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Insiders, outsiders react to merger

Pending layoffs at AOL and Netscape have some employees "freaked out," but comforting words from top execs seem to have been somewhat effective.

As the technology industry absorbs newly revealed details of America Online's acquisition of Netscape and its alliance with Sun, reactions inside and outside the companies are ranging from cautious optimism to downright gloom.

Within the firm, today's pep talk by outgoing Netscape chief executive Jim Barksdale and AOL execs was successful in raising at least some spirits--but not all.

"Everyone's freaked out about the layoffs, but otherwise people are thinking it's going to be OK," said one Netscape employee. "At least so far that seems to be the prevailing attitude. The meeting was really upbeat."

In addition to meeting with the Netscape troops, AOL chief executive Steve Case and president Bob Pittman posted a memo on the newly acquired company's intranet that praised Netscape, extolled the virtues of the combined companies, and rationalized the layoffs announced today.

AOL's basic separation package for departing Netscape employees includes "three months salary, extended health benefits coverage, and professional outplacement assistance," according to a Netscape human resources posting obtained by CNET

Employees at the "director level" will get "an additional three months pay and customized outplacement assistance," and those at the vice president level will get "an additional six months pay and customized outplacement assistance" on top of the basic package. Performance bonuses will be awarded at 75 percent.

Netscape employees will not be able to volunteer for the layoff list unless they are asked to relocate more than 50 miles or their current position is downgraded.

"You have established yourselves as leaders and innovators in our industry and we appreciate how valuable you will be to our company," reads a memo signed by AOL's Case and Pittman. "As part of the integration of America Online and Netscape, however, redundancies and our new organizational structure will lead to some job reductions across the Company....

"Although this process is painful, we commit to you that it will be fair, based on the alignment of specific skills to our business objectives. And we will complete this process as swiftly as possible--within a couple of weeks. We will be providing generous separation packages and effective outplacement assistance for those employees whose positions are being eliminated."

AOL may have scored points for "fairness" by distributing the cuts between both AOL and Netscape, but at least one analyst thinks that fairness may come at the expense of good management.

"When doing an acquisition, do you want to be fair, or do what's best for the new company?" asked Giga Information Group vice president Rob Enderle rhetorically.

"It's relatively unusual to do the balance they did because it's not good for the combined firm. You can wind up fragmenting too many relationships in the process by not only hitting the newly acquired unit, but also damaging the acquiring firm," he said.

"The result may be departures in both firms you'd like to avoid. In the process of being fair you can do the wrong thing."

Enderle also raised doubts about the proposed "virtual business unit" that will bring together at least 1000 employees from AOL's new Netscape enterprise group and the same number from Sun.

"The reorganization makes logical sense except the virtual company created between the two firms," Enderle said. "Historically, this kind of alliance has not worked, largely because of a disconnect between their founders."

Enderle warned that unless one company takes a clear lead and the other a supporting role, decisions can wind up languishing "in committee" and the firms will wind up at cross purposes with each other.

The alliance between Sun and AOL will present challenges beyond the "virtual business unit," not least of which is a potential corporate culture clash between Netscape and Sun.

Carol Adams, a senior director in Netscape's enterprise software group and previously a 10-year Sun Microsystems employee, says the two corporate cultures are distinct. "I hope we'll learn from each other," she said today after the meeting.

Netscape has a more team-oriented, open environment in terms of communication, she said, while Sun is more bureaucratic and shares information less widely. But Sun's computing infrastructure and service offerings surpass Netscape's.

"Customers like that Sun brings support and services," she said. "Sun is strong at 'middleware,' but the piece they are missing is what Netscape has."

"The slice that's great for AOL is on the commerce side, where they have an incredible opportunity. I hope they'll use some of it," Adams added.

Some Netscape employees say they're more averse to working for Sun than they are about working for AOL.

"Sun is just another big, slow-moving company," said one Netscape engineer, who predicted that some of his colleagues would quit rather than be transferred to Sun.

This employee had similarly dismal words for the merger as a whole.

"Netscape's gone now--it's over," he said. "Early on we did a lot of really great stuff that I'm proud of, and we could have done a lot more, but now it's dead. It's hard to know what went wrong when, but the company lost its steam, and now it's being sold off for parts. It's pretty sad."

Both this employee and Giga's Enderle took a dim view of the role Marc Andreessen will play under AOL. Andreessen, a Netscape founder and early creator of the browser, will become chief technology officer at AOL.

"Our sense is that Andreessen's role will be largely ceremonial," Enderle said. "He'll be the CTO in a company that probably doesn't need one. AOL is not the company that Netscape was, and the position will hold no weight or purpose. At AOL the president is the CTO."

Netscape's popular Barksdale seemed to try to ward off the inevitable sniping, at least among his former employees.

"The only difference between a good day and a bad day is attitude," Barksdale told the meeting. "So let's go out there and make this thing work."

Barksdale received two standing ovations from the group.