Server Wars

You might think, with all those rock-bottom prices in the ads and all those stories of mergers in the business pages, that there's a war on in the PC business. But you would be wrong. The PC wars are history. Dell won, by virtue of its manufacturing and marketing supremacy.

The new computer war is being fought on a higher plane, over the powerful data crunchers known as servers. Created as attachments to enable refrigerator-size mainframe computers to serve many clients at once, servers now have become the main attraction--helping firms of all sizes do business more efficiently through the Internet. Whether it is Merrill Lynch grinding out data on the world's financial markets or Target Stores tuning its nationwide supply chain to suit this hour's online sales, there has never been more demand for the kind of computing muscle and speed that the newest servers deliver.

At stake is a $60 billion worldwide market for hardware alone. That market includes the servers themselves, which can be as bulky as an IBM mainframe or as slender as a cigarette carton, as well as storage devices. All this iron runs on a variety of software: operating systems and protocols from Unix to Linux and, increasingly, Windows. There are battles over whose protocols are open to adaptation (guess where Windows stands?) and whether there ought to be more standardization. But those conflicts are being resolved by a vast new parallel business called Web services, which encompasses the software and technical expertise that enable companies to exchange data seamlessly.

Some firms package this new realm and call it enterprise computing. Others call it edge computing, and it really is: powerful servers and software at the core of a business allow employees at the edge to work more efficiently and less expensively from anywhere, packing lighter laptops and handhelds and accessing vast amounts of software and data that reside...wherever. As Jonathan Eunice, president of the consultancy Illuminata, puts it, "Increasingly, customers are saying, 'I want a solution, and I don't care how you do it.'"

The gladiators in this war include plenty of familiar names, though their number gets smaller by the year (remember Digital Equipment Corp., or Data General?). At the top of the pile are such titans as Sun Microsystems and IBM; they are in gigabyte-to-gigabyte competition for customers like Citigroup that need the world's most powerful machines and can pay more than $1 million a pop for them. Below Sun and Big Blue are innovators like Hewlett-Packard that develop much of their own technology or firms like Compaq that buy it through acquisitions (as Compaq bought DEC in 1997).

But this is a two-front war, with a lot of skirmishing also at the lower end of the market. High-powered computing has traditionally relied on the costly, time-consuming R. and D. that makes Sun and IBM legendary. But continuing advances in microprocessor technology enable Intel to sell blazing-fast chips that, when run by Microsoft Windows, allow some manufacturers to sell very fast servers for as little as $2,500. That trend is broadening the market for servers, making them affordable to almost any firm that wants to sell on the Web or manage its inventory better. That, naturally, is the arena in which Michael Dell has elected to pick his next fight.

This contest is worth following not only for those who work or invest in the computer industry but also for buyers of servers, software and services. Those customers look like the only sure winners, as fierce competition makes the technology more capable and less expensive every day. Here are the major players, their strengths and weaknesses, and the odds that they will be around to fight another day.

SUN MICROSYSTEMS Scott McNealy has been preaching the gospel of network computing ever since Sun was founded in 1982, and in 1995 the company launched Java, now the world's most popular software platform and the heart of the action for many a high-end Unix server. The company benefited wildly during the dotcom boom as hundreds of Internet start-ups snapped up Sun's powerful servers.

Unfortunately, just as many companies went bankrupt when the boom went bust, flooding the market with new and used Sun products at a fraction of their retail price. Sun's sales have dropped for two straight quarters. Sun's share price fell from $65 in September 2000 to a low of $7.50 late in 2001. And McNealy was forced to lay off 3,900 of his 43,000 workers.

Sun is committed to its unique, premium combination of proprietary hardware and open software, but McNealy, the industry's biggest Microsoft critic, won't go near Wintel-based machinery. That could be a problem as customers flock to cheaper solutions. Employment website monster.com , for instance, switched from a Sun system to Dell's standard, plain-Jane servers more than two years ago and has no interest in switching back. "I don't need to have the latest whiz-bang server," says chief technology officer Brian Farrey. "Dell instead asked, 'How can we make your life easier?'"