Netscape marries America Online

By Richard Morochove

First published December 3, 1998

It's hard to imagine a more culturally incompatible pair of Internet partners. Yet America Online (AOL), the marketing business that happens to use technology as a tool, is getting together with Netscape, the technology developer that fumbled marketing opportunities time and time again.

One thing both AOL and Netscape share is a common enemy in Microsoft. AOL faces competition from the Microsoft Network (MSN), the software giant's online Internet access and content provider. Netscape is battling Microsoft's Internet Explorer web browser and related e-commerce software for market share.

If the enemy of my enemy is my friend, then Microsoft was the formidable foe that chased Netscape and AOL to the marriage altar. One of the lighter moments in Microsoft's ongoing anti-trust trial came when it was revealed that AOL CEO Steve Case called himself FDR in E-mail correspondence with Netscape chief Jim Barksdale, who assumed the moniker of Stalin.

Netscape had few alternatives to this friendly merger. Each of its three major business segments are under siege. Its Netcenter web portal site is being whipped by Yahoo. In the browser war, recent independent surveys of users have shown Microsoft's Internet Explorer overtaking Netscape's web browser. In e-commerce, Netscape battles not only Microsoft but also Sun Microsystems, IBM and others.

What does this apparent strengthening of the anti-Microsoft forces mean for computer users? What's to become of Netscape's technology in the wake of AOL's buyout?

Netcenter was the jewel that attracted AOL. Netscape's site attracts far more business users than AOL. Combined, the websites of both companies will offer more "eyeballs" to Internet advertisers than any other, including Microsoft's stable of sites. If AOL uses Netscape's programming wizards effectively, we could see new and exciting online services coming out of this merger.

What about Netscape's browser software? America Online isn't known for its great software. Someone who isn't a fan of the deal called himself "Steve Caze, newly crowned Grand Caliph of the Internet" and posted a list of new browser features to Usenet newsgroups.

"We have determined that the single most important thing an AOL user wants is to know what other AOL users are wearing," said Caze. "The new browser will feature a 'what-R-U-wEaRiNg???' button."

Yet in its earlier acquisitions of online service CompuServe and instant messaging service ICQ of Mirabilis, AOL acted with sensitivity. AOL preserved the look and feel of the acquired software offerings, while achieving economies by combining behind the scenes business operations.

AOL now incorporates Microsoft's Internet Explorer browser as the preferred browser for its online software, in return for a coveted icon on the Microsoft Windows desktop. According to AOL, that Windows icon accounts for about 10 per cent of new subscribers.

AOL can get out of its browser distribution deal with Microsoft as early as this January. Netscape is working on a new, fast, browser code-named Raptor. If this new browser technology is ready in time, AOL might change to it to escape its dependency on Microsoft, even if it means losing that valuable Windows desktop icon.

Even if AOL switches to Netscape's browser, it's unlikely this will reverse its decline in market share. Many smaller Internet Service Providers (ISPs) who now distribute Netscape's software to their subscribers hate AOL even more than Microsoft and could switch allegiance.

Netscape's e-commerce software doesn't really have a neat fit with AOL's current operations. That's why the third participant in the AOL and Netscape deal is Sun Microsystems. Sun will pay AOL $350 million (U.S.) in licensing fees. AOL, in turn, will buy $500 million (U.S.) of Sun products.

Sun will market Netscape's e-commerce software using its sales force and will work together with Netscape in developing new products. In the long-term, I expect Sun will acquire this part of the business and offer stronger competition to Microsoft.

AOL will also license Java from Sun and work to develop Internet computing devices that connect to AOL, which might include TV set-top boxes and handheld devices.

The key to Netscape's technology is its people. It's unclear how many will stay under AOL's ownership, even with the lure of potentially valuable AOL stock options. Barksdale will get a seat on AOL's board of directors, but will not be directly involved in managing the operations. One player to watch is Netscape co-founder and technology guru Marc Andreessen, currently on sabbatical until January.