Half a dozen big names have long dominated the American technology sphere, but the rise of web-based companies threatens to recast the pecking order and is forcing the old guard to rethink their business models.

The widespread use of web-based applications such as Yahoo!’s e-mail and Google’s search engine has forced the likes of IBM, Microsoft and Hewlett-Packard to wonder how they can profit from the new era of computing through remote data centres.

Google has led the charge of internet companies promoting consumer services that operate remotely – so-called cloud computing. Now IBM and others have started to offer computer services for business on huge data centres not owned or operated by the customers themselves.

Sales of traditional enterprise servers and software, which have provided billions of dollars every year for companies such as IBM, are still hugely profitable. In recent years there has been a concentration of power for the big four or five companies as they have acquired rivals but they are under threat from upstarts such as Salesforce, Amazon and Google.

Sun Microsystems this week rejected a $7 billion (£4.7 billion) bid from IBM, but the two are still likely to end up together. Investors appear to be taking that prospect into account, Sun’s shares still changing hands above the $4 to $5 range that they traded in before the bid talks surfaced last month.

IBM is keen to buy Sun because it would give the company a clear lead at the high-end of the $45 billion overall server market that it fights over with Hewlett-Packard. Sun is best known for its Unix servers favoured by financial services companies, telecommunications carriers and government agencies.

IBM led that $17 billion market last year with a 37.2 per cent share of sales, followed by Sun with 28.1 per cent and HP with 26.5 per cent.

But those same high-end servers and Sun’s innovative in-house technology would also be a perfect fit for IBM to develop further for the enormous data centre market that cloud computing will bring to life.

Hewlett-Packard has already shifted to custom-built servers for use by web-based companies such as Yahoo!, Amazon, MySpace and Facebook.

IBM announced this week that it would sell a suite of web-based collaboration software for businesses, including contact management, instant messaging and file sharing programs – the computing giant’s biggest effort so far to sell software as a service.

Sean Poulley, vice-president of IBM, said: “You are seeing the beginnings of the whole IBM company moving toward cloud computing.”

IBM is so successful because it has remained nimble. Over its 100-year history it has shifted direction several times, most recently moving away from making computers and other hardware to higher-margin technology services. It has acted smartly in the acquisition market: since 2003 it has spent about $25 billion buying 80 companies.

From the other side of the fence, Sun’s sale to IBM would mark the demise of one of the world’s hottest brands during the dot-com technology boom.

Sun, founded by a team from Stanford University and once worth more than $200 billion, has been dogged by billions in losses since the dot-com bubble burst in 2001.

The company said after the collapse of the takeover talks that it was committed to its leadership team, growth strategy and building value for its shareholders, but most analysts agree that it cannot remain independent.

Sun designed its own servers, complete with computer chips and an elegant operating system but was undercut by the likes of Microsoft, which offered computer systems for businesses at a much lower price. Sun embraced open-source technology but struggled to generate anywhere near as much profit from servicing software customers as it did from selling premium hardware.

Meanwhile, Microsoft has continued to have strong sales of its office software for businesses. It has dominated word processing, spreadsheet and other desktop applications for more than a decade.

But the company knows that it cannot rely on its Windows software franchise for future growth and is moving into software as a service. It unveiled Windows Azure, its cloud computing plaform, last year and the framework will be offered alongside its next operating system, Windows 7.

Microsoft is taking a dual approach, insisting that its customers still want to have their software offline, on their own computers, as well as online in the web cloud.

The cloud is a company buzzword at Oracle, too, but the company’s recent robust results have come from its core database and “middleware” businesses that provide the building blocks for corporate IT systems. In a show of confidence last month, Oracle even announced the first dividend in its 23 years as a public company, with a quarterly payment of five cents.

Larry Ellison, the chief executive, knows that software as a service will not overturn his company’s business model overnight. Chief information officers at big corporations still need to be convinced of the reliability and security of storing vital information at remote computer centres and moving it across the internet.

Gartner, a technology research company, estimates that the global market for cloud-based business software, computing services and storage will total about $10 billion this year. That is a fraction of the $223 billion Gartner is projecting for the old-fashioned business software market alone.

But with companies under pressure to find economies wherever they can, the flexibility and lower costs of cloud computing will prompt more businesses to stop buying their own servers and software and move their IT online.

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