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AOL to smash Windows?
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November 23, 1998: 6:16 p.m. ET
Sun's involvement in possible $4B deal could end Microsoft's dominance
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NEW YORK (CNNfn) - Web surfers aren't likely to notice much of a change in their online experience if America Online Inc. follows through with its plans to acquire Netscape Communications Corp. Down the road, however, it could facilitate a radical change that would change the face of computing altogether.
After the news broke over the weekend that AOL is in talks to acquire Netscape in a $4-billion stock swap, analysts speculated on what effects such as transaction would have across the Internet sector.
For starters, with AOL gaining control over Netscape's Navigator Web browser, that product likely could regain some of the market share it has lost since 1996. That's when Microsoft Corp. decided to include its Internet Explorer browser for free within the Windows operating system.
The deal could also spell trouble for several Web portals -- sites where users begin their Internet surfing -- because AOL also would acquire Netscape's Netcenter portal site.
But those possibilities pale in comparison to the deal's potential to tear down Microsoft's dominance in the operating system market.
In fact, it's Sun Microsystems Inc.'s involvement that could end up being the trump card. If the deal goes through, Sun would license Netscape's business software. More important, it would mean widespread distribution of Sun's Java programming language.
Java allows software developers to write applications that will run on any operating system. It's this cross-platform technology that Microsoft Corp. fears could put an end to its Windows monopoly.
Netscape is one of Java's key distribution channels. Analysts have said the Navigator-Java combination could represent an alternative computing platform.
Several companies, including Sun and Oracle Corp. (ORCL), are actively promoting the Web browser as an alternative platform. Instead of buying a word processor that runs only on Windows or Apple Computer Inc.'s Mac OS, users would download applications from the Internet that would run on any operating system that supports a browser.
The Justice Department maintains Microsoft was so concerned about this threat that it set out to crush Netscape in order to maintain its Windows monopoly.
"It's the combination of writing Java for Netscape's browser that essentially commoditizes the operating system," said William Whyman, Internet strategist at Legg Mason. "What the deal would do is make sure Netscape's browser remains a viable alternative distribution channel, and that is a potential threat to Microsoft."
Designs on Internet devices
Some analysts, however, are not sold on the prospects of Navigator or any other browser supplanting Windows as the platform of choice. But there is another arena where Sun could help give AOL an edge over Microsoft: the budding set-top box market, which allows users to surf the Web on their television sets.
AOL said its talks with Sun involved "a possible development and marketing agreement for e-commerce and new Internet devices, which would involve Netscape products."
"If AOL is out to reach a really broad market, my guess is this is about a new Internet appliance in the home that would connect to your TV, that this has more to do with a set-top box and less to do with computers," said Eric Brown, senior analyst at Forrester Research.
"AOL says people want a managed online experience, and the way to do that is through Java. And for Sun this would be a tremendous opportunity because it would the first time they'll be getting Java into the home."
Navigator may gain market share
In the shorter term, any deal would mean many AOL customers will find themselves using Navigator instead of IE to browse the Web.
"There are 14 million AOL members, and if they're not using Netscape now, they probably will be down the road," said Rick Berry, technology analyst at J.P. Turner & Co.
AOL currently offers a customized version of IE as its default browser. That contract, however, expires in January, and AOL is not likely to continue offering Microsoft's browser if it owns Netscape's.
Overall, however, analysts don't believe consumers will see much of a difference in the wake of an AOL-Netscape merger, mostly because IE is so integrated with AOL's software that it bears no resemblance to the standard version of IE.
"Users, unless they look in the corner of the screen, are probably not aware they're using Internet Explorer" with AOL, said Henry Blodget, an analyst at CIBC Oppenheimer.
Analysts also said distribution of the Navigator browser isn't a significant factor -- greater visibility of AOL and Netcenter content is what's important. But one analyst pointed out that Microsoft likely has similar plans in mind for integrating Microsoft Network content into Internet Explorer.
"You will see more integration of AOL content and services within the browser toolbar," said Chris Charron, analyst at Forrester Research. "You may see, for instance, an Instant Messenger button within Navigator. But Microsoft will be doing the same thing, integrating its portal content into its browser. I don't see this deal greatly improving Navigator's market share."
Portal possibilities
AOL also is banking on more Internet surfers passing through Netcenter as their first stop on the Web.
If AOL does acquire Netscape, the company would gain control over Netcenter, which would pose a significant threat to Web portal leader Yahoo Inc. (YHOO). It also could spell trouble for companies such as Lycos Inc. (LCOS) and Excite Inc. (XCIT), which don't have big-name partners to provide them with marketing muscle and cash flow.
AOL is already the largest online service provider. By acquiring Netscape, Whyman said, AOL could immediately extend its brand in the portal arena. [272K WAV] or [272K AIFF]
But Charron pointed out Web users are notoriously picky about what sites they prefer, and an AOL-Netscape alliance isn't likely to change that.
"The Internet audience is extremely diffuse," he said. "Everyone has their preference of sites they like to go to. This business still is not at the level of network television, where only a handful of people control traffic. I'm not sure consumers will see much of a difference."
AOL (AOL) shares rose 4-3/8 to close at 89-1/4; Netscape (NSCP) shares climbed 2-3/4 to 41-15/16; Sun (SUNW) shares jumped 3-13/16 to 71-5/16; and Microsoft (MSFT) added 5-9/16 to finish at 119-3/16. 
-- by staff writer John Frederick Moore
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