AOL Counters Concerns Over Netscape’s Fate

In response to industry-wide concerns over the fate of Netscape, which has been acquired by America Online, AOL issued a statement on Wednesday, which appears to be aimed at countering industry criticism over a possible loss of Netscape’s independent identity and ability to innovate.

Succinctly stated, Netcenter, Communicator and Mozilla will live on to see another day, while Netscape needs to shed its independent identity and learn to function as an AOL shop, with its flagship Internet browser, Communicator, playing second fiddle to its Netcenter Web portal.

In Wednesday’s announcement, America Online promised that it will commit its “full resources to maximizing Netscape’s talent and technologies” to extend its industry leadership. In addition, through its strategic alliance with Sun Microsystems, Inc. (Nasdaq: SUNW), AOL hopes to take its own e-commerce operations to the “next level” of success.

The Promise

According to America Online, the acquisition of Netscape will serve to advance AOL’s “multiple-brand” strategy, and expand its offering of products and services. Specifically, the company said it will further the development of Netscape Netcenter, and Netscape’s flagship Internet browsers, Navigator and Communicator. Netscape-branded operations will remain based in Mountain View, California.

According to Steve Case, chairman and CEO of America Online, “This acquisition will greatly accelerate [AOL’s] business momentum by advancing our multiple-brand, multiple-product strategy and helping us take e-commerce to a new level.”

Case continued: “We will continue to build Netscape’s successful businesses, including expanding the audience for the popular Netscape Netcenter and extending both the Navigator and Communicator browsers to the emerging market of next-generation Internet devices. We also look forward to launching our strategic alliance with Sun to create a new standard of e-commerce convenience and reliability for both business partners and Internet consumers.”

Jobs Cuts

As part of Netscape’s integration, America Online will eliminate 350 to 500 positions at Netscape and approximately the same number across America Online’s other operations, out of a total workforce of about 12,000 people. This number is considerably lower than expected, although it still indicates a profound change for Netscape, which will, no doubt, require a period of adjustment to its new framework.

The job cuts, attributed to what AOL terms “redundancies,” indicate that Netscape will certainly not be run as an independent unit, but rather, as a division of AOL, or just an “AOL shop,” as many in the industry view Netscape’s new positioning.

Piece-by-Piece Netscape

AOL indicated that it will continue to support Netscape’s various operations and that no major unit will be dismantled at least for now.

Netscape Netcenter

America Online announced plans to expand the reach of Netscape Netcenter, which is already the second most-visited Web site from work. With more than 13 million registered users to date, America Online intends to use the popular portal site to significantly increase AOL’s daytime traffic by capturing Netscape’s business-oriented audience.

The Browsers

The company said it will continue to develop the Navigator and Communicator browsers, Netscape’s flagship Internet client software, and plans to release the 5.0 versions of these clients later this year to “preserve competition in the marketplace.” The Company said it also will expand Netscape’s browser’s software development to take advantage of the emerging market for next-generation Internet devices.

Mozilla Lives

America Online said that it will continue Netscape’s policy of supporting open development and open source through the ongoing work of mozilla.org, the organization that manages Netscape’s open source initiative with thousands of Internet developers.

Winners and Losers

The big winners are Sun Microsystems and Microsoft. Through joint development cooperation with Netscape, Sun will have the chance to compete more effectively head on with IBM, in terms of offering a combined large-scale Internet and e-commerce server packages.

Microsoft wins because, despite AOL’s promises to continue to develop and enhance the Netscape Internet browser software, indications are that AOL is placing a greater emphasis on the Netcenter property as a source for business-oriented traffic to America Online, than on boosting Communicator as an independent, industry-leading browser. For this reason, the Internet Explorer development team will not be under pressure to release insignificant updates, but rather, can take its time to enhance the software in more meaningful ways such as basic performance and stability.

The big loser might turn out to be CompuServe, which has seen its membership shrink from approximately 5 million users in 1995 to approximately 2 million currently. Historically, CompuServe was seen a good source of business and professional users to complement AOL’s mostly consumer audience. However, with the acquisition of Netcenter’s 13 million registered users and its overwhelming popularity among users logging on from work, AOL might decide to drop CompuServe from its list of top priorities. Time is, indeed, ticking for CompuServe.

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