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Netcenter partners react to buyout

Portals and Internet service providers that have partnership agreements with Netscape are among those that stand to be most affected by the deal.

Jim Hu Staff Writer, CNET News.com
Jim Hu
covers home broadband services and the Net's portal giants.
Jim Hu
5 min read
As the shockwaves from America Online's buyout of Netscape Communications reverberate throughout the high-tech world, portals and Internet service providers with ties to Netscape may find themselves on shaky ground.

So far, these Netscape partners have maintained an air of optimism--if not arrogance--in the deal's aftermath, trying hard not to flinch at the potential consequences.

The portals are not See special coverage: AOL, Netscape shake on it making a big deal out of the agreement, some saying that consolidation was bound to happen. On the other hand, ISPs are wary of what appears to be AOL's direct move into their business.

"We believe that on the Internet in the next couple of years, three or so major players will emerge in this space," said Yahoo spokeswoman Diane Hunt, referring to Microsoft, AOL, and Yahoo. "The difference between yesterday and today added to the likelihood that Netscape would be added to the big three."

The portal space is notorious for a culture rife with "coopetition," in which companies strike deals and partnerships with their competitors. However, for portals, the one key question is whether AOL plans to sever relationships already forged with Netcenter.

From the eyes of the portal competitors, such as Excite, Lycos, and Infoseek, the roughly $4 billion acquisition will begin to make marks in the landscape, but will not change things drastically.

These companies--and others, such as LookSmart and AltaVista--have multimillion-dollar agreements in place for "premier" placement on Netscape's portal Netcenter for content sharing or placement in its Web search rotation. The partners, in turn, get more traffic from their placement on Netcenter.

This is a fairly typical scenario in the portal world.

A sticky situation
However, if the AOL-Netscape deal goes through as expected, the future for these portals may not be so bright, some analysts say.

"I think for pretty much anybody on the Netcenter page, this is not great news," said Mark Mooradian, an analyst at Jupiter Communications.

With AOL at the helm, Netscape's partnerships could be altered dramatically, or simply dropped.

However, rival portals so far are putting forth an air of confidence.

"We really feel strong about the relationship that exists with Netscape and AOL," said Brett Bullington, chief operating officer at Excite.

Infoseek chief executive Harry Motro said the deal would have little effect on the company, given that its dependence on Netscape for traffic has diminished over the past year and a half. Though at one time 44 percent of Infoseek traffic came from Netscape, the company now gains only 5 percent from Netscape.

"No matter what happens, it's not a significant portion of traffic relying on Netscape," said Motro.

Excite has maintained that it has control over any changes in its $70 million content and search relationship with Netcenter, not AOL or Netscape, according to spokeswoman Melissa Walia.

"Excite has options to terminate the agreement," she said, adding with a note of optimism, "We see [the deal] potentially as a strong positive."

Despite Netscape's plans for its partners, if AOL takes the helm, many more of these partners may be looking for a way out. AOL would likely "become landlord of very coveted real estate" if it assumes ownership over Netcenter, analyst Mooradian noted.

New threats for ISPs
The deal also is creating concern among some Internet service providers that don't want to start their customers on a Web browser that serves as an advertisement for AOL's dial-up service.

Most of the largest ISPs in the country distribute Netscape's browser software, but insert their home page addresses as the default before sending the browser to customers. Smaller ISPs are increasingly following this trend as well, striking deals with content partners other than Netscape and maintaining their own home pages.

Netscape's Netcenter site in turn promotes a handful of national ISPs, with a focus on those controlled by the large phone companies. This promotion is likely to end if AOL moves into more direct competition with these companies.

"If I was an ISP, that would be a major concern for me," said Greg Howard, senior analyst for Infonetics Research. "I certainly wouldn't want my customers using something that would advertise my competition."

The deal could open up more room for alternative browsers such as Opera, as ISPs and consumers who don't want to support America Online or Microsoft look for new options, Howard said.

But perhaps more significant are signals that America Online is moving toward the profitable business ISP market. The Netscape Netcenter site is already heavily targeted at business users, and AOL has increasingly been making overtures to the small and mid-sized business markets, analysts noted.

"If AOL can offer services to business and expand their reach and revenue stream, they're going to do that," said Jim Balderston, a Zona Research analyst.

Already signs from inside the new AOL-Netscape-Sun axis are pointing in this direction. Steve Tirado, vice president of network computer systems at Sun, said yesterday that AOL was one of several big ISPs likely to start offering more comprehensive business support services including hardware, software, and connectivity.

"You're going to be seeing an AOL or an AT&T or one of these big ISPs offering your complete environment," Tirado said. "The [business] model that will succeed is where all your data storage and file management work is managed by ISPs. If you talk to the big telcos, they are all talking about going this direction."

Specialized business support services such as non-standard security services or complicated e-commerce packages are likely to be out of even the new AOL's range for some time, analysts said. But the new company is likely to be a strong competitor in offering services for medium-sized businesses.

"If you just want access, Web hosting, and some e-commerce services, then look out, AOL is going to be a very formidable competitor," said Matthew Kovar, senior analyst with the Yankee Group. "This is not just going to cause problems for ISPs going after small to medium businesses, but for large ISPs that have large Web hosting services."

But officials at Pasadena, California-based EarthLink, a national ISP whose clients are about half businesses, said they weren't losing sleep over AOL's plans for the business market.

"This brand extension is being taken to an extreme," said Kristen Kappos, EarthLink's vice president of corporate communications. "I think the business market will reject it."

America Online is still associated with busy signals and teens in chat rooms, not critical business applications, Kappos added. "It's an amusement park," she said. "Businesses remember that."