rebecca lynn eisenberg on Wed, 2 Dec 1998 17:43:04 +0100 (CET)

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<nettime> Re: netscape

What AOL gains from Netscape
by Rebecca Lynn Eisenberg
Sunday, November 29, 1998
San Francisco Examiner

So, America Online bought Netscape and passed off its server software
division to Sun Microsystems. 

What it all means is still not clear, but here is what I make of it, at
least for now. The deal solidifies what we knew all along: The future of
the computing business is in services, not products. 

Microsoft might be a software company, but what it has wanted to be is a
services company, which is the only viable revenue model moving into the
future. That is because the future almost certainly will be dominated by a
pay-per-click or pay-per-view model, where users will dole out
micropayments for the opportunity to access content (ranging from a Web
site to a digital audio recording to a television show) and where the
company that controls the infrastructure - in other words, the wires and
delivery services - will benefit most. 

This model is already being used in e-commerce. For example, Yahoo and
Excite (as well as the other portals) receive a commission for each sale
they broker for the advertisers who sell products from their sites. 

These kinds of commissions or per-use charges can (and will) be built
directly into the browser or other software, much like when we use a cell
phone and our phone company bills us based on use. Some software already
has this kind of capability, for example MP3 encoding and DIVX pay-per-use

Thus, it benefits AOL to own the browser. This, I think, is what Microsoft
was and is trying to do by controlling each level on which a user
operates: the operating system, the browser, and the Internet service
provider (MSN). 

In other words, it is the company that controls the infrastructure (a k a
the wires, a k a the gateway to the Net) that will be best positioned to
make a killing off commission-based e-commerce and pay-per-click
browsing/downloading/entertainment access. 

Microsoft has been trying hard to be that company (without much success).
Cisco Systems Inc. (a company that has been gobbling up small players for
quite a while) is well-positioned here, as is WorldCom-MCI, and now, with
Sun and Netscape on its side, so is AOL. 

This deal is also good news for Sun Microsystems Inc. Now Sun and AOL can
provide set-top box devices similar to WebTV. Except, unlike WebTV, these
set-top boxes can and will use Java. It is also good news for Sun because
Netscape, by selling Web server software, was starting to impinge on Sun's
software terrain. Now Sun has a more complete line of software to sell,
and has a better ability to optimize Netscape products to run on Java. 

Look for hand-held AOL Java Web products in the future, to go up directly
against Microsoft's plans for small CE devices (which the company
announced when it formed a joint venture with Qualcomm two weeks ago).
Which means, of course, that the deal is also good for Oracle (champion of
the network-computer notion) who was probably pushing for this behind the

What this means for infrastructure: E-merchants on AOL today will be using
Sun hardware and software and Netscape servers and browsers, meaning that
Sun and Netscape may well skim commissions from each sale. Still, AOL may
well keep using Internet Explorer in order to preserve its placement on
the Windows desktop (in which case I have no idea what happens to Netscape

Either way, however, it means that AOL can finally stop using its shoddy
proprietary Internet software and start providing for its customers
software as good as non-AOL users have been using all along. Maybe. 

What this means for e-commerce is that AOL has access to more potential
customers (Web users) than any other company. AOL had always had a firm
grip on the after-work user base; now with the acquisition of Netscape, it
gets Netscape's at-work user base as well. With access to two of the most
well-trafficked Web sites that span both the business and leisure
marketplace, AOL is now poised to take on Microsoft and its Web site, MSN. 

This mass conglomeration of eyeballs is crucial for Internet advertising
and e-commerce, since the more viewers that any one company has access to,
the easier it will be for that company to sell advertising, and the easier
it will be for advertisers to target their marketing to potential
customers. With a 20 million-user base, AOL can now sell advertising for
rates almost on par with television rates. 

And, even better, this large potential viewer base will make it far easier
for "software agent" technology - such as that provided by Net Perceptions
and Firefly - to operate effectively (since smart agents require a large
user base in order to predict user preferences with accuracy). 

On a different note, it should be clear AOL is truly no less of a "bad
guy" than Microsoft. In some ways, AOL is worse. AOL has a history of
pandering to the lowest common denominator, misleading Web newbies into
believing that its proprietary service is equivalent to the Internet, and
providing second-rate services while claiming them to be top-notch. This
deal makes it much harder for small players to enter the market (not that
it wasn't hard already) and may ultimately lead to an even smaller range
of consumer choices for Net services. 

Which leads to my ultimate fear: With one company (be it Microsoft or AOL)
controlling both content and distribution, there may well be too much
power in the same hands. I would not be surprised if this compels the FTC
to step in and regulate, as it did with both the movie and television
industries in order to keep content separate from distribution. 

Government regulation of the Net thus might not be too far off, whether we
like that or not. 

Finally, this deal will not affect the Microsoft antitrust trial. It only
proves what kind of steps other companies have to take in order to compete
with Microsoft. 

I would predict more of these mega-mergers in the future, as companies
(such as Yahoo, Excite and Lycos) either team up with one side (Microsoft)
or the other (AOL/Sun), or else form a third alliance or network, such as
Amazon-Yahoo-Excite. For the rest of the companies who were hoping to jump
into the Internet space, they have little chance now of anything beyond a
future as a buyout target. And that is too bad for us all. 


copyright 1998 San Francisco Examiner & Rebecca Lynn Eisenberg.  All
Rights Reserved.  &c.

Rebecca Lynn Eisenberg  *
 * *

Columnist, Nouveau Geek, CBS MarketWatch  http://CBS.MarketWatch.Com
Regular Contributor, Silicon Spin, ZDTV
Columnist, Net Skink, SF Examiner

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