VAR Standoff: HP Vs. Compaq

merging the two may not be the arduous task some have predicted. Here, for the first time, is some insight into both sets of integrators.

The differences are intriguing: the largest category of HP partners (31.7 percent) and Compaq partners (43.5 percent) consider themselves total-solution VARs. HP partners likely consider themselves total-solution providers because of the breadth of product they sell. But it is interesting their Compaq counterparts feel similarly. Also, more HP VARs call themselves IT consultants (19 percent vs. 7.8 percent of Compaq VARs). Seems HP partners just consider themselves more techie. In addition, 20.2 percent of Compaq partners answer to "networking VAR,",perhaps because of the company's success in the server space,compared with 15.2 percent of HP partners.

The challenge will lie in merging those diverse types of partners. Much anxiety within the channel centers around not only whether the deal can be sealed, but also whether it will result in a productive company. Part of that question has more to do with how the two hardware manufacturers will meld their cultures rather than their product lines.

"I'm on the fence with this," admits Rich Tear, CEO at San Diego-based solution provider CSCI. Tear notes that even if the weaker products are left by the wayside and the best-of-breed products from each company are given an HP brand, there is still the question of corporate culture.

"What I worry about is how 'integratible' the corporate cultures are," says Tear, who is also a member of Compaq's national reseller advisory council. He's no stranger to this question, as his 17-year-old company lived through the merger of Compaq and Digital Equipment.

"We saw that the culture of DEC was to be more of a direct-sales organization, whereas the culture of Compaq had been more channel-friendly," he says. "We saw some of that direct-sales culture integrate into Compaq, to where now they are both a direct and channel-friendly player, and they are trying to make it all work."

HP and Compaq could surely shore up their partner programs in certain areas. Our Annual Report Card data finds that while HP tied for first in the partnership subcategory in advanced desktops and workstations, and Compaq came in a close second, HP came in a distant second,and Compaq finished in last place,in the same

criteria in the midrange server category. Both companies should take some pointers from the IBM iSeries, which finished first.

Additionally, in entry-level servers, a space in which both Compaq and HP play, the companies tied for last place (along with Dell) in the partnership subcategory. Clearly, there is growth potential in partnering. And some VARs may worry that a combined HP/Compaq would embrace Dell's direct model. A combined company would be the No. 1 or No. 2 player in every market they are in. Economies of scale would mean that, after consolidating overhead, products could be more competitively priced.

But Geoffrey Lilien, CEO of Lilien Systems, a Mill Valley, Calif.-based HP solution provider, notes the merger would let the companies pursue technical innovation more competitively, and leave Dell to hawk its wares on price alone.

"The difference between HP, Compaq and Dell is that HP/Compaq invents. Both companies spend a lot of money on R and D," Lilien says. "Dell competes on price. To compete against Dell, you need to sell the customer on better technology and better service." An HP/Compaq would not likely compete on price against Dell, he says, but instead funnel that money back into R and D to introduce more innovative products.

Should the merger occur, there is almost no customer out there that wouldn't be buying parts of a combined HP/Compaq product line. The opportunities for VARs,as well as for the new company,are enormous. The question is whether HP/Compaq would recognize those areas of growth and forge a road that both sets of VARs could embark on without colliding into each other.