AOL, You've Got Netscape

Steve Case had plenty to be thankful for last Thursday. The CEO of America Online sat down to turkey with his family just two days after announcing a deal to devour Netscape Communications nearly whole (he carved off a piece for his friends at Sun Microsystems). The initial spin on the most momentous merger in Internet history was that it put the world's leading online service first in line for electronic commerce and entertainment--a market that could be worth trillions in just a few years.

But every holiday binger faces that morning-after moment when the bathroom scale measures what the feast has wrought. And AOL's new bottom line is a company swollen with millions of new customers, rivers of new revenue and essentially unlimited potential but also a tricky new business model that may prove difficult to take from the white board to the real world. The Netscape buyout has redrawn the online map, but a certain software concern based in Redmond, Wash., still looms menacingly on the horizon. The epic confrontation between Netscape and Microsoft is over, but the epic confrontation between Sun and Microsoft proceeds apace, and the epic confrontation between AOL and Microsoft has barely begun.

The deal is relatively straightforward: in exchange for $4.2 billion (roughly 10%) worth of its high-flying (if arguably inflated) stock, AOL gets all of Netscape, right down to the last cappuccino machine. These are indeed dark days for the Mountain View, Calif., start-up. The company whose trailblazing browser jump-started the World Wide Web back in 1994 was supposed to become the fastest hot rod on the Infobahn. Instead, Bill Gates sideswiped it into a ditch and left AOL to strip the wreck for parts: a browser, a website and a treasure chest of software. How well AOL exploits its new toys will determine whether its latest mantra, "AOL Everywhere," looks prescient or ironic a few dozen business cycles down the road.

THE WEBSITE. Netscape's Netcenter may turn out to have been worth a few billion in its own right. The Netcenter site is a leading contender in the race to become one of a handful of powerhouse "portals": full-service websites that are online launching pads, entertainment networks and shopping malls rolled into one. Between netscape.com aol.com and the AOL service itself, Case's audience now numbers in the tens of millions. His acquisition also makes a good daytime-nighttime fit. AOL's usage is heavily weighted toward the evening and weekend hours, when teenagers and home users do most of their surfing, while Netcenter is most heavily trafficked from 9 to 5, when white-collar workers log on via corporate networks.

THE BROWSER. Its lofty 80% market share back in heady '95 turned out to be a high-water mark for Navigator, the software jewel in Netscape's crown. Then Microsoft stuck its competing Web browser, Explorer, on millions of Windows desktops and grabbed roughly half the market with uncanny speed (the Justice Department is still trying to figure out exactly how that happened). Under AOL's wing, Navigator could once again take the lead--if Case decides to switch AOL's built-in browser from Explorer to Navigator. The problem is that if Case drops Explorer, AOL could lose its happy perch on those same millions of Windows desktops. What's it going to be, Steve?