America Online's Proposed Purchase of Netscape: A Strategic Play for Dominance in Online Media and Electronic Commerce

Strategic Insights -

The proposed purchase of Netscape Communications Corporation by America Online Inc. aims to secure a leading Internet brand and significantly expand its online audience. The $4 billion deal, if completed, would enable America Online to solidify its position as the premier Internet media company, leveraging its vast audience numbers to attract advertisers and drive revenue in the emerging electronic commerce market. America Online's integration into this new-media business reflects its strategic leadership, with notable executives from traditional media industries such as MTV and Pepsico's Pizza Hut contributing to its vision.

Key Takeaways:

  • America Online's acquisition of Netscape would greatly enhance its role as the premier Internet media company, leveraging its large audience numbers to convince people that the Internet is becoming a mainstream media.
  • The proposed deal aims to position America Online at the forefront of the convergence of media and commerce, an integration reflected in the company's leadership, with executives from traditional media industries contributing to its vision.
  • Microsoft, a formidable competitor in the media and commerce business, has invested heavily in new media and electronic commerce, with its Windows operating system controlling more than 90 percent of personal computers sold today.
  • America Online recognizes the big opportunity in emerging growth businesses like electronic commerce, rather than trying to compete directly with Microsoft.
  • The company intends to hold on to Netscape's core business, specifically the technological "back office" software that enables electronic commerce, and has partnered with Sun Microsystems Inc. in a joint marketing and development deal.
  • The long-term objective of the America Online-Sun partnership aims to create a stripped-down network computer that could deliver online media and electronic commerce services to many homes at a lower cost, potentially threatening Microsoft's grip on desktop computing.

Statistics:

  • Forrester Research Inc. projects that Internet commerce could reach $3.2 trillion by 2003, or 5 percent of all sales worldwide.
  • Microsoft's dominance in the Windows operating system, controlling more than 90 percent of personal computers sold today, provides it with a significant advantage in any computer-based medium.
  • America Online plans to purchase approximately $300 million worth of Sun's computers as part of the side deal with Sun Microsystems Inc.

Sources:

  • America Online Inc.
  • Netscape Communications Corporation
  • Forrester Research Inc.
  • Sun Microsystems Inc.
  • Microsoft Corporation
  • MTV (Viacom)
  • Pepsico's Pizza Hut
  • NBC (GE)