Information Technology: THE INTERNET
AOL-NETSCAPE: NOT SO ODD A COUPLE AFTER ALL
AOL-Netscape's vision for E-commerce comes into focus
A week after announcing the acquisition of Netscape Communications, America Online CEO Stephen M. Case addressed an all-hands gathering of its 2,300 employees. Bounding onstage, he wisecracked that the denim jacket he wore, emblazoned with the Netscape logo, "only cost me $4.2 billion."
Though good for a laugh, the gesture still leaves hanging exactly what AOL thought it was buying. Electronic commerce was the rallying cry behind AOL's Nov. 24 acquisition announcement and the accompanying agreement by Sun Microsystems Inc. to sell and help develop Netscape software. But the fit between a consumer online service not known for its technological prowess and Netscape, which makes about 70% of its annual revenue from corporate software sales, is hardly obvious. "It's not clear to me what AOL sees in owning a software business," says Karl Salnoske, general manager of rival IBM's Electronic Commerce Group.EXPRESS ROUTE. But now, as the smoke clears, it's coming into focus. In the works is a radical vision that the E-commerce world is only starting to wake up to: The troika could do much more than simply help companies hang their shingles on the Web. The partnership also aims to tie these online storefronts into each companies' back-end operations--everything from internal inventory controls to communications between suppliers to automating customer service. A company's entire business--from the warehouse to the welcome mat--could be conducted in cyberspace.
And the trio could grow rich in the process. Sales of E-commerce software are pegged at $3.8 billion in the U.S. by 2002. But that's just a fraction of the real prize: Heavy-duty back-office software linked to the Web, including servers, software, and services, is expected to top about $63 billion by 2002, according to International Data Corp.
It's a tasty morsel that Netscape had spied already. It has racked up more than 150 customers for its E-commerce software, but that pales beside the 2,000 customers that have licensed Microsoft's basic E-commerce product, Site Server Commerce Edition. With AOL and Sun, though, Netscape's vision suddenly has oomph. Sun's 7,000-person hardware-and-software sales team, combined with AOL's instant access to 14 million potential online customers, could induce more companies to go virtual. "We're the only one with an end-to-end solution," says AOL President Robert W. Pitt- man, who will oversee Netscape's operations.
Citicorp is already a believer. The company markets such services as banking and insurance to consumers via Netscape's Web portal, Netcenter, while also licensing $20 million worth of Netscape software for its business-to-business sales. That allows Citicorp to offer a variety of choices to its corporate and consumer customers. For instance, Citicorp can work with corporate customers to develop electronic-billing systems using Netscape software--and the billers can then offer that option to consumers. "There's a continuum between consumer and corporate E-commerce," say Josh S. Grotstein, division executive for global Internet and E-commerce programs for Citigroup.
The AOL-Netscape combo could also prove enticing to Netscape customers that haven't yet bought its full array of software. Visteon, for example, the $17 billion auto-parts division of Ford Motor Co., uses Netscape's software to handle such tasks as invoice transactions and shipping notices for suppliers and customers. As part of a goal of reaching consumers and suppliers electronically to be more efficient, Visteon is considering using the Netcenter portal.
Still, some industry experts are skeptical that corporations will be beating down the troika's doors. While AOL's audience is substantial, the online giant seems to bring little tech knowhow to the table to help Netscape and Sun build such a sweeping infrastructure. "It will be bad news," says Forrester Research Inc. analyst Stan Dolberg. "The software business will be in this weird triangle where Sun will be in charge but not owning it, and AOL will own it but not be in charge."
Indeed, many analysts have concluded that AOL was forced by accounting rules to buy Netscape's software unit just to get the valuable browser and portal. AOL denies that motivation. "We had no thought about disposing any part of the Netscape business," says AOL Chief Financial Officer J. Michael Kelly. "Each piece is absolutely strategic to us."
In any case, AOL, Netscape, and Sun face stiff competition. Netscape already competes with giants Microsoft Corp. and IBM as well as with a host of small companies that offer E-commerce software for specific needs. Netscape's approach is to offer an integrated suite of programs that provide a soup-to-nuts solution. That's different from the strategy of both IBM and Microsoft, which sell basic E-commerce software to which other software makers add programs. "There isn't another company [besides Netscape] with that breadth of applications or depth of functionality," says Chuck Shih, research director at Gartner Group Inc.NOT A SNAP. To be sure, there are disadvantages to Netscape's approach. Like many out-of-the-box suites, Netscape's product isn't considered easy for companies to tailor, while software from IBM and Microsoft can be more simply customized. IBM has a hefty professional sales-and-services corps of about 118,000 people to help do just that. And Microsoft's E-commerce software, used with the popular Windows NT, snaps together easily with software and services offered by Microsoft's 1,300 business partners. "Microsoft provides the best building block," says Lora Zarbock, an Internet commerce manager at Dell Computer Corp., which uses Microsoft technology for a Web site that handles business-to-business computer sales.
But Microsoft's Achilles' heel is that Windows NT still isn't considered as robust as the Unix-based systems offered by IBM and Sun. And some experts don't consider IBM as strong in business-to-business E-commerce solutions.
That means that Netscape software, pushed by Sun and AOL, may have room to run, but only if the Sun-AOL-Netscape alliance really jells. Many of Netcenter's plans are still experimental. And Sun and AOL have to prove they can keep the software moving forward. If they do, the AOL-Netscape-Sun partnership may have the most ammo. And if the gambit works, E-commerce could come of age a lot sooner.By Heather Green in New York and Catherine Yang in WashingtonReturn to top