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Sun heats up race for Internet customers

Sun Microsystems increased the pressure on Hewlett-Packard and IBM today in the scramble to snag Internet start-ups as customers.

Sun Microsystems increased the pressure on Hewlett-Packard and IBM today in the scramble to snag Internet start-ups as customers.

In a program called "iForce," Sun will package servers, software and services, often at a discount, to help companies rapidly fire up their Internet businesses. As expected, the Palo Alto, Calif., company also is setting aside $300 million to cover the discounted products and to help the start-ups market themselves, Sun chief executive Scott McNealy said today.

The iForce program is basically what Sun already has been doing, only more so. "It's marketing with a capital M," said JP Morgan analyst Daniel Kunstler. "It's going to keep them in the market share leadership," ahead of IBM and HP, he said.

Despite the robust sales of equipment and services fueled by the Internet boom, HP, IBM and Sun are obsessed about the future, hustling to get their products in the hands of companies that may be next year's Their 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 that are dangled as premiums.

The discounts in some cases will be deep for start-ups. Oracle, for example, one of the companies appearing in Sun's package deals, is offering startups a 70 percent discount on its database software, said Paul Turner, senior director of Oracle's Sun products division

McNealy wants Sun to be the trusted source that introduces start-ups to software companies, consultants, application hosting firms and even venture capitalists, so the new kids on the block can quickly settle in. "These kids are coming in, and they don't know how to run a scalable dot-com data center," McNealy said.

But HP and IBM, Sun's fiercest competitors for Internet customers, have moved 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. And IBM unveiled a $500 million program in January to help ease start-ups' financial burdens. Start-ups can receive as much as $5 million each for IBM hardware, software and services, the company said.

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 unit. "We're creating a trading community for a multi-billion dollar market," he said, referring to a deal with ECnet that HP announced today at its own San Francisco event.

HP also took an equity investment in, a company that lets people access the Internet through voice commands over a phone. HP gave Talk2 its own servers, the companies said today.

Sun disparages HP's close ties with its business partners as well as the Internet initiatives of IBM and Microsoft. Microsoft competes with potential customers by providing its own content over the Web. IBM competes with Internet hosting services by offering the same through its own Global Services. And HP is too controlling, demanding a fraction of a partner's revenue stream or an equity investment. "We don't need to share in your revenue," McNealy said.

IBM acknowledges it has a robust business hosting other companies' applications on its own servers but says that's a good thing. "We host more than 40,000 servers around the world in 130 data centers. We don't have any shortage of people who want to partner with us in our hosting business," a spokesman 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.

Sun may claim to be a more neutral business partner than HP or IBM, but it still is leaning heavily on its own alliances. For example, it's heavily plugging hosting companies for start-ups that want to pay someone else to set up and manage hardware and software. Sun will put start-ups in contact with companies that will house Internet operations, including Digex, AT&T, USinternetworking, Exodus and Sprint, Loiacono said.

Sun, though, isn't the only celestial body in Oracle's sky. "A lot of our programs are weighted toward Sun, but it certainly isn't an exclusive relationship," he said.

In general, the software bundled in the systems will be discounted for start-ups at the level typically offered only to the biggest customers, said Jeannette Kennedy, director of dot-com marketing for Sun.

There won't be a new division for iForce, but the initiative will affect all parts of Sun, Kennedy said.