AOL, SUN- WEB TOP WINDOWS, AN END RUN AROUND MSFT
As an amateur hockey player, Sun Microsystems Inc.'s chief executive, Scott McNealy, isn't afraid to slam an opponent with a fierce body check. His aggressiveness makes Sun a natural ally for America Online Inc. in a game with Microsoft Corp. that promises to get rough.
Sixteen-year-old Sun makes zippy desk-top workstations for engineers and powerful server computers that run many World Wide Web sites. But Mr. McNealy has bigger ambitions for the company. As digital networks become the foundation for nearly all commerce and communication, he wants Sun to be a dominant provider of equipment and software. In short, Mr. McNealy wants to make what he calls Sun's "Web tone" as pervasive as the dial tone on a telephone.
It's a big reason Sun yesterday announced a broad alliance with America Online as part of AOL's $4.28 billion purchase of Netscape Communications Corp. Sun and AOL will collaborate to use and sell electronic-commerce software, as well as market a new breed of low-cost Internet terminals based on Java, Sun's popular programming technology. The new devices, simpler than PCs, will deliver AOL's information and merchandising services and advance the company's "AOL everywhere" strategy.
Over the long term, Mr. McNealy is brashly betting that the new partnership can pose a potent alternative to Microsoft and take advantage of fears among financial-services firms, electronic merchants and others that Microsoft may ultimately compete with them.
"Where do they go to get the technology to compete with Microsoft?" Mr. McNealy asks. "We're the natural arsenal."
The alliance also could sharply raise Sun's public profile. Based in Palo Alto, Calif., Sun remains to most consumers a faceless provider of electronic plumbing. In an effort to change that, it has been boosting its advertising. This week, for example, Sun is sponsoring a major golf tournament. (Mr. McNealy, who also is an avid golfer, will caddy for pro Justin Leonard, while Sun's chief operating officer, Ed Zander, will carry Davis Love III's bag.)
Sun specifically declined to take any equity in AOL, Mr. McNealy says, in order to preserve its ability to sell to AOL's competitors as well. "We want to be a great partner but we don't want to pick sides," he says.
AOL agreed to buy computer systems and services from Sun worth $500 million at retail before 2002. After discounts, though, AOL actually will pay much less.
In return, Sun will pay AOL $350 million over three years in licensing fees for Netscape's software and marketing and advertising costs. Sun also will give AOL a portion of the revenues it generates reselling Netscape's software -- with "significant minimum commitments" that weren't disclosed.
Sun's biggest claim to fame is Java, a programming language that makes it easier to create software capable of running on any type of hardware or operating system. More recently, Sun also has been promoting a related software technology called Jini, which allows mobile computers, digital cameras, printers and consumer devices to identify themselves to others and set up communication channels with them.
With its potential as an alternative to Microsoft's crusade to link all programs to Windows, Java has been widely endorsed by companies such as International Business Machines Corp., Oracle Corp. and Novell Inc. While the companies are at times fierce competitors, they hope Java software will become a standard on desktop computers, cell phones, TV set-top boxes and the powerful "server" computers at the other end of connections with these devices.
Netscape was the first company to endorse Java, and the company has always played an important role in Sun's strategy. Netscape's Web browsers were designed to run Java programs, serving as the distribution channel to get Java onto millions of computers.
But Sun and Netscape were not always a cohesive team against Microsoft. Earlier this year, Netscape abandoned a project, partly financed by Sun, to develop a version of its Navigator browser for use on Internet devices. Based on Java and dubbed "Java-gator," the browser would have run a Java operating system rather than Windows.
Now, Sun will integrate Java technology into Navigator, and use features from Navigator in its own Java-based Web browser, HotJava, Mr. McNealy says. In addition, AOL endorsed Java, including a new version due out in December, as the basis for its electronic-commerce efforts.
Mr. McNealy contends those efforts -- combined with a favorable ruling last week in Sun's unfair competition lawsuit against Microsoft -- re-establish Java as a significant threat to Microsoft. In the proceedings, under way in San Jose, Calif., U.S. District Judge Ronald Whyte issued a preliminary injunction ordering Microsoft to rewrite parts of the Windows 98 operating system and other products to comply with Sun's version of Java.
AOL and Sun plan to work on what AOL executives are calling a "desktop portal." Lately, Internet "portals" -- such as Yahoo! Inc. -- are hottest tickets in cyberspace, because they can attract and hold large audiences. But ultimately, Microsoft's competitors hope to replace the familiar Windows desktop with a new set of features and services that include e-mail, calendars, news, weather and stock quotes and electronic-commerce opportunities, as well as access to personal documents and data. AOL sees these desktop portals -- which Sun calls "Web tops" -- becoming popular for corporations and other users.
Sun and AOL yesterday disclosed that they have been quietly working together for over a year on a new line of consumer appliances, costing as little as $200, that would make it much easier to access AOL's services. AOL said it also has plans to use Java to deliver information and services to pagers, hand-held computers and other devices.
The AOL deal, which gives Sun marketing rights to Netscape's line of electronic-commerce software, also accelerates the computer maker's expansion into software. Sun hopes to grab part of the hot market for "middleware," the software that sits between a company's back-end database systems and its Web site.
In July, Sun paid approximately $160 million in stock to buy NetDynamics Inc., which makes software that allows companies to create Web-based services. Meanwhile, Netscape last year bought a NetDynamics rival, Kiva Software Inc. Mr. McNealy said Sun would continue development on both product lines.
Sun's move into software may increase competitive tensions with other members of the anti-Microsoft alliance. After the NetDynamics deal, IBM's software chief, John M. Thompson, told Mr. McNealy he was nervous that Sun was "coming into our space," according to an IBM executive. Mr. McNealy says he didn't alert Mr. Thompson before the deal with AOL. "He never gives me a heads-up on his deals," Mr. McNealy says.
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