AOLscape: Intel, HP, IBM and Oracle May Be Real Losers

Before the $4.2 billion AOL-Netscape deal comes to pass, it’s important to learn from Mozilla’s history.

Netscae’s biggest strategic error was to sell its real estate cheaply, charging the fledgling search engines and Web guides just $4 million to $5 million a year in 1996 and 1997 for placement
on Netscape.com. The other faux paux was not to ramp up the
“communications” side of Netscape Communications from day one.

Said another way, while Netscape thought the battle was software, it was really services/guides/finding stuff/selling stuff (and still is).

To put it in context, the four search services–Yahoo, Lycos, Excite and
Infoseek–today have a market capitalization north of $25 billion, or more
than 4x what AOL has agreed to pay for Netscape (the company that invented
the platform the others rode to bigger success).

All of them owe their early success to deals with Netscape to provide
search services. All of them touted their relationships with Netscape when they went public in 1996. It was a big deal. Being on Netscape meant they mattered, they had exposure on the only Web
real estate developer’s burgeoning beach front. Netscape ruled. Without
those placements you can bet that some or maybe none of them would
be on the radar today.

In fact, Infoseek reportedly still gets about 40 percent of its traffic via an agreement to be on Netscape’s search area, a placement that now is fading as Infoseek gets closer to completing its $430 million deal with Disney. By January, Infoseek expects just 4 percent of traffic to come from Netscape
with Disney’s deal feeding it new users.

Meanwhile, just six months ago,
Excite (NASDAQ:XCIT) paid Netscape $70 million over the next two years to
provide its search and guide services. Excite gets 50 percent of the search page in year one and 75 percent of it in year two of the agreement.

Some estimates put Excite’s return revenue-wise at $100 million total for the two-year period, implying $30 million net gain.

If AOL can boost Netcenter usage by even 10 percent, we think Excite could see better results. Should AOL, then, acquire Excite also? It may want to but antitrust fear may keep it from doing so.

Netscape under AOL will have its challenges: keeping the
talent, although AOL stock has been strong.

Between Andreessen (who may take a technology role at AOL, but who also just invested in a startup
called ReplayTV.com), Barksdale (who will be on AOL’s board) and Clark (the visionary), there’s a braintrust that could create several startups.

AOL inherits some 1,000 software programmers churning code at Netscape, which should be a boon to AOL’s software goals of minimizing its own code base in favor of Internet leverage. It’s not clear how many freebie Internet software developers who embraced the open source Navigator move will
continue to develop custom features after the acquisition.

As Netscape enters its second iteration as part of a growing conglomerate in AOL, its rise and
sale bring back some thoughts.

We recall going to the first-ever Netscape Developer Conference in early 1996 and seeing, hearing and feeling the sense of the attendees that Netscape was something new, something different, something worth developing for. It was the era of the brand-new Internet commercial phase when Netscape seemed invincible.

I sat four feet from a jubilant Jim Clark who told the assembled analysts that “Microsoft missed it,” “didn’t get the Internet,” “it had passed Microsoft by.” And for a good 10 months that was
true.

That same year TIME magazine put Marc Andreessen on the cover in
regal attire on a throne and proclaimed him king; WIRED magazine also did
the cover thing, bragged that Andreessen was who Bill Gates wanted to be;
Wall Street believed and Netscape (NASDAQ:NSCP) shares soared.

That was
then, this is now. Ironically it’s the “communications” part of Netscape
that may be the most valuable part AOL acquires. Despite selling off its
traffic to the search engines for almost four years now, Netscape Netcenter
managed to rise from the software-centric entity and maintain its top 10
Web site usage ranking.

Meanwhile, the browser and server sides of
Netscape may get AOL into a widespread business base it never would
have achieved with its “you’ve got mail” consumer-centric interface.

Internet time does indeed move faster, but Internet timing is more
important. Netscape spawned the Internet phenom and maybe it was its time
to find a partner for the future. AOL won.

Intel, Hewlett-Packard, IBM, Oracle–these may be the real long-term losers for not having snatched up Netscape while they had the chance. Even at 50 percent browser share, Netscape is still a platform
for launching anything Internet. These firms missed a huge chance to take
their futures front and center on the Web. None of them have significant
Web presences–the equivalent of not having a doorway to tomorrow.