America Online and Sun Microsystems on Tuesday outlined an ambitious plan for their infant alliance to take on IBM and Microsoft in the burgeoning market for tools to buy and sell via the Web.
AOL, which completed its $10-billion acquisition of Netscape this month, said the $1-billion alliance with Sun would combine several Sun and Netscape products under a joint brand starting early next year.
“I would expect this to be an enormously fast-growing market,” said Mark Tolliver, the alliance’s general manager and a veteran of Sun, the Palo Alto-based maker of workstations and network computers.
The move is remarkable because Netscape’s innovative and Web-friendly tools bridge the gap between AOL’s nearly 17 million subscribers and Sun’s hardware, which is among the most popular for companies running Internet sites and their in-house equivalents.
Investors see potential in the alliance, despite the poor history of joint efforts in Silicon Valley.
Shares of Dulles, Va.-based AOL soared $12.13 to close at a record $144.50 on the New York Stock Exchange, the second most-active stock in the U.S. Sun shares rose $1.44 to a record $125.94 on Nasdaq.
Tolliver and executives from the venture’s two parents laid out a plan to use the alliance’s 600-strong sales force to push a combination of Sun hardware and Netscape software, including customized portals, to give companies one-stop shopping as they adapt their business models to the Web.
“It’s giving other independent software vendors a bit of a turn,” said Kathey Hale, an analyst at Dataquest.
“They end up validating a lot of the good work that IBM has done,” Hale said. “That suggests to users that we’re talking about revolutionary change, not the evolutionary change of client-server computing. They’re actually leading the market.”
Hale said that IBM lacks the distribution power of AOL and that Microsoft doesn’t have the hardware.
That leaves plenty of room for the alliance in what Hale predicts will be a $4-billion market by 2002 for Web software and e-commerce applications. “In terms of determination and deep pockets, IBM is determined, this combination is determined, and so is Microsoft,” she said.
The alliance pledged to develop products for all hardware and operating system platforms, which should aid its credibility.
AOL has more to gain from the joint effort than does Sun, said Rob Enderle of Giga Information Group, because its 40% share of the Internet audience can generate major revenue for any new technology products.
The company’s shares jumped after PaineWebber analyst James Preissler raised his projection for AOL stock to $215 from $125.
“AOL can be a big beneficiary,” Preissler said. “We’ve got a company here that has an incredible long-term potential.”
Besides e-commerce tools, Sun and AOL executives said they will emphasize the use of Sun’s Java programming language and its Jini architecture to make the Internet accessible from telephones and other appliances. They said they expect personal computers to provide only half of the access points to the Internet within five years.
“We have to be everywhere,” Tolliver said.