AOL deal seen as Java boost

By Rebecca Sykes
Network World, 11/24/98

Gaining Netscape's Web portal, browser and server software could help cement America Online's position on the World Wide Web and boost Sun's Java programming language, analysts said yesterday.

Netscape has confirmed that it is in talks with AOL regarding a merger but no further details were announced. However, multiple television and print press reports over the weekend valued the proposed deal at $4 billion. The reports also maintained that AOL proposed to buy Netscape's Netcenter Web portal and Navigator browser, and that Sun was eyeing Netscape's server software.

Netcenter and Navigator could give AOL the kick into the Web it has been seeking, analysts said. With 14 million subscribers, AOL is a solid player as an Internet service provider and a content provider through "chat" and other features, but the company has yet to tap Internet visitors who do not use AOL, analysts said.

There is probably little overlap between AOL users and Netcenter users, so an AOL purchase of Netcenter would give AOL visibility to new users, according to Melissa Bane, program manager at The Yankee Group in Boston, Mass. The purchase would also let AOL add e-commerce revenue and more advertising revenue to the money it earns as an online-access provider, she said.

"AOL until now has really been the powerhouse of 'Net service but adding Netcenter would really give them the strong push they need to the Web," Bane said. "They would gain all of those eyeballs."

The deal would extend the reach of Sun's Java, which Netscape's software uses extensively, since AOL developers would undoubtedly start using Java more, or at least as much as they currently use Microsoft's ActiveX, according to Andrew Bartels, a research analyst with Giga Information Group in Cambridge, Mass.

"It creates a potential sandbox for Java applets to be deployed that encompasses a potential 13 or 14 million universe of customers," Bartels said. Java still needs to address its security and performance issues, but the reported deal could be a big boost for the programming language, he said.

One analyst said he doubted that AOL would agree to a deal in which Netscape's server software went to anyone but AOL itself. The server software would assist AOL in its Web push, and Netscape's Navigator browser alone would not be compelling, according to Tim Sloane, an analyst with The Aberdeen Group in Boston.

"It's got to go beyond the browser," Sloane said.

If Sun does purchase or license Netscape's server software, it could be good news for Netscape users. Netscape users running Netscape on Sun's Solaris servers would gain from having a single source for both hardware and software, Bartels said. However, if the deal transpires, Netscape users running other platforms ought to question whether or not Sun will continue to support them, he added.

"Our understanding is that the majority of those who have Netscape servers are running them on Solaris, so this is a minority problem," Bartels said.

AOL users could also gain relief from poor-quality connections that have plagued some of them, according to Michael Goulde of the Patricia Seybold Group in Boston. AOL users could optimize navigator for use and Sun could contribute its competency in Internet technologies, he said.

"Hopefully by having Netscape and Sun as development partners, AOL would be able to address quality of experience," Goulde said.

Analysts uniformly agreed that though specifics of the proposed deal are uncertain, the companies' negotiations will probably assist Microsoft's defense against charges that it unfairly dominates the market.

"It will certainly show that the market is dynamic and a not single-company market," Sloane said.

Microsoft can cite the proposed deal as proof that it is merely one competitor amongst many, analysts said.

"Microsoft will say...'the No. 1 online service provider has just acquired a browser that has 50% market share These are the dominant players and we're just trying to compete with them'," Bartels said.

In fact, Microsoft already made its statement, outside of the federal courthouse where the antitrust trial is being heard. Microsoft Vice President Bill Neukom said the proposed deal is evidence of "vigorous competition" which "pulls the rug out from under the government."

As for the reported $4 billion price tag, analysts said Netscape's value is hard to assess. The reported amount is indicative of Netscape's status as an Internet pioneer and the feeding frenzy that has surrounded many Internet companies' initial public offerings, including Netscape's, analysts said.

"The whole market's insane, so who knows what's the right price," Bane said.