AOL and Netscape: Compatible Couple or Culture Clash?
Wandering through the forest of cubicles at Netscape Communications Corp., you’re likely to find employees who bring pets to work, who build elaborate sculptures out of soda cans and who spend vast chunks of their lives surfing the Internet. But there is one exotic breed you almost certainly won’t find: an America Online subscriber.
That speaks volumes about the cultural differences between these two companies, which are poised to combine in a merger that could remake the competitive landscape of the Internet or collapse under the weight of internal conflict.
The potential for problems seems clear. Netscape is the programming patriarch of the Net, a cocky Silicon Valley start-up that values engineering over marketing. America Online Inc., by reputation, is decidedly low-tech. The popularity of the Virginia-based company’s service is believed to have soared largely because of the millions of free floppy disks mailed to newbies who care more about hand-holding than cutting-edge technology.
But over the last two years, the long-divergent paths of these two companies have gradually veered toward a common destination, and many analysts and experts say their cultures today may not be as incompatible as they seem.
“They are very different companies, and yet if the Internet market is anything, it is adaptive,” said Greg Sands, one of the first employees at Netscape and an executive at the company until he left to become a venture capitalist several months ago. “I don’t necessarily see the cultural elements being a huge obstacle.”
These elements are, however, a huge consideration, because so much of the value of this prospective deal is embedded in the minds of employees. If Netscape’s engineers aren’t excited about the prospect of working under the aegis of AOL, they could bolt for other opportunities, taking much of Netscape’s software prowess with them.
“The real danger here is that Netscape might lose some people,” said David Yoffie, a business professor at Harvard University who recently published a book about Netscape. “The problem with all mergers in the high-tech world is that their most important assets are people. If it’s not handled with great care, there tends to be a massive exodus.”
One key to preventing that from happening in this case is the still uncertain role of Sun Microsystems Inc. Sun is expected to pay AOL for the right to distribute Netscape’s high-end software products to corporate customers. That potentially lucrative arrangement is a hopeful sign for Netscape engineers and solves AOL’s problem of what to do with a division of Netscape it knows little about.
Aside from the problem patched by that tricky maneuver, many observers say these two companies have a surprising amount in common, including traits that often annoy others in the online business.
Netscape’s Mike Homer and AOL’s David Colburn--master deal-makers said to be playing key roles in the negotiations--are both known for their aggressive negotiating tactics and considerable egos. In many ways, their personal traits mirror the culture of their companies.
“They’re both populated by very intelligent, hyper-aggressive people who think they’re right all the time,” said an executive from one prominent online firm that has done numerous deals with both companies. “They both started out convinced they were going to change the world. And to a large extent, they have.”
Along the way, their brashness has been tempered by a combination of setbacks and runaway growth that brought a degree of humility and maturity to both companies.
AOL was pilloried and watched its stock price plummet after a series of embarrassing service disruptions several years ago that left millions of users unable to log on. This came after the company’s belated decision to embrace the Net after first pursuing a misguided strategy to ignore the Web and concentrate on its own proprietary network.
Since then, AOL has smoothed out its technical glitches, acquired former rivals and attracted millions of additional subscribers to become by far the most popular means for consumers to access the Net.
“Two years ago, AOL was widely considered nothing but a source for basic, spoon-fed kinds of services,” said Alex Edelstein, another former Netscape executive who is now general manager of the search business at Inktomi Corp. in San Mateo, Calif. “But now if you have an AOL account, even your techie friends will consider it a good decision.”
For its part, Netscape has watched its status as Wall Street’s darling slide as precipitously as its share of the browser market after Microsoft Corp. began offering a competing product for free.
Since then, Netscape has had to adopt a new strategy every year. The browser company became the “intranet” company, which became the “extranet” company, until last year when Netscape decided to remake itself as a Web portal capable of competing with the likes of Yahoo Inc.
Critics said it was an opportunity recognized several years too late, but the growing popularity of the https://www.netscape.com site--the default home page on Netscape’s browser--is largely responsible for AOL’s interest in the company today.
The two companies still have significant differences. A combination of the two “is like having a culture which is half IBM and half Disney, and that’s not something most companies do well,” Yoffie said.
But in the fluid market dynamics of the Internet, partners in need are partners indeed, and AOL and Netscape are united in their pursuit of what one executive called “the big win,” and in their concern about a common foe, Microsoft.
Ironically, AOL spurned Netscape two years ago to make Microsoft’s Internet Explorer the preferred browser for its subscribers. But Microsoft’s online ambitions have expanded, and AOL may have concluded that Netscape’s technology and powerful Internet presence could help keep Microsoft at bay. And as several analysts and executives said Monday, Netscape and AOL are not the same companies they were two years ago.
“The common perceptions of these companies are two years out of date,” Edelstein said. “People inside Netscape are inclined to see this as a natural combination of two companies that need each other.”
