Can AOL overcome its corporate credibility gap?

AOL's $4.2 bn (£2.5bn) acquisition of Netscape Communications announced Tuesday, is a two-fisted grab for new consumers and corporations. The latter segment, to this point, has eluded the online leviathan.

One of the main impediments to corporate sales has been AOL's spotty service record. While it will have Sun Microsystems strong hand steering enterprise software sales, Sun's supporting role may not be enough to overcome corporate critics. "You're going to have to look at [AOL] with a jaundiced eye," said an IS director at a major retailer who uses Netscape software to run the company's intranet. "It's a little early to tell if we're going to have to go elsewhere. But there is a major credibility problem facing this merger."

Credible or not, AOL's plans for the enterprise are ambitious. In an interview following the announcement of the proposed deal, AOL CEO Steve Case said he wants to take e-commerce "to a whole new level." In addition to selling existing Netscape software through Sun, Case wants AOL to help build turnkey e-commerce solutions and provide e-commerce application hosting services

Intentions notwithstanding, the AOL brand is making some Netscape enterprise customers uneasy. "We think AOL is still a consumer-driven company," said Manoj Jain, assistant general manager for front office development at Scotia Capital Markets, in Toronto, which uses several Netscape server applications. "It will be awhile before they can start pitching their solutions to the corporate market."

Without the Sun alliance, the deal would have been even less compelling, other IT managers said. "With AOL's consumer past, I'm a little concerned about the Netscape business-to-business applications that we've been using," said Laura Longcore, senior manager of e-commerce at Boise Cascade Office Products Inc. in Chicago. "But the Sun relationship gives me a lot of comfort."

On the consumer front, the deal, which the sides expect to complete next spring, will likely unfold in a hurry. AOL's linking of Netscape's Netcentre portal to the AOL site merely adds more users to what is already the most widely trafficked site on the Internet. The corporate end is much different.

In March 1996, AOL, of Dulles, Virginia, launched its first strike into the corporate market with AOL for the Enterprise, an online service targeted at corporate accounts. Though it still exists, technically, few corporations use it. Less than five months after the AOL for the Enterprise launch, disaster hit. A 19-hour AOL outage was front-page fodder in newspapers across the United States. Following the outage, consumer complaints became more frequent as AOL continued its rapid growth.

So fast was it growing that, for a time, the Dulles, Va., service provider stopped accepting new customers. AOL now claims 14 million subscribers. Later, the company's billing practices were called into question. Then executives were forced to make an embarrassing retreat from plans to sell customer data to direct marketers. In June 1998, AOL reached a $2.6 m (£1.5m) settlement with 44 U.S. states that investigated consumer complaints regarding the service.

Since that network outage in 1996, AOL has spent more than $350 m (£213m) to upgrade its network. But the stigma remains, as does the lack of corporate interest. A second AOL strike at the corporate market, a remote access service launched this April called Enterprise Dial-Up, was greeted with very little fanfare. "I don't think it's a given that AOL gets credibility in this market," said Scott Smith, an analyst at Current Analysis Inc. in Sterling Virginia. "They are going to have to build it. And that's going to be the hardest part for them.''

Enter Netscape. By spending $4.2 bn (£2.5bn) worth of stock for the Californian company, AOL gets its hands on the Navigator and Communicator browsers, which will continue to be developed and distributed in some way through the AOL network. The Mozilla.org developer's group that's dedicated to browser source code development for Navigator will continue, while the control of the Netcentre portal will go to AOL.

AOL also wants to use Netscape's CommerceXpert e-commerce software as the foundation for its outsourcing service, along with a $500m (£305m) investment in Sun hardware. "We are a pure Internet shopping site and our goal is to interact directly with customers," said Keith Foxe, director of promotions at the Internet Shopping Network, a Netscape Application Server user and anchor tenant on the Shopping Channel of AOL's site. "So issues of Web hosting or [AOL] being a new type of ISP don't matter much to us."

Sun, which will co-develop future Netscape software and sell the existing applications, could be the matchmaker that unites the consumer world of AOL with corporate America. "Netscape has had some problems of late when it comes to listening to customers," said Mike Garland, manager of the virtual private network at Litton Industries Inc., a major Netscape server and client software user based in Woodland Hills, California. "With the financial backing of AOL, Netscape should have the time to listen more to what is needed," Garland added. "Add to it Sun, and you have a company that could support and service and develop the technology better than Netscape could have ever done by itself."

Additional reporting by Christy Walker

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