View all newsletters
Receive our newsletter - data, insights and analysis delivered to you
  1. Technology
November 23, 1998


By CBR Staff Writer

America Online Inc, which has grown from a small dial-up service provider to a would-be media giant taking audience share away from the television networks during prime time viewing, has made an offer for the quintessential internet company, Netscape Communications Corp valuing it at around $4bn. Sun Microsystems Inc is also involved in what could be a carve-up of Netscape, apparently ready to take on the distribution and perhaps some of the development of the Netscape servers that run on Solaris. Both Netscape and AOL confirmed the talks and the size of the offer yesterday, but Sun stayed mute and is viewed as the reason the announcement has been held up. The talks are based on an offer for Netscape shareholders to receive 0.45 shares of AOL stock for each Netscape share they own. At Friday’s closing price such a deal would have been worth $3.80bn based on 99.5 million outstanding Netscape shares. Netscape pushed its fourth quarter earnings announcement back from the close of the market yesterday to 5 pm eastern time today, Tuesday, making some sort of deal announcement seemingly inevitable today. The news pushed both companies’ shares higher – the internet stocks don’t follow the general rule that a suitor’s stock will fall while the target will rise – with AOL closing up $4.75, or 5.6% at $89.625. Netscape closed up $2.75, or 7.0% to $41.9375. It hit $44.25 at the open and then remained on or around $42 for the whole day, reflecting the market’s assessment of the value of the deal. As for the impact on the Microsoft antitrust trial, the Justice Department said a deal would not change its case one bit, while, Microsoft predictably enough, thought the opposite was true: From a legal standpoint, this proposed deal pulls the rug out from under the government, Microsoft’s general counsel William Neukom told reporters on the court steps. Netscape’s revenues over the trailing four quarters were $563.1m, so a $3.8bn acquisition would see AOL buying at 6.7 times annualized revenues. When Netscape became the poster child of internet IPOs in August 1995, getting its stock away at $28 per share, it was valued at almost exactly $1bn (08/10/95).

What’s in it for AOL?

What is in this for AOL? Well, it would get the vast cadre of HTML and other programming experts at Netscape to aid it in its recently-announced development work in HTML, scaling back its use of its proprietary programming language, Rainman, which is optimized for developing content viewable at the low access speeds employed by the vast majority of its consumer base. It would also give it control of two of the three generally accepted most-visited sites on the web (the other being Many have pointed to the rise of the Microsoft Network (MSN) as one of the catalysts for this deal. That rise has come from Microsoft scaling back its dial-up, AOL-style network and concentrating on grouping together its various web sites, such as Sidewalk, Expedia and Hotmail under the MSN brand. In other words, it’s only a network in the sense that Yahoo’s various sites are a network, but that’s the way the internet is heading and Netscape belatedly spotted that when it recast Netcenter as a portal in September 1997 (09/05/97). AOL, has understood that model as well, and while it has continued to develop its old- school online service, it has also added services to its web site and developed local content, which it licensed to Netscape a few months ago. Netscape also includes AOL Instant Messenger in Communicator; and AOL NetFind is included in Netscape’s search engine rotations. As for the browser user out there worried that every time they boot up Communicator it’s going to take them to, it no doubt will. But it will be no different from it taking them to now. Anyhow, AOL will have to decide whether it wants Netcenter or its own domain as the default and no doubt some split between consumer and corporate browsers will occur to maintain the differentiation. Users could always download the Opera browser if they do not want one tied to a web portal, or simply change their home page. For Netscape, it gives the company a more secure future with AOL’s deep pockets and surging stock price, and gives it an exit strategy from worry about browser market share.

What’s in it for Sun?

Perhaps the most curious aspect of this deal is the role of Sun. Apparently about half of all Netscape servers run on Solaris, so a tie-in with Sun makes some sense, but it could just amount to a distribution deal for Netscape on Solaris, as it is hard to see Sun wanting to get into the Windows software market in any form at present. Another issue is AOL’s television-based plans. It is common knowledge that AOL intends to establish some sort of AOL TV rival to Microsoft’s WebTV Networks, which it acquired in April 1997 for $425m. A year later, WebTV’s only rival, NetChannel Inc shut up shop and AOL bought the guts of the NetChannel technology in May for just $20m. Some have speculated that AOL and Sun will collaborate on a Java-enables set-top box to compete with WebTV. Compaq Computer Corp was also mentioned as a possible manufacturer of the resulting hardware. AOL and Netscape have a history. In late 1995 AOL inquired about licensing Navigator for its service as it was clear that AOL’s own browser, BookLink was not going to be able to keep up with the technology development at Netscape or its future rival Microsoft. But Netscape was still charging for Navigator back then and a phone call from Bill Gates offering IE for nothing, and a spot on the Windows 95 desktop made a Microsoft tie-in a no-brainer for AOL chairman and CEO Steve Case, despite his expressed desire for a deal with Netscape and a seat on its board. AOL has four divisions: AOL Interactive, headed by Barry Schuler; CompuServe, led by Mayo Stuntz; AOL Studios, headed by Ted Leonsis; and AOL International, led by Jack Davies.

Content from our partners
Rethinking cloud: challenging assumptions, learning lessons
DTX Manchester welcomes leading tech talent from across the region and beyond
The hidden complexities of deploying AI in your business

Websites in our network
Select and enter your corporate email address Tech Monitor's research, insight and analysis examines the frontiers of digital transformation to help tech leaders navigate the future. Our Changelog newsletter delivers our best work to your inbox every week.
  • CIO
  • CTO
  • CISO
  • CSO
  • CFO
  • CDO
  • CEO
  • Architect Founder
  • MD
  • Director
  • Manager
  • Other
Visit our privacy policy for more information about our services, how Progressive Media Investments may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.