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Compaq's software shift

Selling software as a separate, independent product represents a change in strategy as well as a revenue opportunity for the computing giant.

First, it was consulting. Now, Compaq will move into the software market with discrete, server-level applications that will likely come out later this year.

Selling software as a separate, independent product represents a shift in strategy as well as a revenue opportunity for the computing giant. Compaq has been developing server software for years, but for the most part, it has been incorporated as an element of the company's hardware, or licensed to industry organizations. These products were not sold as separate products in their own right.

Compaq's acquisition of Digital Equipment and Tandem, however, have opened the door to selling enterprise-level applications, said Vince Gayman, marketing manager of the High Availability Server Products Division at Compaq, because both companies came with a wealth of enterprise software.

The first wave of Compaq-branded software products will come out in the relatively near future, he said.

Gayman declined to elaborate, but said that some of the first Compaq products will likely target server and storage management. Applications to coordinate server activity when servers are geographically separated, for example, will likely emerge from the company. Other applications will enhance transaction processing.

Most will exist to support Microsoft's Windows NT operating system. "Compaq will come out with layered products" for Windows NT, he said.

For the most part, the company will avoid product segments where Microsoft has an already established lead, Gayman said, adding that "in some spaces, we will compete." The products largely will be sold through system integrators and consultants and will be able to work on servers from a variety of vendors, he noted.

While analysts agreed that the move makes sense for Compaq, the company will have to tweak its internal organization to make the effort work. Compaq's products, for instance, will inevitably have to support the leading operating system platforms in the server arena to thrive, according to Jon Oltsik, an analyst with Forrester Research.

"I think it's a wise move on their part. The market is well established, but it's wide open," he said. "But they will have to support other platforms. If they are serious about it, they will have to support Solaris, HP-UX [HP's Unix operating system]."

To succeed, Compaq will probably have to set up a separate software division such as Sun, which, in turn, will require Compaq to invest resources into pre-sales and consulting support.

Roger Kay, computing analyst for International Data Corporation, added that Compaq's move reflects a larger trend among hardware vendors to discover untapped, ancillary revenue streams.

"Everybody is whispering about alternative, profitable revenue streams now that most of the joy has been taken out of hardware sales," he said.