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Andreas Ramos [EMAIL PROTECTED] www.andreas.com
'AOL Anywhere': Wider Reach, Marketing Muscle.
BY STEPHEN BUEL
Mercury News Staff Writer
Steve Case wants America Online to be everywhere America goes online.
On the global Internet as well as inside AOL's dial-up neighborhood. Inside
our computers, televisions, phones and appliances. Embedded in our Web
browsing software and at the sites we visit. With us as we shop
electronically -- even across the country at an online store.
The philosophy underlying AOL's $4.3 billion acquisition of Netscape
Communications Corp., which was confirmed Tuesday morning pending
shareholder approval, is what AOL's chief executive calls ``AOL anywhere.''
This is the reason Case's company is entering new Internet markets,
preparing for new communications appliances, integrating its browser and
online content and buying its way into the electronic commerce business.
Case confirmed Tuesday that AOL's relentless drive to extend its supremacy
across computer-based communicating won't immediately change the online
experience for any of Netscape's customers. Down the road, however, he
promises that life will be different.
And other observers predict repercussions throughout the Internet industry,
in which the economic momentum of AOL's mass is expected to begin separating
the money-losers from the money-makers.
Blurring the line
Just as Case conceded that many of AOL's 14.6 million subscribers probably
have no idea when they're leaving AOL and venturing out onto the Internet,
so too would Case like consumers not to know where the Internet ends and
America Online begins.
``Our objective all along has been to build the largest possible audience,''
he said.
As AOL fleshed out the details of its acquisition Tuesday, it became clear
for the first time just how far those ambitions reach. From its origins as a
tiny online chat system, AOL has weathered explosive but sometimes painful
growth to transform itself from a dial-up online community into the world's
dominant Internet media company.
And now, not only will AOL welcome the 21 million monthly visitors to
Netscape's Netcenter Web site, it also will reach into the software side of
the Web to a greater extent than many had expected.
This embrace includes Netscape's popular Navigator browser and also its
back-office software enabling businesses to operate and sell goods in the
exploding online market. Case said AOL plans to use Netscape's software in
partnership with Sun Microsystems Inc. to offer businesses a full-service
approach to online commerce: software and support backed by a huge,
ready-made customer base.
At the same time, however, Case restated AOL's intention to continue
offering its existing subscribers the browser made by Netscape archrival
Microsoft. AOL plans to exercise a Jan. 1 option to continue repackaging
Microsoft's Internet Explorer inside its own software. Case said this
arrangement is good for two to three more years.
``It's in our interest and our potential customers' interest that they
continue to have access to AOL within the Windows desktop,'' Case said in a
morning conference call with investment analysts.
The explicit message here was that in the computer world, the market share
of Microsoft's Windows operating system is too big even for AOL to ignore.
But in the online world it will be AOL that calls the shots.
One call Case plans to make is tightening the bonds between Netscape's
browser and its Netcenter Internet site.
Among the three major browser distributors -- AOL, Netscape and Microsoft --
Case's company has shown that it knows best how to use the browser as a tool
to make money. Although its browser is in fact a modified version of
Microsoft's own, AOL's user interface includes several features not found on
Internet Explorer, including direct links to many of AOL's most prominent
advertising and commerce partners -- the source of a growing 16 percent
share of the company's revenue.
Case pledged Tuesday to bring this same approach to Netscape's browser.
``We do believe that the next generation of portals is really going to
involve high integration with client software,'' he said.
What this means for consumers is that AOL essentially will be trying to keep
them from straying outside the folds of its Web sites. This concept is known
as being ``sticky,'' and AOL hopes to deploy an array of tools to encourage
consumers to stick around.
But if AOL's Netscape division follows through with this plan, it runs the
risk of alienating its long-time partners in the Web access business.
Internet service providers were 4-year-old Netscape's very first clients and
have long been some of its most ardent supporters. But AOL is their leading
competitor -- and one they view warily.
``We're not going to support our competitors,'' said Kirsten Kappos,
spokeswoman for Earthlink, one of the nation's largest Internet service
providers. ``I don't think anyone would do it.''
Kappos, who said Earthlink annually distributes about 20 million copies of
Netscape's software, predicted that AOL's entry into this market would force
companies such as hers to look for new browser options.
AOL's browser plans could even force other major content sites to find a
browser partner or introduce their own software. Yahoo's chief operating
officer, Jeff Mallett, said his company continues to weigh this as a
possibility, although the benefits have never appeared to make this
necessary.
No changes anticipated
``Technology and use of the browser has not proven to be a significant
competitive advantage to this point and we do not anticipate that
fundamentally changing,'' Mallett said. He conceded nonetheless that AOL has
shown greater willingness than Netscape or Microsoft to tie its software to
its content.
At the same time that AOL plans to take advantage of its new domination of
consumer Internet software, Case said it also will continue developing
software and content for platforms of the future such as digital telephones
and appliances like 3Com's handheld Palm computer. AOL gave some indication
of its plans in this arena last May when it bought the San Francisco-based
Web television company NetChannel Inc.
Finally, AOL's very size could bring changes to the industry. According to
the Internet research firm Media Metrix, more than 70 percent of all U.S.
online users visited sites owned by AOL or Netscape in October. Yahoo and
Microsoft's MSN, the No. 2 and No. 3 sites, weighed in at 48 and 46 percent
respectively.
AOL's growing market power has observers looking ahead to the long-awaited
day of reckoning for an industry in which few companies yet turn a profit.
In the worlds of publishing and broadcasting, concentrations of audience
like the one AOL is creating have long produced similar concentrations of
advertising revenue.
Strong are stronger
``The strong are getting stronger,'' said Yahoo's Mallett. And referring to
the possible effects of this trend upon consumers, he added: ``And I think
that is going to put them in a place where they have three or four
choices.''
Mallett acknowledged that many of the dominant Internet destinations -- a
list that also includes Lycos, Infoseek and Excite -- currently offer many
of the same basic features to users. Where he predicted the shakeout would
take effect is in the realm of brand-name awareness, global reach and
profitability.
Netscape's decision to discontinue operations as a money-losing Internet
company highlight one of the chief differences between the seven or eight
major Internet hubs. AOL and Yahoo make money, while several more are parts
of profitable companies, including now Netscape, Microsoft's MSN, Disney's
Infoseek and NBC's much tinier Snap. The two other major search-based sites,
Lycos and Excite, aren't profitable, although both companies have been
headed in that direction.
The coming months are likely to feature a huge promotional battle among
these eight companies.
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