CPQ/Networking article #11:
[GCK note: The full VARBusiness article...a must read]
11/15/97 VARBUSINESS 57
1997 WL 7700349
VARBUSINESS
Copyright 1997 CMP Publications Inc.
Saturday, November 15, 1997
1320
Technology -- Networking
Houston, Here We Come
--
Digesting Compaq's 'Burgers and Fries' networking rollout
Cassimir Medford
For Compaq Computer Corp., satisfying a passive networking market has
not been all bad. For its customers that do not express a preference,
Compaq is the default choice for networking equipment. And for a company
that sells more client PCs and servers than any other entity on earth,
it is a very enviable position. But last year, Compaq's brain trust
decided that it wasn't effectively leveraging its position in the
networking market. So that brain trust made the decision to take
networking out of its passive, second-class status and to transform it
into a bona fide group with the same reporting responsibilities as PCs,
servers and consumer products.
For the past few months, Compaq's networking team, led by recently
hired Alan Lutz, a longtime networking industry veteran, has been
staking out the company's position. What Lutz, senior vice president and
general manager of the newly formed Communications Products Group, found
as the result of a thorough investigation was a patchwork of products in
dire need of refreshment. Compaq had a dated hub line it got when it
acquired NetWorth Inc. two years ago. Lutz also found that the company
was still pursuing a router strategy at a time when most other
networking companies, outside of Cisco Systems Inc., were investing
almost exclusively in switching technology, because of cost advantages
in the marketplace. Lutz's team also found that the Compaq distribution
channel was not aggressively specifying Compaq NICs when it sold Compaq
PCs or servers.
"We didn't think that the technology foundation of the networking
business as it stood would take us into the future," Lutz said, in a
masterful understatement.
While the world was distracted by Compaq's noisy acquisition of Tandem
Corp. and its market battles with Dell Computer Corp., the networking
team began the process of repositioning. First of all, the company
acquired Microcom Inc., the Norwood, Mass.-based manufacturer of
communications servers, modems and an array of remote-access products.
In addition, the company has now redirected its investments in routers
into switches, and at the same time it has refreshed its hub technology.
Cheeseburger To Go
Compaq has also instituted its "Burgers and Fries" strategy, a
marketing plan that is designed to get its distribution partners
specifying Compaq-branded networking products with its PCs and servers.
But it was Compaq's most recent networking move that drew the most
attention. Two months ago, Compaq and Intel Corp. announced a vague
networking technology alliance that involved "the advancement of
high-performance networking technologies, products and specifications."
The companies will cooperate in the development of network interface
controllers, adapters, switches, hubs, xDSL technology and remote-access
servers. The net effect of the alliance is the teaming of two companies
that seem to be on the same general course in the networking arena. Why
team with a company you compete with on so many levels?
"Well, we had two choices: Intel or 3Com. The fundamental reason we
chose Intel is that we think its technology is better," says Lutz. "We
compete with the other potential partner so if you're going to do a
dance, you've got to figure out on which days of the week you're a
competitor and which days you're a collaborator."
Sharing the R&D and product development investment, analysts say,
makes a lot of sense in the new realities of the networking market. But
choosing Intel over its sometimes partner 3Com Corp. seemed a peculiar
decision-one that took many in the industry, particularly 3Com, by
surprise.
Strange Bedfellows
"We compete with Intel in PCs and servers," says Lutz. "Intel provides
chips and boards to clone manufacturers. Our lives would be a lot easier
if it didn't do that, but, frankly, we understand the relationship with
Intel as it has evolved."
Compaq has chosen sides and has decided to hang out its shingle in the
networking business. 3Com, by default, has become the enemy. In the
coming months, Compaq will make a series of moves and announcements that
will establish its positioning in the networking market. It has begun to
infuse its channel with its "Burgers and Fries" message. But will the
channel accept Compaq as a top-flight networking vendor?
Far From the Tree
"Networking is not Compaq's core business, and we have no assurances
that it won't do the same thing with its networking products that it did
with its laser printers," says Gene Mazurek, vice president of Bancroft
& Masters Inc., located in Redwood City, Calif. "You can't go 'whoops,
we changed our minds' in networking. Networking is all that 3Com and
Cisco do, so the assurances that they will continue to innovate are
built in."
Compaq's image among networking VARs is far from golden. Many of the
VARs interviewed for this article remember Compaq's short-lived crusade
in the printer business. And networking VARs see product or market
abandonment as hanging crimes. Many of them know Compaq as a
semiproprietary server vendor with a line of fairly basic networking
equipment. In the networking community, the word "proprietary" conjures
up images of dead networks waiting for specialized parts to arrive.
What's more, a number of VARs have complained that Compaq's well-known
penchant for server obsolescence will not play well among networking
VARs.
Spiffing Up
"Compaq has to repair its image among networking integrators and
VARs," says Jeff Poole, executive vice president of MSI Consulting
Group, Seattle. "There is not a tremendous amount of overlap between
its current value channel and the networking channel. Compaq's sales
force will be calling on a whole lot of VARs it doesn't talk to today."
According to Poole, Compaq's sales force will have to be trained to
handle issues and messages such as total cost of ownership, ROI and
multivendor network integration. "None of those issues are today part of
the natural behavior patterns of Compaq's sales force," he says.
"Compaq's channel moves boxes, and its sales force has adapted to that
environment."
Compaq is aware of the challenge, and it is presently working on
getting its current partners up to speed on its networking goals. "The
first thing to do is to make sure the channel partners we already have
strong relationships with are actively engaged in selling networking,"
says Lutz. "That's the focus we've taken in the first eight months of
this year. The second thing is to play in the other 40 percent of the
market-that means recruiting additional channel partners that have been
predominantly in the networking space."
Compaq's networking thrust has become part of the company's larger
search for an enterprise identity. It comes out of a 1996 program that
challenged 150 executives to look at the company objectively and to
identify problems and improvements to be made. When the dust settled,
networking was identified as a key area of interest.
Still, networking VARs are understandably skeptical of Compaq's
staying power in this market. What happens, they wonder, if Compaq finds
that its networking strategy does not really add anything to its server
business? What if the new strategy negatively affects the company's core
business? VARs have seen other vendors-whose core business was something
other than networks-flip-flop on networking. None of those vendors has
been a tremendous success.
But Lutz sees Compaq's networking thrust and its timing as different
from some of the other players, such as IBM Corp., Digital Equipment
Corp. and Intel.
"This is a very natural evolution for Compaq," he says. "In the U.S.,
85 percent of PCs connect to some kind of network. One hundred percent
of all servers connect to a network. One hundred percent of
workstations connect. That is a great change from the way things used to
be. That's why we're here. We can't see a good reason for giving all of
that business to someone else."
-Quick Scan
Compaq Computer Corp. Houston, Texas (281) 370-0670, www.compaq.com
XcelleNet Inc. Atlanta, Ga. (770) 804-8100, www.xcellenet.com
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