Got this this afternoon in an e-mail from the Raging Bull. If an alliance with ATHM takes place, I personally think AOL will have become the 800 lb gorilla of the internet.
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DO YOU REALLY KNOW AOL'S NEXT MOVES?
Well, the news this past week of AOL acquiring Netscape for $4.2 billion in
stock shouldn't have surprised many regular readers of this report. However,
Steve Case swung by in the AOL Ferrari and picked up Barksdale & Co. a little
quicker than I had expected.
Now that the AOL-Netscape marriage has in fact occurred, it's time to really
understand why this deal was done and what AOL has in store for the future.
Tight VC Connection:
First, let's look at how preeminent Silicon Valley venture capital firm
Kleiner, Perkins, Caufield & Byers played a hand in this monstrous deal. KPCB
has been one of the most influential, if not the most influential, VC's in
Silicon Valley since 1972. Don't believe me? KPCB has raised over $1.2 billion
in capital, and has invested in companies
whose total market value now exceeds $80 billion. And surprise, surprise- guess
who currently holds board seats on Sun Microsystems, AOL, Netscape and @home?
Yep, you guessed it- KPCB.
KPCB venture capitalist John Doerr, alone, sits on three of these four
companies' boards of directors. Doerr serves on the boards of Sun, Netscape
and @home. Should we be that surprised then, that AOL not only acquired
Netscape, but also cut a deal with Sun to begin working on next
generation Internet devices, and will also begin selling Netscape's enterprise
software? Of course not, this is all an intertwined web of existing
relationships among these companies, with Doerr proudly sitting on the sideline
as master dealmaker.
Looking back, most of the Sun/Netscape/AOL deal was surely hammered out at
least a month ago. After all, when Netscape co-founder Mark Andreessen
announced last month that he was taking an extended leave of absence until
after the New Year, I should have realized a deal with Netscape was eminent.
Andreessen definitely would not announce this
sabbatical until he was sure that his baby (Netscape) had been taken care of.
AOL's Quest for High Speed Internet:
While many analysts are spending their time analyzing the Netscape-AOL deal
from an eyeball perspective, there is another motive at work in this deal. Of
course, Netscape is extremely attractive on the eyeball front- AOL will now add
Netcenter's 20 million users into their online fold- but AOL now also gains
access to Netscape's team of brilliant
software engineers. Steve Case's ultimate slogan is "AOL Anywhere" and this
means having AOL available on every "next generation Internet device"
conceivable. TV's, set top boxes, pagers, wireless phones, personal digital
assistants- you name it- Case wants his service on it.
This is where the Netscape/AOL/Sun partnership really comes into play. Correct
or not in his assumption, Case obviously believes Sun and their Java
programming language is the ticket to take him to this Promised Land of "AOL
Anywhere." By acquiring Netscape, AOL will now have Sun working hand in hand
with Netscape's browser platform and java to fully
intertwine the two. Together, Netscape and Sun's programmers should be able to
fine-tune the ultimate operating system/browser, capable of running some
version of AOL for every device imaginable.
I also see AOL's purchase of Net Channel, back in May, finally starting to make
sense now. Before discontinuing their services, NetChannel provided an
interactive, Web enhanced TV experience to over 10,000 users. The interesting
benefit of NetChannel was that, while the service did provide extremely limited
interactivity with the content, a user did not have to purchase an expensive
set top box, such as WebTV, to operate NetChannel.
Earlier this year, AOL trademarked the name "AOL-TV" for their planned
interactive television venture. The added expertise of Sun and Netscape's
programming teams, should then be able to put the final touches on relaunching
NetChannel early next year as AOL-TV. In fact, I wouldn't be surprised if AOL
didn't unveil the first "carriage agreements" for AOL-TV with some major cable
companies next week at the Western Cable Show in Anaheim.
AOL-TV definitely won't be as earth shattering as the possibility of high speed
Internet access for AOL subscribers through @home, but it's definitely a start
of the "AOL Anywhere" campaign for Case.
An AOL- @Home Deal?
I also sense the pieces falling into place for a deal between @home and AOL
shortly. I know we've all read about the recent disagreements between @home and
AOL, but don't believe the hype-- money and eyeballs always talk in the end.
AOL has the subscribers (14 million and growing), and the additional eyeballs
and leverage of Netscape, to now
use against @home. While @home represents 60 million homes with cable, the
service has currently been able to snag only 207,000 customers. AOL, in my
opinion, provides the only viable partner to really build @home into a mass
marketed, mainstream service.
Don't forget that back in June, Microsoft and Compaq each invested $212.5
million in Time Warner's high speed RoadRunner service, which is @home's
primary competitor. With Microsoft siding now with Time Warner, AOL is left
looking like a very likely partner for @home. And @home is
left in desperate need of a big time partner with mass marketing expertise.
Sure, @home has some of the biggest cable companies in the country as investors
and partners, but they lack the mass marketing savvy of Case & Co. at AOL.
As always, AOL is attempting to coyly persuade @home to reach a partnership
with them, by approaching @home from a variety of directions. Currently, AOL,
MCI WorldCom and several public groups have filed objections to the proposed
AT&T/TCI merger at the FCC. They have called for the government to mandate
equal access to cable's high-speed
data pipe, like it does with phone lines, to avoid favoring any ISP.
Ultimately, AOL is seeking for a free ride and free access to broadband pipes
that AT&T, TCI, @home and others have spent billions to build. I don't see any
chance of the FCC ruling in AOL's favor, however, it does turn up the heat on
@home and let them know that AOL has no intention of
just rolling over.
AT&T Will Make the @home- AOL Deal Happen
It's a rather poorly kept secret that AT&T had made a failed bid earlier this
year to acquire AOL. Since that time, AT&T has gone on to acquire cable giant
TCI in a $48 billion deal. The crown jewel of AT&T's TCI acquisition would
appear to be the controlling stake TCI holds in @home. Currently, TCI holds 4
seats on @home's board of directors.
Here is the deal that AT&T chairman C. Michael Armstrong was proposing back in
early November to AOL- Armstrong suggested AOL should sell its content package
to @Home subscribers for $9.95 a month. This service would be added as an
additional "premium style add-on", much like HBO
or Cinemax. to @home subscribers.
With AT&T now holding a controlling interest in @home, I believe it's only a
matter of a few short months before AOL and @home hammer out a deal. As much as
AT&T tries to play hardball with AOL, they obviously have a strong interest and
respect for the online giant, or they wouldn't have attempted to purchase them
earlier this year. The fact of
the matter is AT&T realizes AOL could be the key ingredient in helping to bring
@home's high speed Internet service to mainstream America.
The final clincher for this deal is the fact that Jim Barksdale of Netscape
(whom I should note is former CEO of AT&T Wireless Services),as well as John
Doerr and William R. Hearst, III of KPCB, both hold seats on @Home's board.
Let's face it- that's a lot of people whispering in @home CEO Thomas Jermoluk's
ear to join the "AOL Anywhere" program.
And if Jermoluk needs any more encouragement, there's always Netscape and
Silicon Graphics co-founder Jim Clark looming in the background.With a large
portion of his personal wealth now tied up in AOL stock after the Netscape
acquisition, he has a lot to gain by making an @home-AOL deal happen.
Care to guess where Jermoluk was Chief Operating Office at before his current
stint with @Home?
Yep- Silicon Graphics, with his old buddy Jim Clark.
I guess it just goes to show, that the Internet is indeed a small world after
all.
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