AOL-Netscape Deal Would Shift Web Balance of Power
If America Online Inc. consummates its proposed purchase of Netscape Communications Corp., the move could shift the balance of power on the Internet and position AOL to become a dominant force.
AOL would improve its reliability and expand service by combining its legion of 14 million members with Netscape’s industry-leading software that allows users to access the World Wide Web, analysts say.
At the same time, AOL--with its novice-friendly controls and entertainment offerings--could also emerge as a new chief nemesis for Microsoft Corp., establishing analternate pole for steering the Web’s overall direction.
“This would be a good shot at Microsoft’s underbelly,” said Tim Sloan, an analyst with Aberdeen Group in Boston.
AOL has enjoyed phenomenal success and surprising customer loyalty in the face of periodic service outages, price hikes and notoriously inferior Internet connections. The acquisition of Netscape may justify that loyalty and help AOL build upon it.
“The Web via AOL is a painful experience,” Sloan said. “If anyone can help them fix that, it’d be Netscape.”
From a demographic perspective, the deal would attempt to make day and night a complementary pair. With its preponderance of consumer and leisure-oriented content, AOL’s prime time, like television, is in the evening. Netscape’s primary Web site, Netcenter, is a popular business-oriented entry point to the Internet--a daytime haven for the practical-minded.
The companies declined to comment on any aspect of the pending deal, but AOL apparently hopes to ride the combination of Netscape technology and its own world of content to cement its position as the most popular online destination for both consumers and businesses.
“It would put to rest, once and for all, that AOL is not Net-savvy enough,” said Paul Noglows, an analyst with San Francisco-based investment bank Hambrecht & Quist.
Currently, AOL is the top Web property, attracting more than 30 million individual visitors per month, while runner-up Yahoo Inc. pulls in about 29 million, according to Media Metrix, a New York-based Internet rating service.
But Yahoo is generally viewed as the stronger Web presence because so many of AOL’s visitors are the members who must dial into AOL and go through it simply to reach the Web.
Netscape offers enticing assets--more than 20 million visitors a month to Netcenter, strong business-to-business commerce features tightly linked with its Navigator browser. If AOL can skillfully integrate them with its own “You’ve got mail” brand of familiarity, it could rapidly overtake Yahoo, some analysts say.
The proposed deal could also provide a check on Microsoft’s growing power on the Web, in part because despite years of efforts to build its own Web presence, the software giant has lagged the industry leaders.
Microsoft, with its Windows software that runs the vast majority of PCs, can influence the Internet to discourage competition, many industry observers believe. The company has argued that this approach serves users by reducing the potential for technology conflicts on the freewheeling Internet.
Said Eric Brown, an analyst at Forrester Research in Boston, “AOL proved that although standards were important, consumers still migrated to the managed content experience of AOL.”
AOL may choose to extend its model of proprietary content with key technologies that Netscape can supply--such as secure investment portfolio tracking, personalized Web-surfing suggestions, sales and marketing services and easy-to-use electronic payment schemes that let customers buy goods from many online stores. All of these could be tied to the AOL brand and saturated with advertising whose revenues accrue to AOL.
The huge audience and market muscle of a combined AOL and Netscape might prompt a wider range of businesses--from finance to entertainment to communications--to jump on its bandwagon, analysts say. These “content partners” might let AOL administer their primary online offerings, rather than incur the expense and risk of building unique Web operations.
“You could argue that Microsoft will get a taste of its own medicine,” Brown said. If AOL can create a sufficiently vast media and commerce infrastructure--even a system available only to AOL members--the company might be in a position to present its own version of the Web experience for a huge proportion of Internet users, he added.
But such a strategy also faces many pitfalls. Integrating two companies with divergent business approaches and customer needs would present a formidable challenge.
Meanwhile, Yahoo and Microsoft remain potent competitors with deep enough pockets to buy their way out of many competitive disadvantages.
Running the Risk of Alienating Microsoft
Another danger: AOL still needs Microsoft. And buying Netscape, the company that provoked the Justice Department’s antitrust lawsuit against the software giant, could earn AOL a terrifying enemy.
“Maybe it alienates Microsoft too much,” said Chris Charron, another analyst with Forrester. “AOL still needs a relationship with a company that controls half the browser [market].”
Jeffrey Tarter, editor of the industry newsletter Soft-Letter, said it would be a mistake to underestimate the challenges AOL would face in going from the largest online service to a primary guiding force of the Internet.
“But it does suggest that there are other ways to win the Internet game besides being Microsoft,” he said.
The stock market reacted enthusiastically to the anticipated acquisition. Shares in Dulles, Va.-based AOL gained $4.38 to close at $89.25 on the New York Stock Exchange, while shares in Netscape, of Mountain View, Calif., rose $2.75 to close at $41.94 on Nasdaq.
* WORLDS APART: Can companies as divergent as AOL and Netscape mesh? C1
* BOON FOR MICROSOFT?: Deal may help software giant’s defense in its antitrust trial. C3
