At the start of the PC revolution, US venture capitalist Ben Rosen financed the startup of two small companies that went on to make him a fortune: Lotus Development and Compaq. Lotus and its 1-2-3 spreadsheet arguably guaranteed the success of the PC, and Compaq was the first manufacturer of an IBM plug-compatible PC.
Both companies were highly successful throughout the 80s and early 90s.
But in 1995 IBM led an initially hostile bid for Lotus in an effort to get hold of Lotus Notes and cc:Mail. Lotus resisted the takeover until IBM offered so much money that shareholders had no choice but to accept.
Lotus was consumed by IBM.
Compaq continues to go from strength to strength as an independent company.
But it is attempting to change its image: Compaq wants to be recognised as a computer company and not just a PC company. Its aim is to be one of the top three computer companies by 2000 and to play in the space currently occupied by IBM, Hewlett Packard, Bull, Digital and other mainframe and mid-range suppliers.
In the past few months Compaq has made a series of strategic moves designed to strengthen its hand in the high-end server market. The company has acquired two US organisations: switch supplier Thomas Conrad and Networth, which supplies networking interface cards. Compaq has also concluded a deal with Cisco to supply a router product which will use Compaq's hardware and Cisco's operating system.
Earlier this year, the company restructured its channel strategy by appointing 12 resellers as system service providers (SSP). The move involved a new accreditation process to ensure that large corporate customers were guaranteed the same level of support that they could expect from the likes of IBM and HP. In July the company was reorganised into three divisions: enterprise computing, PC products and consumer products. It has also formed a workstation division and is promising to ship boxes before the end of the year.
The workstation market is a hotly contested area in which all the major players have offerings. Although officially many of these companies claim not to see Compaq as a threat, there is little doubt that the company's track record will give them pause for thought. Compaq has always been fast on its feet and has often outdistanced IBM technologically. It was the first company to clone the IBM PC in the US. Compaq was formed only five months after the launch of the IBM PC and its first product arrived within a year. The product was a portable machine, though only just - it weighed nearly 30lb. IBM did not enter the portable market until 1984.
In the same year Compaq launched its Deskpro range, its first foray into desktop computing. Like its rival, IBM's PC AT, the Deskpro was based on the Intel 286 chip. But the Deskpro was both faster and cheaper than the AT. In 1986, Compaq scored again over IBM by launching a 386 machine seven months ahead of its rival. But Compaq lost the lead to other companies when the 486 appeared, and was overtaken in the laptop market by Toshiba.
By the 1990s, dozens of clone manufacturers were nibbling away at the two market leaders, Compaq and IBM. Both sought to differentiate themselves from lesser breeds by price differentiation and by emphasising their reputation for quality engineering and financial strength. It was a strategy doomed to failure - the price difference between IBM and Compaq and their rivals was just too big.
Compaq recognised sooner than IBM did that something had to be done.
It cut manufacturing costs, simplified board assembly and introduced the low-cost Prolinea. The launch carried some danger to Compaq, as the Prolinea could cut across the higher priced and higher profit margin Deskpro range.
In 1991, Rod Canion, one of the company's founders, was sacked as chief executive and replaced by the head of European operations, Eckhard Pfeiffer.
Pfeiffer immediately slashed prices by up to 32 per cent. It was a bold decision that lifted Compaq back to the top of the PC tree.
But the company now faces its greatest challenge yet: breaking into enterprise computing. Robin Bloor, chairman of consultancy Bloor Research, believes that Compaq stands a fair chance of becoming an even more powerful player in the corporate market. But it is not a foregone conclusion.
Support is the key issue. 'Compaq knows how to deal with the corporate customers in terms of purchasing and the machines are of good quality,' says Bloor. 'But do they understand the level of support that corporate customers require? There are still some IBM and HP sites, and maybe even some Digital ones, where a support person is permanently on the customer site.' If it is to be the corporate provider it wishes to be, Compaq will have to make a similar commitment.
There are other issues that may inhibit Compaq, although it is seeking to understand and redress them. Systems management, data security and data integrity are key factors in the corporate environment, but are not so critical in a networked PC environment.
One of Compaq's major advantages is the quality of its products. 'There was a period when Dell was doing very well in the corporate sector, but the customers eventually realised that quality was the key issue. It is Compaq that can provide the quality and the users are prepared to pay a premium for it,' says Bloor.
Bloor believes Compaq does not have the personnel with a sufficient understanding of the 'data centre' culture to fuel its ambitions. 'The only way Compaq can get into the corporate market is to headhunt people with a knowledge of that business and get them to set the whole thing up,' he says.
One ways Compaq could do this, Bloor suggests, is to buy Sequent or a similar company which is used to dealing in high-end servers. He says: 'Both Compaq and Sequent are Intel-based machines. A merger may not make much sense architecturally, but Compaq could use Sequent's knowledge of the corporate market.'
Nick Melvin, marketing director of P&P, one of the 12 SSPs appointed earlier this year, believes that if any PC company can break the mould Compaq can. 'Compaq seems to be tipped for success because of the growing importance of NT and the Intel platform in the server environment,' he says.
One reason why the resellers were appointed SSPs was to take advantage of their skills in the corporate sector. 'Compaq has the proven technology and the client base in the corporate desktop arena,' Melvin says.
But he has some doubts about whether Compaq can provide the systems management features required in the enterprise market.
Compaq is taking steps to remedy its weaknesses in the enterprise systems management area. In June it announced a new version of Insight Manager, which will support both NT and Windows 95. According to Compaq, Insight Manager allows network administrators to manage hundreds of PCs and servers from a central console without causing degradation in performance.
At the same time Compaq released details of a partnership programme intended to 'ensure Insight Manager event, performance and configuration information is integrated with the partners' systems management solution'.
The partners include BMC Software, Boole & Babbage, Cabletron, Seagate Enterprise Management Software and Tivoli Systems. The first development undertaken by the partners will be to develop an enterprise event management system to ensure continuous operation by notifying the administrator of problems or potential problems.
Compaq also promised that it would expand the focus of the systems management programme to include products that address performance management, change management, production control help desk operations and security.
All these features are fashionable in the data centre environment. They have been honed and refined by the mainframe and mid-range suppliers over the years, but until now the PC companies have largely deemed them unnecessary in the world of networked PCs. If Compaq is to be taken seriously in the enterprise world, these are the tools it needs to develop.
Compaq has demonstrated from its inception that it is an innovative company able to change direction when necessary. In 1991, Rosen, then chairman, dispatched two employees to US trade show Comdex, where they posed as newcomers to the business. Their mission was to see how cheaply they could buy components and mock up a PC.
They discovered to Rosen's horror that component suppliers were quoting prices that were even lower than the volume discounts offered to giants like Compaq. The incident led to the sacking of Canion and to the restructuring of the production process in an effort to reduce prices. Despite making a loss in the first quarter of 1992, the company was back on the road to success.
Compaq's latest initiative to turn itself into a computer company rather than a PC company is a more challenging task. To open the data centre door, it needs the right set of keys. These include business partners with an understanding of data centre computing, and the systems management and other tools that large IT departments expect from suppliers. They also include the provision of support services akin to those supplied by IBM, HP and Digital, and an understanding and acceptance of data centre culture.
The PC divisions of IBM, Digital, HP and even much-troubled Olivetti had a head start over Compaq in being able to ride on the back of their existing mainframe and mid-range accounts to insinuate their PCs into an installed base.
Compaq has no such leverage. It will not be easy to achieve its ambition of being among the top three computer suppliers by 2000.
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