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Mozilla Meets Gorilla: What A Combined AOL-Netscape Looks Like

The irony of AOL's acquisition of Netscape is that the firm that made the browser a household word and selected its mascot name "Mozilla" (Microsoft killer) may come around as AOL-Netscape these four-score Internet years later as the biggest threat Microsoft has ever seen.

The numbers first: the deal price of $4.2 billion targets the revenue multiple at 6.8x annualized or about 5x our estimated Netscape revenue for 1999. On a Web site value per user basis the deal could be $268. The combined company would generate about $4 billion revenue or trade about 11x annualized revenue for the two of them. Let's take a look:

  Netscape AOL TOTAL
Latest quarter revenue $ 150 $ 858 $ 1,008
of that, Web Site revenue $ 39 na  
Earnings (losses) $ 0 $ 108 $ 109
Annualized revenue $ 601 $ 3,432 $ 4,033
Market cap 11-23 $ 4,174 $ 40,889 $ 45,063
Revenue multiple 7 12  
Website users 16 22 38
Estimated Website value $ 2,750 $ 3,870 $ 6,620
WEBDEX Web Site user value $ 175 $ 177  
all figures in millions, except revenue multiple and user value (c) 1998 Internet.com

One step further, however, and we think of the overall deal value that AOL may be paying $2.75 billion for Netscape's Web site Netcenter, based on the search and directory stock comparables.

That values Netcenter users at $175 each, or about what it would cost AOL to market and land two new subscribers to AOL's online service. On a revenue multiple basis, Netcenter at $2.75 billion would be 18x annualized Web site revenue, using Netscape's latest quarterly results. For the three-months ending July 31, Netcenter posted $39 million revenue.

Relatedly, at the anti-trust hearing Microsoft is going through, Microsoft may use the proposed AOL-Netscape deal as an example of how the industry cannot be monopolized by it or anyone or how another firm can make land grabs while it cannot. Netscape may come up with its own spin: Microsoft forced a merger in order for Netscape to survive the long haul. Court room drama aside, here's why a deal makes sense:

Benefits for AOL:

  • Web credibility. Despite having a popular Web site, AOL.com is not driving AOL proper into anything other than the "me too," wannabe portal player space. Netscape Netcenter has always been a Web destination and Netscape is the top brand associated with the Internet.

  • Business users. AOL always lands at the top of the list for home usage but not business, an area where Yahoo dominates. With Netcenter AOL would be the clear leader, something it can bundle with its Compuserve unit which also favors businesses.

  • Netscape just acquired AtWeb, a network of 600,000 business Web sites. Recall that Microsoft just acquired Link Exchange, a Web ad network. If AOL acquires Netscape AOL will have a business network to feed into and from. Tremendous commerce potential there.

  • Netscape's browser means AOL can phase out its proprietary software platform and rely on thousands of Web developers to upgrade Navigator/Communicator free as the browser replaces AOL's own homegrown and clunky interface in favor of the open HTML standard.

  • AOL extends its platform from 13 million proprietary users to more than 50 million users of various flavors of Netscape's browser globally. Add to that AOL's 21 million registered users of instant chat service ICQ. Suddenly AOL could be the 'Microsoft' of the Internet with the largest installed user base anywhere.

  • AOL finds scale to ward off Microsoft's perpetual online service in a box, MSN, which like the rabbit, just keeps on going and going and going with $17 billion of batteries (Microsoft's cash).

  • Netscape talent in every arena

  • Cable Internet. Netscape provides the software for @Home (NASDAQ:ATHM), the cable industry's best chance at becoming an Internet access powerhouse via its high-speed coaxial lines. @Home has a lock on a majority of cable TV homes with its multiplicity of deals with the largest cable operators in the U.S. This may be a big one since AT&T is acquiring TCI and its equity in @Home. With Netscape, AOL inherits the front end to the cable Internet world. This alone could be a very valuable asset.

    Benefits for Netscape:

  • Growth and muscle to fend off Microsoft's titanic shift to everything Internet.

  • Exit with excitement.

  • An acquiring partner with cash, reach and global presence.

  • No more explaining the lack of (or how great the) synergy between enterprise software and Web site content services is or isn't.

  • Bragging rights that the term "Mozilla" may have been more prophetic than even Marc Andreessen or Jim Clark may have realized. It's not over 'til the big lizard sings.


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