Computer Manufacturers Shifting Their Focus to Start-Ups

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Computer Manufacturers Shifting Their Focus to Start-Ups
R. Krause - August 18, 2000

Event Summary

In July Sun Microsystems, Inc. announced the iForce Startup Community, an industry first marketplace designed to address dot-com customer requirements through cross-market collaboration. The community interacts online through the iForce Startup Community portal, where startups can find news, events, interactive forums and vendor information, and where qualified startups gain access to special offerings of industry-leading products, technologies and services. These vendors' enthusiastic participation in the program illustrates the dynamic growth and momentum behind the iForce Community program announced in March 2000.

A broad array of Independent Software Vendors (ISVs), Application Service Providers (ASPs) and E-Integrators have joined forces through the community to focus on providing startups the leveraged relationships, expertise, and fast solution implementation vital to their success. By creating pre-negotiated solutions and delivering them through an easy-to-access online marketplace, the community ensures that startups adopt the right architectures, platforms, products and services from the outset, allows them to make these critical choices in Internet time, and frees them to focus on their core competencies. Consisting of nearly fifty companies, the iForce Startup Community represents the broadest cross-industry support for any startup-focused initiative in existence today.

A key component of the Sun iForce Community is the Sun Developer Connection[sm] Startup Essentials offering, which consists of a bundle of hardware, software, and services at discounted rates, all pre-configured and designed specifically for startups.

The iForce Startup Community serves as a dynamic forum for startups to make connections and conduct business with community vendors. Any startup may take advantage of the wealth of information and services Sun is making available on the portal, such as news feeds, insightful editorials, a startup events calendar, scheduled chats to facilitate community dialogues, and showcasing of startups and their real-life implementations. Approved members of the Sun Startup Essentials offering will gain access to pre-negotiated discounted or free offerings from nearly fifty iForce Startup Community vendors, including Sun and its strategic partners.

A few days later, Gateway, Inc. announced its expansion of beyond-the-box offerings for business with eBusiness Accelerator Leasing, a program designed to meet the technology financing needs of high potential Internet-based start-ups. Through the program, available today, Gateway will initially lease computers and related equipment to help emerging businesses establish their technology infrastructure.

The Gateway eBusiness Accelerator Leasing program gives emerging companies competitive options to build their important technology infrastructure with a trusted technology partner, while developing a positive credit rating. And unlike other dot-com leasing programs, Gateway's eBusiness Accelerator Leasing does not have program restrictions or membership fees - only credit requirements.

Gateway's eBusiness Accelerator Leasing complements the relationships emerging dot-com companies have with venture capital and lending firms. Gateway's leasing program gives customers greater flexibility to expand their technology infrastructure, while preserving other funding for business growth and development. Gateway has teamed with eLease to administer billing, collection, tax and other infrastructure support services under an ASP arrangement that provides a flexible and quick time to market solution for customers.

Market Impact

Although this is not a sea change, it does mark a change from "traditional" business models, where a lot of effort was put into winning big contracts with major customers. The value of winning the big ones has not diminished (that's what pays the bills, after all). What the manufacturers are doing is placing bets: if the startup tanks, the manufacturer loses a little; if the startup becomes the next Cisco/Microsoft/what-have-you, then the odds of repeat business are greatly increased.

We're intrigued by the differing approaches to the problem: Gateway is providing an alternative means of funding for the computer hardware/software and services (their own products, of course); Sun is providing (among other things) prepackaged solutions at relatively low prices.

By providing turnkey solutions, Sun's "iForce" should help them extend their leadership in Web infrastructure. Start-ups who build their infrastructure around Sun/Solaris architecture are less likely to switch brands. (There's only one Sun, there are plenty of Intel-architecture brands.)

Because of the competition present in the Intel-based market, Gateway needs to take a slightly different path to brand loyalty. Although Gateway produces quality desktop machines, Gateway servers (a key part of the infrastructure) are barely on the market share "radar screen". If Gateway takes equity positions in the companies they're funding, brand loyalty becomes less an issue of product specs, and a little more a "management decision". (We are not implying that Gateway will try to muscle companies to buy their stuff; what we envision is the start-up's management saying "Why should we change vendors and risk compromising our relationship with Gateway.)

Other companies have already implemented variations of what we see here: HP and Dell have implemented small business service/alliance programs, and Compaq appears to be ramping up similarly. As margins on hardware shrink, we expect services of this nature to become a bigger part of vendors' focus.

User Recommendations

We feel either of these programs deserves serious consideration by startups. Although neither program is without risk, they are relatively low-cost ways of getting up and running.

If you have already decided on an architecture (Intel vs. Sun), skip to the end of this section.

The OS-agnostic users will have to decide how much/little hand-holding they want, almost in the sense of a la carte vs. full dinner.

Companies that need turnkey solutions, as opposed to in-house development, will probably find Sun's offerings more to their liking. Of course, this means committing to non-Intel architecture, something which may not be palatable for all.

Companies that already have a well-defined infrastructure strategy, and already have their business applications in place (or ready to go), may prefer the Gateway approach. This means an Intel-architecture infrastructure, since Gateway currently has no real Unix message.

We believe both programs can provide significant value to the customer, it comes down to the customers deciding which architecture and what their needs are.

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