Will Netscape fill AOL e-comm bill?

By Chris Nerney and Denise Pappalardo
Network World, 11/30/98

Dulles, Va.

For millions of consumers, America Online is synonymous with the Internet. By agreeing last week to buy Web pioneer Netscape for $4.2 billion, AOL now hopes to become synonymous with Internet commerce by attracting thousands of companies seeking a host for their virtual storefronts.

The acquisition, which also includes a three-year marketing and development partnership between AOL and Sun Microsystems, gives the huge online service provider a host of potentially powerful business electronic commerce weapons, including:

Netscape's brand name, Web browser and server technology, and development team.
Netscape's Internet commerce software, including its Kiva applications server and Actra line of business-to-business electronic commerce applications.
9 million registered 'Net-based customers from Netscape's Netcenter business portal.
$500 million in Sun hardware and services to support new enterprise electronic commerce endeavors.
Joint development with Sun to embed PersonalJava into future Sun/AOL Internet devices.

But to effectively win corporate customers, AOL must overcome its reputation for unreliability.

"The dirty little secret in Internet commerce is that consumers who access the Web from AOL have a worse online experience than the rest of the world," says Patricia Seybold, president of Patricia Seybold Group in Boston.

Other experts concur. "Who would want to risk their business to AOL?" asks Tim Sloane, an analyst with Aberdeen Group in Boston. "AOL's users constantly have dial-in problems and face slowdowns on the Internet," Sloane says.

Getting down to business

AOL is attempting to make a splash in an increasingly crowded electronic commerce market that includes big name companies such as AT&T and MCI WorldCom, as well as upstarts such as Exodus Communications and NaviSite.

While AOL claims it has a bright electronic commerce future, AOL President Bob Pittman and other company officials were stingy with the details about how the company will actually use Netscape and Sun technology. For example, AOL did not explain how Netscape and Sun would help AOL to ensure service reliability.

Observers say AOL will likely use Sun servers and Netscape CommerceXpert software to bulk up its own infrastructure for hosting customers' Web sites. But officials from AOL, Netscape and Sun failed to shed any light on this issue.

The AOL infrastructure has been questioned ever since AOL switched from providing usage-based offerings to providing flat-rate services two years ago. The company's network buckled under skyrocketing traffic loads, and company CEO Steve Case has been forced to beg for customers' patience and forgiveness more than once.

Nonetheless, some businesses are willing to overlook performance problems given AOL's big customer base. "Because we are an organization that serves a general population, we would look into working with AOL," says Bob Galovic, managing director of information resources at the American Automobile Association inHeathrow, Fla. "We actually teamed with AOL a few years ago on some of our first Web initiatives, and it's possible that we could team again," he says. "We are not a technology company, and we need partners to meet our business needs. AOL becomes a lot stronger through a deal like this with Netscape and Sun."

In addition to hosting electronic commerce sites, AOL is also expected to team with Sun to build the sites at customer locations. AOL's Pittman claims that Sun has professional design capabilities that such customers would find attractive. Currently, AOL only sets up custom electronic commerce sites for customers and has not had a formal electronic commerce outsourcing offering.

Sun has also committed $350 million to pay for the rights to resell Netscape software.

Netscape a blessing?

While Netscape had a tremendous reputation in its early days, observers wonder just how much clout a battered Netscape, and its products, will give AOL. "Netscape really has not kept up in Internet commerce," Seybold says. "Their server software is really not competitive" with products from companies such as OpenMarket, Microsoft and IBM.

However, Netscape's Netcenter portal site will significantly increase the number of Internet users who can easily click on to AOL's site. AOL views all of its users as potential electronic commerce shoppers and will stress that point to merchants setting up cyberstores.

For AOL, Netscape's final chapter represents a new opportunity to which the Dulles, Va., online service provider brings some indisputable assets. AOL's user base is vast. Not only does AOL have 14 million subscribers, but through acquisitions earlier this year of CompuServe and online chat technology vendor Mirabilis, AOL padded its customer base with 15 million additional users.

The Java angle

As part of the announcement, AOL's Pittman pledged to boost his firm's support of Java. In fact, Netscape has been remiss in its support of the Sun technology, having shelved its Java-based browser project and failing to completely support Java within its Navigator browser software.

Now AOL has agreed to promote Java as technology for next-generation Internet devices. "This is a very significant endorsement of the Java platform," Sun CEO Scott McNealy said last week.

Sun and AOL will help develop next-generation Java appliances that will port AOL services anywhere, according to Pittman. These devices are expected to range from handheld gadgets to television set-top boxes.

"I can see a real good Java play here because the one weak spot that Microsoft has in all of this is Java," Seybold says.

Still, AOL may need more than Java to win over business users. While the online service provider has been wildly successful in the consumer market, it's AOL Enterprise VPN service, the company's only business offering, is virtually unknown in the industry.

Users doubt AOL merits

Getting big users such as Chrysler to leap onto the AOL bandwagon may be difficult. The car maker is already giving its automotive equipment suppliers access to its network in order to conduct transactions. But AOL is not part of that game plan. "From a corporate perspective, we don't want our suppliers to use AOL to connect to [Chrysler's network]," says John Kay, manager of electronic commerce at Chrysler. Suppliers that connect to Chrysler's internal electronic commerce network are using reliable business ISPs, he says.

While AOL will have its hands full winning over business customers, its $4.2 billion investment in Netscape should provide a decent arsenal.

The Netscape acquisition is subject to regulatory approval and board approval, but executives expect the deal to be final by mid-1999.