November 24, 1998
Tech Center
AOL Rocks the Web With a Deal
To Buy Netscape for $4.2 Billion
Online Service Also Sets Pact on Alliance
For E-Commerce With Sun Microsystems
An INTERACTIVE JOURNAL News Roundup
America Online Inc. unveiled a much-anticipated deal to acquire Netscape Communications Corp. in a $4.2 billion stock swap.
The deal also includes a strategic alliance between AOL and Sun Microsystems Inc. under which Sun will pay to use and market Netscape's electronic-commerce software. Under the agreement with Sun, AOL will purchase a minimum $500 million in Sun systems and services through 2002. Meanwhile, AOL will receive more than $350 million in licensing, marketing and advertising fees from Sun, plus "significant" minimum revenue commitments, over the next three years.
Already the world's largest online service, AOL extends its reach significantly with the purchase, and gains new tactical weapons in its battle with Microsoft Corp. to dominate the Web.
"The acquisition of Netscape is a big step forward for America Online that will greatly accelerate our business momentum," AOL Chairman Steve Case said. "Netscape has played a key role in helping consumers benefit from the enormous power of the Internet, and we share the same mission."
Terms of the deal call for Netscape shareholders to receive 0.45 share of AOL for each share held. The deal is expected to be completed in the spring of 1999.
AOL becomes the world's largest Internet-access provider, the distributor of Netscape's hugely popular browser software and the owner of two of the four most popular sites on the Web.
1Other Internet Players Scramble for Shelter as Web Alliances Shift
2Microsoft Says Talk of a Merger Shows Flaws in Government Case
3AOL Takeover of Netscape Might Upset Bertelsmann
4Analysts Say the Boom Is Back as Merger Wave Charges Ahead
5Ascendant AOL Moves Close to a Deal to Acquire Netscape (Nov. 23)
6AOL, Netscape Mull Partnership, Including Possible Browser Deal (Nov. 18)
Under the proposed plan, AOL would get some of the Internet's most prized properties. Netscape's browser software, despite an epic battle with Microsoft that is at the center of its antitrust trial, is still used more than any other to cruise the Web. Netscape's Netcenter portal site offers news, Web searching and information to millions of users. And Netscape has a stable of software used behind the scenes to run the Web's computers and conduct electronic transactions.
But the deal would also take AOL into uncharted territory. The Dulles, Va., company built its business serving consumers; Netscape, based in Mountain View, Calif., has catered largely to businesses. Can AOL, derisively called "America On Hold" for its once-frequent system problems, serve as a reliable corporate supplier? And is Netscape, already wounded by withering competition, worth the rich price?
New Plans
AOL is looking to Netscape as Microsoft lays ambitious new plans for its MSN network of Web sites. Netscape would also fortify AOL against other portal companies such as Yahoo! Inc., as well as emerging competitors such as cable TV and phone companies.
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What an AOL/Netscape Deal Means to You The Browser
Cruise
Control AOL could use Netscape's Navigator -- the most popular tool for cruising the Web -- to direct where you surf.
Creeping
onto the Web Recently AOL started letting members check their e-mail from the Web instead of using AOL's software. AOL could use Netscape's browser to move even more functions to the Web.
A Bargaining
Chip for TV Cable companies and others that want to build browsers into set-top boxes and other consumer devices would need to deal with AOL for the Netscape browser, which could be closely linked to AOL's service.
The Portal
A Beachhead
in the Office Netscape's Netcenter, one of the Web's most popular destinations, has been strong with business users. By controlling Netcenter, AOL could expand beyond its base of home users.
You're
an Eyeball If you're a Netcenter user, AOL will be marketing to you through ads and services on that site. It gives AOL, already the largest online service, millions of additional 'eyeballs.'
Narrowing
the Field AOL would operate Netcenter as a separate site, but by buying Netscape it has effectively eliminated a competitor to its AOL.com portal.
The Technology
Controlling
the Guts Netscape is a major developer of software that runs Web sites and processes electronic-commerce transactions. If AOL gains control of this software it could be everywhere when you shop, from ads to electronic cash registers.
More
Know-How The programmers who helped develop some of the Internet's cutting-edge features could give AOL's service a big technical boost.
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And owning Netscape's browser could make AOL an even more attractive partner for cable companies and consumer-electronics makers that want to incorporate Web browsing into high-speed connections and new Web gadgets. Microsoft is advancing quickly on this front, too, and its purchase of WebTV, a system for accessing the Internet from a television set, has helped force AOL's need for a response.
The overall package could make AOL a fearsome presence in electronic commerce, an increasingly important area since the service no longer can rely mainly on subscription fees for its growth. Netscape's "back end" software could give AOL closer ties to big companies that do business online, while Sun could promote these Netscape products as it sells its "server" computers to the Web outposts.
7Company Profile: Netscape
8Company Profile: America Online
9Company Profile: Sun Microsystems
AOL could then promote the goods and services sold by these merchants to the millions of Web cruisers who see the Netcenter page first when they sign on, since it is the default home page of Netscape's browser.
A big question for AOL: How will it integrate Netscape's corporate focus into its consumer business? AOL wants Netcenter so it can reach a business audience for advertising and electronic commerce and better compete with Yahoo and other portals. Likewise, Netscape supplies its browser to corporate and government users -- giving it inroads into offices all over the world.
But AOL achieved its dominance by reaching out to a mass consumer market. By distributing millions of free disks with AOL software, it has promoted its service heavily as the easiest on ramp to the Internet -- even at the cost of gaining a reputation as a hangout for novices.
'Consumer Company'
"Everything about them seems to be a consumer company," says Charles Brewer, chief executive of MindSpring Enterprises Inc., an Internet-service provider in Atlanta that competes with AOL. The desire to reach deeper into businesses "doesn't strike me as a great ambition," Mr. Brewer adds.
Of course, it is precisely AOL's shortcomings in this area that have prompted its desire for a stronger presence among business users. And it has already made some moves to reach out. Its purchase last year of CompuServe, an online service traditionally favored by serious users and operators of small businesses, was one such move.
If AOL can successfully use Netscape's technology and skilled programmers to move more of its offerings onto the Web, however, it could blur the distinction between business and consumer use. Right now, members must have a copy of AOL's special software on their computer before they can access the service's offerings. So members that use AOL at home often haven't been able to read e-mail or perform other functions from office computers.
10Join the Discussion: Do you think the idea of selling all or some of Netscape is a wise move? Tell us what you think of the company's fate and the future of browser development.
AOL has been trying to change that. For instance, it is testing a system to let members check their e-mail via the Web from any computer connected to the Internet. Netscape's software savvy could help AOL move other functions onto the Web.
That approach could grow even more vital as more users turn to high-speed "broadband" connections that deliver the Internet over cable-television lines and digital-telephone systems. Those systems will clearly encompass Web browsing but are less likely to include proprietary software like AOL's.
Ed Bennett, former chief executive of the Prodigy online service, says a Netscape deal could also help AOL tap new business partners and relationships. "Netscape holds court on the West Coast the same way AOL holds court on the East Coast," Mr. Bennett says.
-- Thomas E.Weber and Kara Swisher contributed to this article.
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