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Yahoo names Compaq its main hardware provider

The online portal selects the computer maker to act as its primary provider for hardware in a deal that likely will lead to tight relations between the two companies.

Yahoo has selected Compaq Computer to act as its primary provider for servers and computer hardware in a multiyear deal that likely will lead to tight marketing and advertising promotions between the two companies.

Under the alliance announced Monday, Compaq will become Yahoo's "preferred" source for servers, storage systems, PCs, laptops, handheld computers and other hardware, according to the companies. Compaq will also provide a substantial portion of the hardware behind Yahoo's Internet infrastructure.

In turn, Compaq has committed to advertise and market its products through Yahoo's various Web properties. Compaq products will also be given preferred placement on Yahoo's shopping home page.

"Yahoo is as big an Internet site as there is in the world," said Jeff Clarke, vice president of finance and strategy at Compaq. "This is the first time Yahoo has made this distinction."

Financial terms were not disclosed. Clarke, however, said the deal was roughly in the same league as a similar $100 million deal between Disney and Compaq.

Complex commercial alliances such as Monday's deal are the ultimate prize for sales departments inside hardware manufacturers, creating a potentially huge recurring revenue stream. The grueling "beauty contests" conducted by the purchaser often last several months and involve repeated business proposals from several manufacturers.

Hardware under these deals is also often sold for outrageously low prices, according to sources, with the difference being made up in volume or service contracts.

Hewlett-Packard won a contract last May to provide with nearly 90 percent of the hardware required to run Amazon's site.

These alliances, however, can sometimes bring unwanted publicity. PC executives, for example, pointed out that Sun Microsystems is a principal hardware provider to eBay after outages occurred on the online auction giant's site.

"A lot of these companies are seeing that there is an advantage in finding a company that can provide their entire Internet infrastructure," said Clarke.

Beyond creating an opportunity to sell PCs, the Yahoo deal could also become a showcase for Compaq to promote servers containing Alpha processors. The Houston-based computer conglomerate acquired the highly touted chip technology when it bought Digital in 1998. Like Digital, however, Compaq has yet to find a way to dramatically increase Alpha's presence in the overall server market.

Yahoo's site primarily runs on servers containing Intel chips, but Alpha-based servers will be added in the future, said Clarke.

Yahoo will also benefit under the deal because it has locked in a long-term contract with a major advertiser at a time when online advertising is stagnant. Through Yahoo's fusion marketing program, Compaq will target customers with its "Inspiration Technology" campaign on a global basis.

"By choosing to work with Compaq, we are entering into a broad relationship that leverages the combined strengths of our leading brands to provide an optimal experience for computer users," Yahoo CEO Tim Koogle said in a statement.