March 22, 1999
AOL Is Likely to Eliminate
More Employees at Netscape
By KARA SWISHER, THOMAS E. WEBER and JOANN S. LUBLIN
Staff Reporters of THE WALL STREET JOURNAL
America Online Inc. is likely to make more-widespread job cuts than
initially anticipated at Netscape Communications Corp., laying off as much
as 20% of the pioneering Internet company's 2,500 employees.
Executives from both companies are still completing integration plans for
Netscape, which was acquired by AOL last week. But people familiar
with the matter said AOL is considering a broad reorganization of
Netscape operations, including cost reductions and structural changes in
departments that had been expected to be left relatively intact. Sources
also noted that the changes at Netscape might also lead to shifts within
AOL management and structure.
Some Netscape programmers, these people said, could be cut because of
overlaps with those at Sun Microsystems Inc., which signed a deal to
jointly develop and market Netscape technology. They added that
Netscape's popular Netcenter Web site will be combined with AOL's
Web operations under senior AOL executive Barry Schuler, with
deal-making responsibilities for Netcenter shifted to AOL headquarters in
Dulles, Va., and ad sales combined with AOL operations in New York.
Those changes are in addition to
long-predicted staff cuts in administrative
areas, including Netscape's legal,
communications, customer service, payroll
and human-resources departments.
AOL's consolidation plans are likely to be
closely scrutinized, in part because of their potential impact on retaining
Netscape managers and technical staff that are vital to the $10.2 billion
combination. The lengthy transition period has already caused anxiety
inside Netscape, whose work force stands to be picked over by other
employee-hungry technology companies in Silicon Valley.
Difficult Decisions
AOL and Netscape officials said they wouldn't discuss organizational
details until later this week. But they acknowledge that they face thorny
personnel issues.
"The fact of the matter is that mergers are very difficult for everyone
involved," said AOL's Mr. Schuler, who has been overseeing the
transition, in an interview before the merger was approved last week. "As
far as we're concerned, we did this deal because we felt there's a lot of
talent at Netscape we were going to be able to leverage into bigger roles
at AOL."
Netscape, based in Mountain View, Calif., helped popularize the Web
with its browser software. After a meteoric rise, the company was forced
to change strategies and reduce its work force after Microsoft Corp.
began making successful inroads in Internet software. Netscape agreed to
AOL's takeover offer in November.
Netscape currently has about 600 employees devoted to software product
development, 570 at Netcenter, 1,000 in sales and services jobs, 200 in
customer service and 175 in general administrative areas. On Friday,
TheStreet.com -- a financial Web site -- reported that job cuts could be as
high as 30%, or 750 people. But people close to the situation say it is
more likely that 375 to 500 employees are actually at risk.
Employee retention is at least as important as cutting costs, because
keeping key employees is critical to AOL's ambitious plans for dominating
Internet commerce and programming. The rise in AOL shares since
November -- when the deal was initially valued at just $4.2 billion -- has
worked in AOL's favor, particularly in courting Netscape employees with
a large number of unvested stock options. On the other hand, many
Netscape employees already have stock gains that make them millionaires
many times over, and could easily leave Netscape for other attractive jobs
in Silicon Valley.
An AOL Sweetener
During the transition, AOL offered an extra month's salary to every
Netscape employee who remained until the deal closed last Thursday.
AOL's chief executive officer, Steve Case, at an "all hands" meeting days
after the deal was announced, also promised to preserve treasured
Netscape perks such as bringing pets to work and taking a paid six-week
sabbatical every four years. The retention effort got another boost when
Netscape cofounder Marc Andreessen in January agreed to become
AOL's chief technology officer.
But the AOL deal has taken longer than expected to close, in part because
of government antitrust scrutiny. As the weeks dragged on, some
Netscape managers say they received little information about where they
will fit in AOL's post-merger pecking order.
When AOL President Bob Pittman flew to Silicon Valley for a three-day
huddle with Netscape's managers three weeks ago, for example, he was
asked when they would learn about the combined company's
organizational structure. "When the deal closes," was Mr. Pittman's terse
reply, according to participants at the meeting.
It remains to be seen how many Netscape executives weather the
transition. James Barksdale, its chief executive officer, will leave active
management but remain an AOL director. Heads of departments expected
to be consolidated in the merger are regarded as particularly likely to
leave.
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