Gateway to join hosting, service onslaught

Gateway announced today that it will offer Web hosting, virtual private networking (VPN) and other Internet-related services to small and medium-size businesses in the second quarter. As part of the effort, the San Diego-based PC maker invested $25 million in Linux software specialist eSoft, which will use the money to develop management tools and software packages for creating these services.

Alliances with telephone carriers, wholesale Web-hosting outfits and other companies necessary to provide these services will soon follow, said Keith Karlsen, director of market development for Gateway Business. Ultimately, if the plan succeeds, customers will pay a monthly fee to Gateway to cover everything from digital subscriber line (DSL) service to software.

Gateway's plans in many ways mirror services strategies already being touted by Dell Computer, Compaq Computer and Micron, as well as by traditional services companies such as Digex. Because of the torrid pace and high costs involved with keeping up with technology, small customers will likely migrate from buying computer products to paying for hardware, software and other services under subscription/lease contracts. Research firm International Data Corp. estimates the Web hosting market for small and medium-size businesses will reach $16 billion by 2004.

However, it remains an open question whether small business customers will gravitate toward PC manufacturers for these services or reach out to services companies.

For his part, Karlsen asserted that Gateway's existing base of small and medium-size business customers gives it an early start in the market. One of the first services to be offered will be called "Smart DSL," he said, with the "smart" part referring to an easy-to-use ordering and upgrade Web site that is in the works.

While Gateway will initially focus on relatively generic services, the company will move toward selling integrated software packages tailored to specific markets, such as the medical field. Like Micron, Gateway will likely offer Microsoft's Office software, complete with upgrades, on a subscription basis as one of its services.

The services push will also be used to sell hardware. Gateway, for instance, will recommend that its service customers maintain some hardware and/or control on their own premises for controlling their Web operations, said Karlsen. If Gateway is managing a customer's Web site, customers will maintain a server in their own offices on which they will be able to make or order changes.

Many of the specific details surrounding the program have yet to be hammered out, Karlsen said. The company, to his knowledge, has yet to settle on a branded name for the services.