AOL-Microsoft deal bodes ill for Netscape

By David Becker, CNET News, 30 May, 2003 07:41

NEWS

So much for Netscape 8.0. That's one upshot of Thursday's settlement between Microsoft and AOL Time Warner, according to industry analysts who predict that the Netscape browser -- currently at version 7.02 -- will now move from a neglected orphan of AOL Time Warner to a candidate for euthanasia. "For the most part, it means Netscape is pretty much gone," said Rob Enderle, an analyst for research firm Giga Information Group. "AOL is going to continue indefinitely now on IE (Internet Explorer) and has no justification really to continue funding Netscape." In the settlement, AOL Time Warner inked a seven-year contract to use IE in its flagship service. Company chief executive Richard Parsons was vague about the future of Netscape, beyond maintaining it as a subsidiary. He said the media giant is continuing to evaluate Netscape for its value, but pledged the company's support for IE. Former Netscape chief executive Jim Barksdale remains on the board of AOL Time Warner. "We extended the licence around (Microsoft's) browser in the AOL client because, frankly, it's worked very well," Parsons said. That's a far cry from the glory days of Netscape, which began as a commercial version of the pioneering Mosaic, a browser that was recently feted on its 10th birthday. Version 1.0 of Netscape Navigator was released in 1994, setting the stage for a Web boom that caught Microsoft off-guard. Netscape largely owned the browser market when it went public in 1995, laying the groundwork for years of fizzy Internet-related IPOs. The company was still a contender in 1998, when the Netscape browser's market share ran neck-and-neck with that of Microsoft IE and when the then-America Online announced it would buy Netscape in a deal then valued at an astonishing $4.3bn (£2.7bn). With the Internet boom in full swing, the value of the all stock-transaction had risen to $8.98bn by the time shareholders approved it a few months later. Almost immediately after America Online closed the deal, Netscape began to get pushed further and further into the back of the company closet, however. The online giant began devoting fewer and fewer resources to the browser, as it watched IE pretty much eliminate any notion of a browser war. "The Netscape browser never really had significant support from AOL the whole time they (have) had it," Enderle said. Barry Parr, an independent Internet media and e-commerce consultant, said that, for the past few years, Netscape has been valuable to AOL Time Warner, mainly as a potential weapon to use against Microsoft. The Internet company could have re-engineered its services in favour of Netscape and used the power of its subscriber base to revive the former king of browsers. "That was a real risk to Microsoft, if AOL decided to put some muscle behind Netscape," Parr said. Now that AOL Time Warner has locked into IE for the foreseeable future, the usefulness of Netscape to the company seems tentative at best, Parr said, and the 1998 acquisition starts to look like one of a long line of questionable and overpriced Internet buyouts. "My feeling is that most of the consolidation that took place during the boom was pretty stupid," Parr said. "It's really hard to see what benefit they gained from buying Netscape. At the time, the decision was pretty momentous, but they really didn't get any synergies out of it." Enderle said the deal made more sense at the time. "Remember, at the time Netscape was purchased, things were quite a bit different," he said. "MSN (Microsoft's competing online service) looked like it might become a threat... Now the AOL side is facing a threat, less from Microsoft than just general Internet trends." In addition, AOL Time Warner does end up with a $750m payoff from Netscape, better than the return that many Internet companies realised from acquisitions that now show up on quarterly statements as "impaired goodwill".

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