|by Wes George
AOL Buys Netscape-An Analyst's View
November 30th, 1998
Dont you just hate the accelerating pace of technological change nowadays? Even the business of technology is changing too fast to keep up-to-date on all of it. I know Im confused by this last weeks turn of events. AOL buys Netscape. I dont get it.
America Online Inc., based in Dulles VA, is buying Netscape, of Mountain View CA, but its going to continue its deal with Microsoft to push Internet Explorer as its preferred Browser. In fact, AOLs deal with Microsoft puts its services in the face of anyone who has just installed Windows. Netscape believes that the AOL Microsoft alliance was the lynchpin that undid Navigators dominance as the worlds preferred browser.
AOL Chairman, Steve Case, says he has other more grandiose plans for their newly purchased Netscape browser. Such as somehow melding it with AOLs ICQ Internet chat software into a Frankenstein bloatware that does it all: chats, searches, mails, browses, organizes dates, checks your grammar, phone numbers, drives the kids to school, etc. The visionaries at AOL see some kind of super all-purpose portal to the cyberuniverse as being the killer app of the millennium. One size fits all with plenty of banner ad space.
Excuse me while I puke.
Is it possible that AOL paid too much for Netscape? An engineering manager at Netscape told the Wall Street Journal last week, "We should have stopped shipping this code (for the Navigator browser) a year ago. Its dead. This code should have been taken out back and shot." Harsh words for a code that just earned the company a 4.2 billion-buck price tag.
If Cases big plan for Netscape is to build the browser directly into the AOL portal, Im still confused. Supposed experts tell me that this is AOLs bid to become the Microsoft of the Internet. AOLs rocket scientists believe that some version of ICQ mainstreamed into a user-friendly browser is the Windows of the future. ICQ (I Seek You) is a way for people to communicate and exchange files in real time with each other online. As the masses swell like a tide of lemmings towards online activities in the next couple of years, AOL is gearing up for the onslaught. With the purchase of Netscape and the deal with Sun, they have marketing, software and the main computer supplier for the Internet usage under one roof.
Of course, none of this creepy deal really has anything to do with the Mac-centric universe. Unless you are sentimental like myself and remember Navigator 1.0 or Mosaic as your first browser. Ah, good old Navigator one point whatever, only half the RAM hog that is the Johnny-come-lately cyborg called Communicator. Those were the good old days. Remember FreePPP? And who can forget the wonders of Open Transport 1.1.1? One could actually get online with it, unlike Open Transport 1.0 which was so buggy that it was actually one big bug. It took me two months to figure out how to make it all work to get online for my first time in the fall of 1995. O.k., so Im no rocket scientist. Still, my wifes hairdresser, who had never even touched a mouse before she bought an iMac last month was online and sending us massive server stomping e-mail enclosures within hours of unpacking her shiny new iMac. Kind of takes the sense of achievement out of logging on if you dont have to sweat the details of half a dozen undecipherable protocols.
Yes, Ive always had a soft spot in my heart for Netscape. I felt they were a company like Apple, innovative, idealistic and pivotal in their industry. In true pioneer fashion Netscapes leaders Jim Clark and Marc Andreessen practically invented the face of the World Wide Web.
Like Apple, the reverse engineers at Microsoft also ripped off Netscape. Its truly shocking to the average layman how close the Internet Explorer Application is to Navigator in every way. Yet this state of affairs somehow manages not to be a copyright violation. IE is a landmark example of how refined an art the collaboration between corporate law and engineering has become to be able to craft a product so clearly a violation of Netscapes intellectual property, yet still with the letter of the law even while pissing on the spirit.
Of course, Microsofts chief counsel Duke, I mean, Bill Neukom is pleased as punch over the AOL purchase plan for Netscape, "The Deal drives home the point that the marketplace can take care of consumers far better than the government can", he says. The marketplace is exactly what Microsoft is crushing with its Windows monopoly. There is only one bully on the block bigger, uglier and meaner than Microsoft and thats the Federal Government.
Now that Netscape has sold out to AOL an era has come to an end but the larger Saga of the Internet continues. No longer do we have Netscape, David-like; doing battle with the Goliath of Microsoft and sort of holding its own. Instead we have AOL swallowing Netscape whole and aligning with Sun against Microsoft. AOL is a much less sympathetic protagonist than a Netscape or Apple.
Sure AOL innovated and has prospered while making its shareholders wealthy. However, AOLs main innovation has been a mere marketing triumph, not in the same league as the creative leap of mind that brought the world Mosaic. Theyve perfected a way to dumb down the Internet, stuff the portal with in-your-face ads and sold an image to a Middle America too tired or lazy or mediocre to want the real true undiluted web experience. AOL is the Velveeta and wonder bread version of the WWW. The Saga of the Internet will continue to unfold, but I find myself less emotionally involved with the cast as the founders fade into memory.
According to David Yoffie and Michael Cusmano of Netscape, authors of Competing On Internet Time: Lessons From Netscape And Its Battle With Microsoft, (Free Press, 1998), "One of the ironies of this merger was that Netscape had twice spurned AOLs offers of alliance, both at times when Netscape was flying high and AOL had a value of less than 10% of its potential partner. Today the tables have turned: AOL is worth $40 billion, while Netscape is being bought for $4 billion."
From a purely sober business point of view, AOLs purchase of Netscape is a high-risk gamble with all the cards stacked against a successful merger. The history of mammoth high tech mergers is strewn with wrecked corporate structures, broken visions of grandeur and profit flung to the wind.. Netscape, in spite of their recent positive quarterly gains, is a company with problems. AOL is a company with more cash than brains. Its an all too common marriage made in hell. AOLs head-swollen management think they can swallow Netscapes pill and whatever ill Netscape may have they can fix. More likely Netscapes problems will become AOLs. But were talking Internet business here, where all bets on predicting the future from past models are off, so who knows?
Things get even more convoluted when you throw Sun into the equation. A number of observers have pointed out that all three have entirely different corporate cultures that are likely to clash on all levels in the decision making process. The wooly and wildly undisciplined hackers at Netscape have yet to release a bug free version of software. The geeks at Sun are more like old school Unix and mainframe nerds without a daring bone in their thin client bodies. The management at AOL will have to guide the interface between these cultures with sufficient finesse to make it all come together. Somehow. The only thing that can really be said for sure at this juncture it that AOL is Going For It.
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Wes George writes about the financial side of being a Mac nut. Wes has followed Apple's finances for the last 7 years and comes to The Mac Observer every Monday to tell all about his opinions. He is, in his own words, "inordinately fond of money." If you would like to write Wes, make it nice. Someday you might own a company that has something to do with Apple, and Wes will probably still be writing for The Mac Observer...... On the other hand, Mr. George is known to love a rousing, hair-raising debate, so send him your worst!
Disclaimer: This column is for informational and entertainment purposes. While Mr. George may be sage indeed, his writings can not be construed as a solicitation to buy, nor an offering to sell any particular stock. As with any trading in the financial markets, you must use your own judgment to make the best trades that you can. Neither The Mac Observer nor Wes George may be held accountable for trading advice.