The takeaway on AOL's purchase of Netscape.
The punditry started even before the deal's announcement in November. Everyone had an opinion about America Online's acquisition of Netscape, and no one held back from sharing. Since hot air inevitably rises, however, most of that commentary has now dissipated into the upper reaches of the stratosphere. Herewith, an annotated guide to the output of the chat(ter)ing classes.
First, the synopsis of events: AOL agreed to pay $4.2 billion in hyperinflated stock to purchase Netscape, the browser popularizer that early in its four-year history was synonymous with the Internet. In exchange, AOL got to take the millions of consumers who start their Internet surfing with a Netscape browser and add them to an online audience that was already the biggest in the business. AOL then cut a deal on the side with Sun that will let Sun package and sell Netscape's software, particularly its Web and commerce servers, alongside its own products. In the end, AOL grew, Sun gained new markets - and Netscape died a most honorable death under the circumstances.
Anyone who said this was a media deal first and last earns extra credit in the Punditry Hall of Fame. It's a media deal because Bob Pittman, the guy who runs AOL now, is a media guy: Mr. MTV. It's a media deal because AOL makes its money the same ways cable TV programmers do - by selling subscriptions and renting out eyeballs. Ignore AOL's hype about its ecommerce plans. The last thing Pittman wants to do is pitch ecommerce servers to corporate customers. And the new AOL/Netscape wouldn't have the market clout anyway: Its combined annual revenue is less than 25 percent of Microsoft's ($3.1 billion versus $14.4 billion). Don't be surprised if AOL eventually sells the server business outright to Sun, as long as it can get a guaranteed long-term discount on servers. Only accounting issues, apparently, prevented such a sale from happening last November.
Which means this deal was not about challenging Microsoft or trying to serve the corporate software market. The effect on Microsoft is a wash: AOL's humiliation of Redmond's own online service, MSN, is now complete, but that's offset by the elimination of Netscape as a Microsoft competitor. As for the Justice Department's antitrust case, the AOL deal should have little effect, except perhaps to reinforce the notion that Microsoft helped drive Netscape out of existence.
The deal will affect consumers even less than it will Microsoft. They'll see no noticeable change in their online experience save perhaps for an expanded crop of advertisers attracted by AOL's new critical mass.
As former AOL executive Mark Walsh says, "AOL's an audience aggregator that uses technology as a tool, not a means to an end." Among other pundits, however, hyperbole about the media play draws demerits, particularly when delivered with the breathlessness of Ira Machefsky, a research partner at Palo Alto venture capital firm Odeon Capital, who told the San Francisco Examiner, "This is massive," before adding, "what you're witnessing is the birth of an NBC on the Internet." If only. Today's audience is hardly the captive one NBC enjoyed during its birth in the '40s and '50s, when it had, at most, three competitors.
A more realistic media analysis comes from commentator David Simons: "The most immediate thing for them is gaining the Netcenter audience. And the browser was something they almost had to take, because so much of the audience comes from that."
Mark Walsh snorts at columnist Michael Wolff's suggestion that AOL might next try to buy CBS but admits, "I think the idea of AOL buying a media company is not too far-fetched."
Simons goes Walsh one better, insisting that AOL has boiled its concept of "audience" down to the purest commercial essence. "They're not a media company! They're a consumer-marketing company!" The object of such an outfit, he adds, "is to maximize your marketing opportunities and revenue, and minimize your content costs."
Online newsletter publisher Robert Seidman, whose power as a pundit comes from the fact that Steve Case returns his emails, figured out who the real victims of this deal were. "AOL and Netscape, just in advertising and commerce revenues, are pulling in more revenue than Yahoo!, Excite, Lycos, and Infoseek - COMBINED! COMBINED! Yowsa." (Seidman is the only pundit I know who would say "yowsa" about anything.)
A different conclusion altogether was drawn by the news-weary Denise Caruso, who wrote in her New York Times column that "the merger announcement was a classic tactic for a cynical industry. Many such announcements have been made over the last decade or so, and despite the vast media coverage they engender, most do not work and are quietly dismantled later, when their public relations value has waned." Caruso's jadedness can sound almost refreshing in the happy-face world of Silicon Valley.
So what happens next? In recent months AOL has offered descriptions of two projects now under way, one - AOLTV - aimed at the high-bandwidth market also sought by @Home and WebTV, the other - "AOL Anywhere" - aimed at ubiquity. The former, at the moment, is a plan to market AOL-branded set-top boxes so you can instant-message your buddy list via your TV. The latter sounds more like a marketing memo in search of a product.
In the face of a future riddled with uncertainty, the company will continue to place money on its surest bet yet - audience. It's the one slogan recited at AOL today that carries any weight: We've got eyeballs.
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