AOL buys Netscape, Sun joins in Java deal

A new Internet triumvirate has been formed with the announcement that America Online will acquire Netscape Communications in a $US4.2 billion deal, and that Sun Microsystems will join AOL in a strategic alliance, with plans to develop Internet devices using Sun's Java.

Happening at an opportune time, with Microsoft in court defending itself against an antitrust suit, the companies are downplaying the suggestion that their union represents a new bloc to oppose Microsoft, preferring to stress the combined value they bring customers in the online marketplace.

AOL will continue to offer Microsoft's Internet Explorer to its AOL online customers, said Steve Case, CEO of AOL. Netscape's Navigator browser is locked in battle with Explorer, and some observers had speculated that an AOL/Netscape deal could eject Explorer from AOL's offerings.

But Case said it would not. "Our present intention is to continue with IE so we'll be bundled with Microsoft," he said. Asked whether Microsoft might be inclined to stop bundling AOL, Case said that Microsoft could not elect to discontinue the bundle. "It's at our option, not Microsoft's," he said.

AOL and Netscape officials ducked the question of layoffs but were more forthcoming in outlining some organisational changes which will occur. Netscape will retain its Mountain View, California headquarters, in keeping with AOL's multiple-brand strategy, but Jim Barksdale, Netscape's president and chief executive officer, will cease his day-to-day responsibilities for Netscape, they said. Barksdale will join AOL's board of directors after the deal closes, and Netscape will be headed by Bob Pittman, president and chief operating officer of AOL, who will remain based in Virginia, officials said. The role of Marc Andreessen, Netscape's co-founder and chief technology officer, is still being worked out, but he will have a position in the AOL organisation, they said.

Barksdale rejected the proposition that the looming spectre of Microsoft forced Netscape into AOL's powerful arms for protection. "Netscape is doing this because it's what's best for Netscape," Barksdale said. "This is not about the DoJ case."

But the co-operation between AOL, Netscape and Sun is very much about Microsoft. Scott McNealy, Sun's president, CEO and chairman, did not hesitate to trumpet the new life he said the deal will bring to Java, the Sun programming language whose platform-independence once appeared poised to break Microsoft's tight grip on the desktop.

"I think this is a very positive server-side endorsement (of Java and) it's also a pretty big win on the client side," McNealy said.

AOL's deal with Sun, which is separate but related to its Netscape acquisition, encompasses a three-year development and marketing agreement. AOL and Sun will together develop the next version of Netscape's Navigator and Communicator software clients and AOL will use Java in its e-commerce offerings, the company said.

AOL and Sun will also jointly develop a suite of easy-to-deploy software designed to help companies and ISPs engage in electronic commerce, according to AOL. AOL will buy systems and services from Sun worth $US500 million at list price through 2002. And for its part, AOL will receive more than $US350 million in licensing, marketing and advertising fees from Sun.

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