Compaq unit zooms in on service providers

The Woodbridge, N.J.-based subsidiary of Compaq Computer will offer Internet service providers (ISPs), application service providers (ASPs) and network service providers (NSPs) financing or leasing on Compaq hardware and ancillary services.

The initiative is part of a larger $1 billion program the company unveiled today. Besides the $600 million handled by the financial services operation, Compaq set aside $400 million for equity investments in service providers.

Compaq Financial Services opened for business in July 1997 and has expanded operations to 35 countries serving 35,000 customers. The operation employs 600 people and has just shy of $2 billion in assets.

In an interview with CNET News.com, Irv Rothman, Compaq Financial Services chief executive, said he sees a boon in the service provider market. ISPs and ASPs are some of the biggest consumers of servers and storage, but their customers constitute a potentially larger market that Compaq hopes to tap. The company believes that by getting its hardware into the hands of service providers, it can extend its business to their customers.

CNET News.com: Why focus on service providers? What are you hoping to accomplish?
Rothman: We're trying to accomplish what we always do: Support and enhance the Compaq sales process and value process by providing complementary financial services and products to Compaq's offerings. That's what we live for, and that's our mission.

What types of service providers do you expect to attract?
Already, we do business with emerging SPs (service providers). We do business with the post-IPO, established SPs, and we do business with the globally deployed SPs. We do business across a wide spectrum.

In 1999, which was the first year Compaq focused on this business in a meaningful way for us, we issued $250 million in credit lines and actually financed about $150 million in Compaq products in this market segment. What we're saying this year with Compaq's renewed emphasis on this market is that we're stepping up our commitment as well.

Is your financing initiative reserved just for service providers?
No. In getting to know these ASPs pretty well and having them become a customer of ours, we also can assist them in their product sales, so their customers can get Compaq Financial Services financing as well. So the sell-with opportunity is there as well.

Will there be any focus on one service provider market over another?
Let's see how it goes. We're fine with following Compaq's lead, and it's going to be something of a learning process. We would like to penetrate all three markets, but we're going to test it out and see where we're getting the right kind of approach.

There is a tendency to focus on start-ups and to lock them in early as customers. Are you interested in them more than others?
That's certainly an interesting perspective, and that follows with our perspective that it's easier to keep a customer than find a new one. That certainly dovetails with our perspective on the marketplace. We have financed a fair number of emerging SPs and start-ups in 1999, and we certainly will look forward to that in 2000.

Are we talking just money here, or do you plan to offer more?
We are offering some additional services, such as asset management tools and true utilities for storage products--things that are different from what anyone else has and are unique to Compaq Financial Services.

One of the tools, AssetEdge, is a Web-based, leased-management reporting tool that enables end-user customers to go online and manage their assets by gaining access to our asset base. These service providers are getting large quantities of servers and storage products, and they've got the same problems managing these assets--knowing where they are, when they're ready for an upgrade--as any industrial (customer) does when they get 25,000 PCs at one time.

Do you plan to offer the service provider any special rates in financing?
This is a set of pricing we have developed for this market in particular, so in that sense it's special. But no finance company in the world is going to set out to be the cheapest guy in town. What will drive the customer to do business with us is our ability to provide a broad spectrum of products and services and our ability to execute and be responsive to their needs with clever and creative structuring. Customers buy for more than...just price.

What is unique about your program compared with competitors' programs?
We're providing a whole variety of consulting services around procurement and around equipment disposal as well as customer care on making purchases. Our commitment is to provide a complete solution, not just dollars for financing.

The other thing that is unique about our offering is we're going to do it globally. We're rolling that out faster and to more locations than any of our other competitors, who are more United States-focused. Many of these service providers tend to be global businesses.