InformationWeek
Defining The Business Value Of Technology
January 26, 1998 Built To ScaleCompaq shoots for major-player status in the enterprise with its new server architecture and sales organizationBy Bob Francis and Martin J. Garvey
Under a strategy called Enterprise 2000, Compaq aims to gain a price edge over competitors by letting customers take industry-standard servers and combine them a piece at a time into mainframe-class systems. Next month, Compaq plans to demonstrate a clustered transaction-processing syst em with 16 four-processor nodes running Windows NT and 4 terabytes of data; by the year 2000, it expects to deliver giant NT clusters, based on Intel's forthcoming Merced 64-bit processors, that will handle half a million transactions per minute at less than $5 per transaction per minute. The keys to Compaq's plans: Its purchase last June of fault-tolerant computing market leader Tandem Computers Inc., and its intimate relationships with Intel and Microsoft. Compaq is using Tandem's proprietary high-availability and clustering technologies to accelerate its delivery of scalable NT systems. Incorporating Tandem's 1,500-person direct sales force-a task completed this month-also heightens Compaq's corporate presence, says CEO Pfeiffer. Before the acquisition, "we weren't at the enterprise table," Pfeiffer says. "With the Tandem acquisition, we are at the table. Our salespeople will be talking about the whole spectrum of Compaq product."
Toward Packaged Solutions
Enterprise 2000 includes a series of existing and new products that will be enhanced or introduced during the next two years. Among them is Tandem's Server Net, a high-speed clustering technology that the company uses to build much bigger clusters than the two-node systems supported by plain-vanilla Windows NT. Also due late this year is an NT version of NonStop middleware, ported from Tandem's proprietary high-end Himalaya systems, that provides dynamic load balancing, more-sophisticated failover, and a single system image to enable clusters to handle high-volume transaction workloads, says William Heil, senior VP and general manager of NonStop software for Compaq. The combination of that software and NT will deliver clusters this year with less than 10 hours of downtime a year, Compaq says.
Customer Appeal
With its enterprise push, Compaq aims to compete directly with the top enterprise vendors such as IBM and Hewlett-Packard. But even with Tandem, Compaq's field organization is a drop in the bucket compared with IBM's global services group, which has 120,000 people and revenue of about $19 billion, says James Poyner, an analyst at Oppenheimer & Co., an investment house in New York. "IBM's service business gives them an advantage in hardware sales, particularly in high-end systems," he says. Compaq's NT-on-Intel enterprise push is hardly a unique idea. Other vendors are taking similar positions and claiming advantages based on their own close relationships with Microsoft and Intel. Digital Equipment this week will announce an expanded relationship with Microsoft that includes extending NT's multiprocessing capabilities. HP claims it will have an edge in moving to the 64-bit Merced because it's co-developing the chip with Intel. Pfeiffer's response: "We do not believe we are at a disadvantage with Merced. Intel is saying, `When Merced is ready, we need to have all guns blazing.' And the biggest gun is Compaq." However, even Pfeiffer admits that scalable NT servers alone won't differentiate Compaq from the competition. "Scalable NT is a goal, not so much an advantage," he says. But Compaq has other advantages, says Jonathan Eunice, an analyst at Illuminata Inc. "Compaq has momentum and focus, which are tremendous strengths," he says. "And they don't have to get over the hump to learn how to play in the NT world."
Counting On NT
Before the Compaq acquisitio n, Tandem's ServerNet was widely discussed as an industry clustering standard that would be licensed from Tandem by other vendors. Microsoft already endorses ServerNet by directly supporting it in NT, and even some of Compaq's competitors like the technology. "We're looking at ServerNet very closely," says Duane Dickhut, VP and general manager of NT servers at Digital. "It looks like it may well become a standard piece of NT clusters, and if we need it, we'll license it." But sources say Compaq rival Dell Computer backed off plans to use ServerNet after the Tandem acquisition, and analyst Eunice says other vendors feel the same way. "Everyone considers Compaq their hard competitor," he says. Compaq still backs ServerNet, but it's now also focusing on Fibre Channel, a technology for high-speed links that enables clusters of systems to share storage over large distances, Eunice says. Compaq plans to ship Fibre Channel products this quarter.
Powerful Position
Ultimately, Compaq wants to offer NT systems that will let it wean even Tandem users off their proprietary Himalaya systems, which are widely used in telecommunications, financial, and other industries that require extremely high availability. "The Himalaya architecture will continue as long as the customer wants it," says Pfeiffer, but, he adds: "We'll try to show these customers that a Merced-generation product can do the job." Tandem users say NT has a long way to go before it matches their needs. "With the E2000, Compaq expects accumulated downtime of 10 hours a year, surpassing RISC Unix," says Mike Kelly, senior VP of IS at the Chicago Mercantile Exchange, a Tand em and Compaq user. "That may be true, but 10 hours a year for certain applications is unacceptable. "We just celebrated our tenth year of never shutting the market down, because of the Tandem system. We need to see more robust reliability to move" to another environment such as NT. Even so, Tandem users are positive about the merger. "It's added strength, because of Compaq's depth of products," says Edward Davie, a senior VP at ITT Sheraton Corp. Another tricky area for Compaq is increasing its direct presence in big accounts without alienating the resellers responsible for its PC sales. "The direct sales and support are a necessity as Compaq moves up with capabilities," says Ray Cheng, CEO of Global Network Architects, a systems integrator in Seattle, who has worked with Tandem. "The channel can't support a sophisticated server from Tandem." One thing no one disputes is the seriousness of Compaq's intent. "Hewlett-Packard and Digital have always been classic enterprise vendors. Compaq is taking that on with the acquisition of Tandem," says Mike Nash, Microsoft director of marketing for Windows NT Server. Indeed, Compaq needs to succeed in the enterprise in order to achieve its ambitious growth goals. Until recently, Pfeiffer said he wanted Compaq to be a $40 billion company by the year 2000, without making more major acquisitions. Now, with the Tandem acquisition, he's upped that goal to $50 billion. But reaching that goal won't be easy. Last week, Compaq reported fiscal 1997 revenue of $24.6 billion, a 23% increase over 1996's $20 billion. The company will have to grow 26% a year to nearly double in size in three years-no mean feat, notes Oppenheimer's Poyner. "It would be very tough in this price-conscious market to grow that fast, so I think they'd have to make some sort of acquisition," he says. Coming months will likely see other vendors aligning with Microsoft in an attempt to drive NT further into the enterprise. But in that respect, analyst Eunice says, Compaq has anoth er key advantage: "Compaq definitely has the hungry people. It's like being at Microsoft-every new project has a higher level of success. Compaq, more than any other system vendor, is matched well with Microsoft." --with additional reporting by Stuart J. Johnston
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ompaq Computer this week will unveil a server architecture and sales organization that lay the groundwork for the company's transition to major-player status in high-end enterprise servers-and for reaching president and CEO Eckhard Pfeiffer's goal of becoming a $50 billion vendor by the year 2000.
Effective this month, adds Enrico Pesatori, Tandem's president, "Compaq has significant strength and skills in the area of large accounts. We have more than 350 large accounts that have direct hands-on sales and support people."
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