few hundred million dollars in loans to start-ups, a few hundred
million dollars for marketing and capital investments--pretty soon,
you're talking about real money.
Traditional hardware manufacturers IBM, Compaq Computer, Sun
Microsystems and Hewlett-Packard are setting aside colossal sums to
attract start-ups and Internet companies to their respective
technologies as quickly as possible. Aggressive marketing is nothing
new for these companies, but the size and scope of these programs
seems to represent a change in the fundamental relationship between
customers and makers of big iron computers.
With
these funds, the companies hope to nurture the future eBays with
expensive technology from the vast reaches of a multinational empire
and hook them into long-term alliances and financial deals.
"They really have turned into technology venture capitalists,"
said Giga Information Group
analyst Brad Day. "They review the business model, they review the
management team, they review what segment of the market these
customers have a value proposition in. Only at that point will these
vendors engage."
IBM set aside $500
million in January, Sun $300
million two weeks ago, Hewlett-Packard $1.5
billion today and Compaq $1.15
billion today.
The programs variously involve discounted products and services,
equity investments in start-ups, marketing help and consulting
advice. But a key component is financing--money lent to companies
that will be paid back with interest. The financing options are
making the hardware companies look like auto manufacturers, which
long ago discovered that loans are not only helpful to customers,
but profitable as well.
"I think you'll start to see a whole new type of revenue stream
specific to this type of the market," Day said. Not only will
hardware companies see more money from financing deals, but their
business partners will become new sales channels for their products.
The hardware companies are being forced to tie together
once-disparate divisions of their vast organizations to respond to a
demanding new type of customer. "These high-growth companies are
expecting that your hardware supplier is more than your box
vendor--it's your partner," said Technology Business Research analyst
Lindy Lesperance.
The financial contortions required of these hardware companies
may be taxing and painful at times, but the companies don't have a
choice, analysts say. Those that don't adapt will expire, according
to Aberdeen Group analyst
George Peabody.
HP, Compaq and IBM seem pleased with the new world of
increasingly interconnected business plans, happy to invest in
start-ups that hold promise. Sun, in contrast, disparages ties it
feels are too close.
Sun, though, can probably best afford to be choosy. It's accepted
as the leader in the Internet area in revenue as well as in name
recognition. The company has strength both with the slim servers
sold in large numbers to handle the front-end tasks of complex
Internet sites, such as customer identification, as well as the more
expensive and powerful back-end servers for data analysis. However,
Sun, with its single collection of hardware, software and operating
system, isn't as good a choice when a customer needs to mix several
types of computers, analysts say.
The major targets for these initiatives are start-ups, the small
companies today that could be the giants of tomorrow. The other
targets are "application service providers" (ASPs), the companies
that stack hardware in data centers to house computing applications
for other firms. The ASPs themselves are luring both start-ups and
established companies, dangling carrots such as reduced hassle and a
faster time to launch.
"There's going to be north of 10 million square feet of data
center built this year," Peabody said. "That's a lot of servers. You
can understand why there's so much interest."
Dell has started its own hosting service and will begin backing
ASPs with more vigor in early April, Day said. Dell's high-volume
sales model meshes well with the ASP philosophy, he added. "They
have the perfect historical background to do well in the ASP space,"
he said. In addition, Dell will release a new line of inexpensive
"server appliances" at the end of the month during a meeting with
financial analysts, sources have said. 
Financing will be key, and in this area, Sun is at a disadvantage
because it won't be able to respond as quickly, Day said. HP, Compaq
and IBM have their own financing operations, whereas Sun goes
through GE Capital.
"That speed of the handshake is going to be a critical
differentiator. Start-ups don't have time to wait," Day said. "HP
can come in, do the assessment, and right there approve the
financing terms, whereas Sun has to go through their third party."
Though the hardware giants won't throw money at Internet
companies indiscriminately, the new financing methods are riskier,
Peabody said.
The new era of tighter partnerships has forced the hardware
companies to spend a lot more time evaluating their partners, Day
added.
