"Compaq Now Marching To A Networking Drum"
( 1/ 5/98; 12:00 PM EST)
By Matthew Friedman, InternetWeek
Having spent the past year assembling its forces, Compaq is ready to plant its flag on networking turf.
The Houston company wants to provide end-to-end networking products, from modems to servers to access switches, offering IT managers the simplicity and reliability of a single vendor. But one question remains: To what degree does desktop dominance translate to the networking invincibility envisioned by Compaq's generals?
"We look at markets that are expanding quickly and make a decision on whether to enter or not," said Alan Lutz, senior vice president and general manager of Compaq's communications products group. "If we don't think we can dominate it, then we look for something else. We think we can dominate this space."
Using market power on the computing side isn't unique to Compaq. Hewlett-Packard and Intel have used enterprise switches and NICs<Picture> as stepping stones to the networking market, and to good effect. Intel, for example, challenged 3Com's dominance in the Ethernet NIC market last year and is now a price leader in this space.
Intel, HP, and Compaq have another dynamic working in their favor: a low-cost and plentiful supply of custom ASICs that enable them to embed all kinds of networking functions into silicon. Compaq is Intel's third-largest customer, according to Lutz, and that gives Compaq volume pricing advantages networking vendors probably cannot match.
Some Fries With That Server?
Taking a page from the fast-food industry, Compaq is seeking to establish itself by offering basic hardware such as NICs as a side order with its servers and workstations, rather than positioning them as discrete units in a network architecture. Compaq said it wants IT managers to purchase NICs as an obvious complement to systems, hoping they will buy the whole package, right down to the access switch.
"I've told our sales force to remember one thing -- burgers and fries," Lutz said. "Every time you sell the burger order, pull the fries order. That's NICs and modems."
Many IT managers are trying to digest that idea. For Chris Dilworth, president and CEO of Arena Communications, an Internet solutions and Web-design company, the fast-food approach is neither practical nor desirable.
"For someone who just wants to put up some Websites, I can see how an end-to-end package might be appealing," he said. "But our expectations are too high to be fulfilled by a single vendor."
The big network operators have their own misgivings. Accustomed to putting every potential purchase through its paces on the test bench, Klaus Etzel, TCG/Cerfnet's vice president for business development, has reservations about being locked into a single solution, even if it comes with a smaller price tag.
"If you run a big network, like a backbone network, then you need to have the best possible hardware, no matter what the cost," Etzel said. "In that context, a complete package from a single vendor isn't very tempting. We need the flexibility to put the right technology at the right place in the network."
Indeed, aside from the end-to-end package, the Compaq offer is somewhat limited, said Virginia Brooks, an analyst at The Aberdeen Group, in Boston. Its expertise in networking hardware was built on a series of corporate acquisitions early in 1997. By absorbing NIC vendor Thomas Conrad, Networth's hub business, and access-switch maker Microcom, Compaq evidently believed it had acquired instant networking expertise. Brooks said Compaq is wrong.
"Thomas Conrad was being sold in a fire sale when Compaq got it; Microcom, too. Neither was a first-tier acquisition -- they're fading stars that haven't been in their heyday for quite a while," Brooks said. "But if you're only shoveling product out the door in a box, then these acquisitions make sense."
Lutz Begs To Differ
However, Lutz argued that the acquisitions gave Compaq an important foundation in networking and opened the door to an important alliance with Intel to develop high-performance networking products. "Microcom was actually undervalued when we acquired it, and Thomas Conrad got us into the NIC space," he said. "The NIC business has grown nicely. Our presence in that space got the attention of Intel, and allowed us to do the alliance."
Brooks is quick to point out that though Intel has had some success in the NIC space, coming second to market leader 3Com, and Hewlett-Packard's offerings have attracted the interest of its established customer base, systems manufacturers have yet to take the networking hardware market by storm. Indeed, she said, collectively, they fall into the small slice of the pie labeled "other," and doubts that will change any time soon.
"What they're looking at in terms of market share is what they can nibble away from the established players in the space," Brooks said. "What they're trying to do is like tapping someone on the shoulder and stealing his lunch when he's not looking."
c 1998 CMP Media, Inc. |
