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Intel to launch major ISP strategy

The chip giant is taking the wraps off a program that will attempt to transform Internet service providers into a conduit for Intel products and services.

Intel is launching a major program today that will attempt to transform Internet service providers into a conduit for Intel products and services, the latest indication that the humble ISP is rapidly moving toward the center of the digital world.

The new effort in many ways will be crucial to boosting business projects at Intel that right now sit more at the periphery of the company or are just emerging. ISPs, for instance, will become one of the conduits for selling Web hosting and data services, which Intel will start marketing later this year, according to Robby Swinnen, worldwide director of the ISP program at Intel, as well as the company's growing networking line.

Interestingly, ISPs will also become an important market for generic "white box" servers manufactured by Intel. The company currently sells one-, two-, and four-processor servers in limited numbers. Sales will likely expand under the program as ISPs will need to expand their own server banks, Swinnen said.

These Intel servers will run Microsoft's Windows NT, but also Red Hat's Linux variant and Solaris from Sun Microsystems. In addition, Intel will optimize drivers and software for use on these machines.

"They are really moving down the path that makes them in effect a major broker in certain markets and a major deliverer of services," said Harry Fenik, an analyst at Zona Research. "This is a whole new business model for Intel."

Intel's effort to woo ISPs comes at a time when connectivity providers will become one of the most crucial sources for computing power and technology. Application makers, for instance, are currently shifting from selling software through boxes and license agreements to renting applications on a pay-as-you-go basis.

E-commerce companies and traditional merchants moving online are examining ways to outsource Web site design, transaction hosting, and data warehousing functions. Meanwhile, computer manufacturers are devising business models where profit comes from recurring revenue streams.

All of these plans have at least one thing in common: They depend on some kind of partnership with an ISP. Service providers are even getting more involved in selling hardware, said Swinnen, who estimates that the number of ISPs will grow from 14,000 worldwide to 20,000 by next year.

"It's chaos right now. People are working on so many business models right now it will be interesting to see what sticks," he said. "ISPs will have a greater influence on customer purchasing decisions." In addition, access providers are "migrating to more than just access. They are moving into the application server space."

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When worlds collide The program's components, which officially kicks off July 1, are in three categories. First, Intel will rapidly hire to build up an international sales, marketing, and technical force that will coordinate efforts with ISPs. The company wants to hire "multiple hundreds" of employees for the division worldwide. Hiring began in February and is expected to be complete by the third quarter. Seventy-five to 80 percent of the employees will come from outside so as to inject "Internet blood into the chip-head company," he said.

Second, Intel will tailor products and services for ISPs, including networking products and "white box" servers. Part of the effort will include developing drivers and optimizing corporate applications for use on these servers.

Rich Green, vice president of the Solaris products group at Sun, said Intel will position Windows and Linux as the low-end products, and Solaris will be positioned at the high end.

Solaris, Sun's version of Unix, currently works on machines using Intel's 32-bit chips and Sun's 64-bit UltraSparc chips. The deal with Intel will be "additive business for Sun and Solaris," Green said, indicating that Sun doesn't believe it will draw customers away from Sun's own server sales.

A major part of the product push be in marketing data services. Announced earlier this year, the new Intel Data Services division will build server farms around the world dedicated to providing backbone services to phone companies and ISPs, which in turn will resell these to e-commerce companies and other clients. A pilot program will kick off in the third quarter in North America while sales of actual services will begin toward the end of the year.

Third, the chipmaker will act as sort of a congenial host, introducing application makers to ISPs and helping them develop services, based, of course, around Intel building blocks.

The synergy between applications and connection services is likely where the most lucrative revenue streams will lie, said Fenik. Providing connections will likely remain a low-margin business. Profits will come from leasing applications or selling content. However, the most efficient way to sell content comes via the basic connection.

"Nobody wants to be in the dial-up business. What they want is the first crack at the eyeballs."

Intel's efforts begin in North America, but will rapidly expand to Europe, Asia, and Latin America, Swinnen said.