Hewlett-Packard (HWP), seen as an Internet laggard even by some of its own
managers, is readying a new initiative to raise its Net profile and give
crucial resellers of its hardware an Internet story to sell.

Its new Net Now initiative will include software bundles and alliances with
major resellers, but focus on marketing activities and naming high-profile Web
sites running on HP hardware.

HP is not the only hardware company to see resellers as its ticket onto the
Net. Top PC maker Compaq Computer (CPQ) sells almost exclusively through
channel partners, and with its announcement yesterday that it will put several
million marketing dollars behind Santa Cruz Operation’s (SCOC) Unix for
Intel-based machines, it joins HP in pushing both PCs and Unix.

Unix hardware vendor Sun Microsystems (SUNW) likewise relies on its reseller
channel, and Unix workstation rivals Digital Equipment (DEC) and Silicon
Graphics (SGI) have a better Internet buzz than HP.

The economics for relying on resellers to reach smaller accounts are simple:
HP’s high-priced direct sales force costs too much for small sales.

As it struggles to play catch-up on the Net, HP is delivering some substance,
too. In June, it closed its $1.29 billion purchase of payment firm VeriFone.
Though VeriFone’s revenues are predominantly from retail card-swipe machines
that authorize purchases in the physical world, HP bought VeriFone to jump
start its Internet commerce story.

“We were slow…[to catch] the first wave of the Internet,” said HP’s Glenn
Osaka, the general manager of HP’s enterprise computing unit who helped
negotiate the VeriFone acquisition, in an interview last month. “We think
commerce is the next wave and it’s bigger, so it’s incumbent on us to turn on a
dime.”

Osaka, HP’s point man on e-commerce, and his organization have been the chief
drivers of HP’s Internet strategy so far. Selling direct to large companies,
his group has stressed security (HP’s Praesidium offering) and intranets,
viewing the Net as an extension of existing corporate networks. This builds on
HP’s strengths as an enterprise computing vendor.

Last month Osaka’s group announced a deal to let AT&T to pitch nearly 15,000 HP
resellers to sell AT&T’s Web hosting and e-commerce services–the same channel
HP hopes will energize for its own hardware sales.

“It’s a channel play,” Osaka said at the time, defending an alliance with
little else to offer. “By integrating with AT&T, HP strengthens its
relationships with resellers.”

The most visible pieces of HP’s reseller-oriented strategy to date are the AT&T
deal, a pact this month with Internet consulting firm USWeb, and a June
partnership with “push” software vendor BackWeb.

BackWeb, which optimized its push technology for HP hardware, is working with
HP resellers in the financial, legal, government, and education
markets–efforts that have already paid off in sales in the U.S. and Europe, a
spokeswoman said. USWeb is expected to move its Web hosting operations onto HP
hardware, with future twists expected.

HP is also close to announcing a deal with Internet directory InfoSpace, which
runs its well-trafficked Web site on HP’s Intel-based hardware. “HP has done a
great job of optimizing for Windows NT,” said Naveen Jain, InfoSpace
founder-president and a Microsoft alumnus. “It runs better on HP hardware than
on any clone.”

But Greg Mihran, director of Internet business development for HP’s new
channels group, has bigger plans.

“We want to do what Sun has done successfully with its ‘Powered by Sun
strategy,” said Mihran, acknowledging that Sun still stands for the Internet in
many minds.

InfoSpace’s Jain agrees. He defined HP’s problem like this: “When people think
of the Internet, they think of Silicon Graphics and Sun.”

Resellers, Mihran notes, now account for about half of HP’s hardware sales,
with the remainder split between retailers (for PCs and printers) and direct
sales (for HP’s workstations and large servers). That makes the reseller
initiative critically important.

HP faces the hardware vendor’s quandary: “As products move to the commodity
space, we are trying to differentiate our technology,” Mihran said. “HP
believes there’s big opportunity to move our technology into the Internet space
more aggressively.”

Harry Fenik, a vice president at consulting firm Zona Research who is working
with Mihran on HP’s reseller strategy, notes that HP’s late conversion to
Internet religion is no surprise, given its mammoth size.

“This is typical HP. It’s rarely at the bleeding edge of anything. They can
step back, see how to play something in their world,” he said. “They’ve let the
guys out front take the beating–and beat up on each other.”

In addition to pushing its Unix workstations and Windows NT-based Net Servers,
HP hopes to drag its PC printers into its Internet play too. Under
consideration is a plan to brand the whole Internet initiative with the HP Unix
machine Domain name.

“We see a significant revenue opportunity in small to medium businesses, and we
see that market primarily serviced by resellers who are anxious to bring in
their own consultative expertise,” said Mihran. “HP has never excelled at
providing a broad portfolio of software and services.”