November 30, 1998
Will the AOL/Netscape deal really change the Internet landscape?
By Bob O'Donnell
Making sense of mergers, or even possible mergers, is always a risky business, but it's
particularly difficult when they occur in an industry that changes as much as the Internet
industry does. Issues as seemingly trivial as how the two merged companies' leaders get
along, or as important as matching up current products and strategies between the
companies, can result in all kinds of twists and turns that change the nature of the new
company.
So it is with the America Online/Netscape (and Sun) deal that surfaced last week (see "AOL
buys Netscape, teams with Sun in Java deal" for more). It seems intuitively clear
that a merger of this size will have a large impact on the online services and overall
Internet industry, but it's not obvious what's going to really happen. There has been lots
of speculation about the Internet portal strategy that America Online wants to pursue --
that is, AOL being the entry point to the Internet with one of its Web sites for as many
sets of eyeballs as possible -- but I'm not convinced how viable that business plan really
is. Netscape's Netcenter certainly seems to be a popular site, and in conjunction with
AOL's other sites it would give the combined company access to lots of people -- for a
visit or two. But how important is it, really, to be just the first stop on a long journey
through lots of different places, which is what most Internet browsing sessions turn into?
Similarly, there have been reports that the new AOL wants to expand its service
offerings by bundling Netscape's server products and Sun hardware with its own online
access and network to create one-stop Web solutions for businesses of various size. The
idea here is to create packaged Internet-commerce solutions that include the tools to
build a site as well as the network links that attach it to the rest of the Internet. I
think this will prove to be the most important part of the deal in the long run.
Some analysts have focused more on the browser issue and have pointed out how this move
could revive Netscape's struggling position in the browser wars, although the initial
announcements said that AOL will continue to use Internet Explorer as the default browser
for its 14 million customers. This may change over time, however, so if AOL makes
Navigator its browser of choice, recent trends suggesting that Netscape has lost its lead
in the browser wars could quickly be reversed. Of course, it's not entirely clear how much
benefit having a larger browser share would be. After all, browsers are now commodities
that have very little intrinsic value.
Ironically, one point that many people seem to agree on with regard to this deal is
that it couldn't have come at a better time for Microsoft. Just as it was becoming
increasingly clear that the company was getting creamed in the courtroom in its battle
against the Justice Department, this merger upsets the Internet apple cart in nearly the
exact way that Microsoft's lawyers said could happen. Whether Netscape intended to (and
whether it really thought about the timing of this announcement), this move seems to play
right into Microsoft's hands. Sure, you could argue that Microsoft's dominance is what led
to this deal, but I don't think that's as convincing as the fact that Microsoft suddenly
faces a more formidable foe on the Internet.
The stock market obviously liked the prospects of the deal, pushing all three companies
and the overall market sharply higher last week. How important the merger turns out to be
for consumers, businesses, and IT departments looking for solutions to real-world
Internet-related problems, on the other hand, is not so obvious. It's bound to have an
impact, but I'm not sure it is as far-reaching or earth-shattering as many have initially
claimed.
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Copyright 1998, by InfoWorld Publishing Corp., a
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