Compaq Computer Corp.: Stepping Out of the Box

Commodity hardware alone can't give Compaq a lift.

The writing is on the wall at Compaqs Global Services unit, but there are questions about what language its written in. The crown jewel of Compaqs purchase of Digital Equipment Corp. was always considered the services arm, but so far that piece hasnt played particularly well on U.S. soil. Now the company is forming plans to change that perception.

Long shut out of deals by the likes of Big Five consultancies, IBM Global Services and would-be giants like Perot Systems, Compaq Global Services has been in a slump for the past couple of years. While the customer-services piece—read maintenance and support—continued to grow, the more strategic professional-services effort was languishing.

Jeff Lynn, who joined Compaq last year as general manager of Compaq Professional Services & Solutions (CPS), describes 2000 as a "turnaround year." The rough translation is, stop the bleeding, focus the organization and figure out the best profit opportunities and how to get there.

CPS came up with eight separate areas of focus. First and foremost is ZLE, which stands for Zero Latency Enterprise. Largely a legacy of Compaqs Digital and Tandem acquisition, the goal of ZLE is high availability with no down time. To a large extent it requires complex integration of back-end systems with the Internet, and while Compaq develops the design, it also heavily relies on partners to do the integration work.

"ZLE includes some of the most complex computing environments you can imagine," says Lynn. "In pilots we have with our customers, we are pushing the end of the envelope. We expect to see exploding demand for ZLE, which is real-time CRM."

Other areas of focus include outsourcing, enterprise-ready Microsoft platforms, next-generation infrastructure, telecommunications, finance, e-government and e-business solutions. That may sound like a tall order for an organization with 38,000 people scattered across 200 countries—in comparison, IBM Global Services has about 148,000 employees—and 30,000 partners versus IBMs 100,000.

But considering that IBM has only 8.5 percent global market share and Electronic Data Systems has about 4 percent share, that leaves plenty of room for other players. Compaq currently has about 1.8 percent market share.

Unlike IBM, which prefers to grow from within, Compaq is planning an alternative route: the acquisition trail. Its first target is Proxicom, which the company initially bid $266 million for, but now has to beat a higher offer by Dimension Data.

"What were looking for is more of a string of pearls than one big acquisition," Lynn says, noting primary considerations including geography, technical skills and vertical focus. The acquisition of Proxicom was only the first of those pearls.

While Compaq will focus primarily on large accounts, it will rely heavily on partners to gain access to midsize accounts and other vertical markets. The company also is opening up its ZLE initiative to partners.

"This is for those customers in the most demanding sector who want strong transaction systems that never break," says Rick Frazier, VP of marketing for Compaqs business-critical server group. "We also solve three additional problems for them. First of all, we provide a single view of their customer data. Second, we make a number of disparate applications work in harmony. And third, we offer high availability. This is not just about five nines at the OS level of one system. Its about continuous computing over a variety of systems."

With PC prices continuing to tank, Compaq is paying serious attention to professional services. Now the question is how big a piece of the market will bite—and how quickly.