Indeed, sales of Internet-focused thin servers will leap to $1.4 billion in 2003 from $69- million in 1999, according to Dataquest, San Jose, Calif. Although thin is in in terms of ease of use and efficiency, small-business customers have demanded that some functions be fattened.

"Initially, Internet servers didn't do much more than we could do with routers," said Wayne Martin, president of Merit Information Systems, a Houston-based VAR. "Now, they are powerful, fully functional Web servers that fit the bill for small businesses."

For the past two years, half of Merit's new customers have been won via an Internet-appliance sale.

"Internet servers are a customer-acquisition opportunity for VARs," said John Hamm, president of Whistle Communications Inc., maker of the InterJet thin server. Whistle, a start-up thin server company, hit the big time when it was acquired by IBM Corp. this year.

Whistle has put more features into its InterJet line. IBM's Small Business WebConnections program offers a set of subscription-based comprehensive Internet services delivered via the InterJet.

In WebConnections, the VAR "becomes an agent for services," said Hamm. "Our VARs will receive a commission on a service contract, as opposed to a pass-through hardware margin."

Whistle VARs have mixed reactions to WebConnections. Some see it as a good source of ongoing revenue, while others see it as encroaching on their own offerings.

Meanwhile, Extended Systems Inc. is focused on helping VARs increase service revenue at a time when others, such as IBM, are going direct to customers, said an Extended Systems spokesperson.

Merit has a service bundle built on Extended Systems' ExtendNet 4000 Internet appliance and Internet services from ISP Verio Inc., Denver. Beyond Internet connection, E-mail and firewalls, Merit offers remote access, more layered firewalls, virtual private networking and reporting capabilities.

"The Internet appliance has facilitated the evolution of our business model from LAN and WAN solutions to Internet services," said Merit's Martin.

The inclusion of open-standard operating systems and Java tools in thin servers has made it easier for VARs to "develop broader applications that can hook on to Internet appliances," said Armando Garcia, president of Arcom Electronics Inc., a San Jose-based VAR.

Extended Systems' ExtendNet and Cobalt Networks Inc.'s Qube 2 appliances, among others, run on Linux. "It's a reliable operating system backed by a large development community," said Steve Wood, Extended Systems' R&D manager. "It allows for timely complex development solutions."

Linux's success in the small- to midsize-business market has made customers very amenable to buying Internet appliances running it. "Linux is great for the lower-end marketplace because it's available, flexible and cheap," Garcia said.

VARBusiness is a publication of CMP Media Inc.