Sun, HP compete for start-ups

In a program called "iForce," Sun will package servers, software and services to help companies rapidly fire up their Internet businesses. The Palo Alto, Calif., company also is setting aside $300 million to help those companies financially, Sun chief executive Scott McNealy will announce tomorrow in San Francisco.

But HP, Sun's fiercest competitor in the Internet space, has been moving aggressively in the last year to catch Sun's coveted position in the Internet infrastructure. HP already has set up similar programs for packaged, preoconfigured systems and has been sealing close alliances with numerous companies intimately tied to doing business on the Internet.

Interestingly, IBM will also make what it calls a signficant e-commerce announcement with several of its customers tomorrow at 11:30 a.m. EST in New York.

Despite the robust sales of equipment and services fueled by the Internet boom, HP and Sun are obsessed about the future, and both are scrambling to get their products in the hands of companies that may be next year's Amazon.com.

The programs are similar to banks giving away toasters to woo customers, only instead of small appliances it's servers and financing deals worth thousands or even millions of dollars.

The idea is to hook start-ups while they're young. "The sooner you're dealing with the customer, the better chance you have down the road when they go big," said John Loiacono, a marketing executive at Sun.

HP yawned at Sun's plans. "If all Sun is doing is packaging their existing stuff and announcing it, then we're in better shape than we thought," said Nick Earle, president of HP's e-services.solutions unit. "We're creating a trading community for a multi-billion dollar market," he said, referring to a deal with ECnet, a new partner HP will announce tomorrow at its own San Francisco event.

ECnet, a 300-person company formerly known as Advanced Manufacturing Online that connects high-tech companies to those that supply them with components, will buy $8 million of products and services, Earle said. HP's sales force will market ECnet's services to HP customers and is receiving warrants in ECnet--essentially options to buy equity in the company later. HP won't take a percentage of ECnet revenues, as it sometimes does with its "e-services" deals.

ECnet, currently based in Singapore, will announce tomorrow that it is moving its headquarters to Redwood Shores, Calif., chief executive T.K. Wong said in an interview today. In addition, ECnet is evaluating the use of HP's "e-speak" software to enable more companies to bid when one supplier has a shortage. ECnet, which handles 500 million purchase orders a year, lists among its customers Motorola, Apple, Seagate, Philips, Siemens-Nixdorf, HP, Taiwanese chipmaker TSMC and Matsushita, better known as Panasonic in the United States.

Sun disparages HP's close ties with its business partners. "We think revenue sharing is absolutely the wrong strategy," said Loiacono. "We don't believe it's right to meddle in our customer's profit."

But alliances themselves don't appear to be a problem for Sun. For start-ups that want to pay someone else to deal with the computers, Sun will put them in contact with companies that will house Internet operations, including Digex, AT&T, USinternetworking, Exodus and Sprint, Loiacono said.

Sun also is extending deep discounts for hardware to its services and software--in some cases giving away software, Loiacono said. The software deals include Sun's iPlanet package as well as database and customer relationship management software. Companies that integrate Sun hardware with others' software also are included as partners in the program, Sun said.

HP counters that it already offers aggressive financing deals for companies just getting off the ground--as much as $1 million per start-up, Earle said. In addition, HP has a $100 million-a-year fund to help start-ups get going, "and there's more where that came from," he said.

Though a revamped initiative to sell to dot-com companies is perhaps a pedestrian strategy, Sun has been successful by getting its computers into the hands of people developing new software, said Technology Business Research analyst Jim Garden. "In the past, Sun has been quite liberal with their platforms with their application developers. It paid off for them. They've become the reference platform for a majority of applications out there," he said.

Additionally, Sun has set up a center in Menlo Park, Calif., and will set up others in Paris and Tokyo where companies can test their software ideas on Sun hardware coupled with a wide variety of other technology ranging from telephone switches to PalmPilots, Loiacono said.

Tuning hardware and software to work well together is hardly a new idea, countered Earle. "We announced a dot-com program a month ago, with bundled Oracle already a part of it," Earle said. More bundling deals will be announced shortly, he added.