UNDER THE DEAL, first announced in November, AOL will acquire Netscape and enter into a strategic alliance with Sun Microsystems Inc. At the time of the deal, Sun said it would also market Netscape's business software, while AOL and Sun would jointly sell e-commerce packages to businesses wanting to sell goods online.
Once the deal is completed — AOL can close it anytime after the Netscape shareholder vote — the full impact of those alliances will soon become apparent.
“When the merger goes through, you'll see AOL move forward very aggressively to flesh out marketing strategies and synergies between the two companies,” says Ron Rappaport, Internet analyst with Zona Research.
David Simons, an analyst with Digital Video Systems, agreed: “With [Sun Microsystems and Netscape], now AOL can offer end-to-end e-commerce capabilities.”
While AOL's senior vice president of ad sales Myer Berlow wouldn't comment about specific plans until after the merger's closure, he acknowledged that e-commerce is an integral part of AOL's game plan.
“This medium gives a marketer a new distribution and new transaction paradigm,” says Berlow. “This vision of what this medium could be will be much more clear to people when they see what we're doing with Netscape. It opens the possibility of the end-to-end marketing solution: now marketers can come to us and get help.”
It's the concept of end-to-end marketing solutions where Sun shines in the deal.
While much attention has focused on AOL's interest in Netcenter — the Web portal developed last year by Netscape in order to hang onto the people who land on the browser's home page — a driving part of the merger is the strategic alliance between AOL and Sun. Why? Because Sun's computer servers are the preferred hardware for hosting Internet content.
“One of the open issues is, what exactly is the nature of the relationship with Sun?” says Mark Mooradian, senior analyst with Jupiter Communications.
Netscape co-founder Marc Andreessen, recently interviewed by CNBC, gives the software company a visible leader in AOL's top management.
Sun has promised more $1.25 billion in fees over the next three years to help AOL buy Netscape, in exchange for access to the software company's range of Web server products. In return, AOL committed to buy $500 million worth of Sun's hardware and services over the same time period.
Furthermore, Netscape, AOL and Sun have agreed to use Sun's Java technology to build a browser or non-PC network software that would give consumers Web access, or access to AOL, through smaller digital or handheld devices, according to AOL documents filed with the Securities and Exchange Commission.
What Sun gets from the alliance, according to a source at the hardware company, is the ability to sell its big business clients not only hardware but Web access software. Although exact plans can't be determined until the merger is complete, analysts expect Sun's sales force to sell Netscape's full line of Web server products.
“It's a great thing for Sun to get access to [Netscape's products,]” says the Sun source. “Many businesses would like to buy bundled solutions with the software and hardware together. This will allow Sun sales reps to sell more complete solutions.”
THREAT TO MICROSOFT?
‘There is clearly a battle taking place among the Internet giants such as Microsoft and AOL.'
— FRED MORAN
ING Barings Furman Selz While AOL chairman Steve Case has said publicly the deal with Netscape and Sun wasn't intended to be competitive against Microsoft, analysts see it another way.
“There is clearly a battle taking place among the Internet giants such as Microsoft and AOL,” says Fred Moran, managing director at ING Barings Furman Selz. “This deal is another step by AOL to be competitive against Microsoft.” (Microsoft is a partner in MSNBC.)
During its antitrust trial, Microsoft has repeatedly called the AOL-Netscape-Sun troika a threat to its business.
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While AOL's 16 million subscribers make it a dominant force in the online world, its audience is largely the home-based consumer. But with Netcenter, AOL gains access to the portal's estimated 10 million registered users, known as a more serious corporate group than AOL's members.
“AOL has dominance in the consumer segment; this is their opportunity to enter the business community,” says analyst Moran of ING Barings Furman Selz.
“The Web is an integral part of the work experience,” says Zona Research's Rappaport. “AOL has an opportunity via Netcenter to create the same kind of business presence that they have in the home.”
...AND EXCITE?
Another open question is what the AOL purchase of Netscape will mean for Excite Inc. Last spring, Excite cut a two-year, co-branding deal with Netcenter to program content and sell advertising on a number of channels such as Health, Lifestyles and Autos.
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Excite paid Netscape $70 million up front as part of the deal, with the two Web portals splitting ad revenues on the co-branded areas.
As part of the Netcenter agreement Excite has the option of canceling the deal with 90 days notice. Netscape does not have the same option, according to analysts.
Source indicates that no decision is likely until Excite completes its merger with AtHome Network, which is expected to close sometime in April.
“I wouldn't be surprised if the deal stays in place,” says Daniel King of LaSalle St. Securities. “Excite management wouldn't give up a revenue stream just because they'd be working with a competitor.”
Another analyst disagrees. “My guess is, it won't last,” says David Simons of Digital Video Investments. “Excite brought ad sales, product development and ongoing service and maintenance to Netscape, but AOL has all that. Why does AOL need Excite?”
As evidence of “how far apart” Excite and AOL are, Simons mentions AOL's recent sale of its 10 percent stake in Excite for $500 million.
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