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Netscape ponders Web hosting

Hosting Internet storefronts would fit with Netscape's broader strategy of using traffic to its Web site to boost other parts of its business.

In a significant addition to its e-commerce strategy, Netscape Communications (NSCP) is considering a move into the Web hosting business for Internet storefronts.

No decision to venture into the new area has been finalized, Netscape executives said in disclosing the plans. The hosting option could backfire if major ISPs and telephone carriers, potential buyers of Netscape's e-commerce software, see Netscape as a competitor. However, analysts have criticized the idea.

The venture would mark another turn in Netscape's changing corporate strategy, largely in response to competition from Microsoft. After refusing to give up the source code for its browser, Netscape now lets other developers use it--for free. CEO Jim Barksdale has steered the company away from its roots as a hot Net start-up and deeper into the enterprise application software market.

Offering commerce hosting as a service would fit with Netscape's broader strategy of using traffic to its popular Web site to boost other parts of its business, but to date, Netscape's e-commerce strategy has focused on products, not services. A hosting service might signal Netscape's interest in services as a way to diversify its revenue.

"Lots of people who look at our product set say, 'Can you host it for us?' Our vision is that we will create one of these trading communities. Our idea is to link them [to Netscape's Web site] and provide software for them," Steve Savignano, senior vice president of Netscape's application product division, said in an interview. That unit includes engineers and Internet commerce software Netscape acquired in November when it bought out its joint venture partner, GE Information Services, in Actra.

"The next evolution of that will be toward hosting applications to do secure trading communities," Savignano said. "That will take us to hosting as a very interesting part of our offerings."

Interest in hosting e-commerce sites for companies that don't want to run storefronts themselves, often called the "commerce service provider" (CSP) business, has blossomed. IBM this week added a commerce hosting service, joining Pandesic, as well as ISPs like AT&T, PSINet, British Telcom, and financial firms like Barclays Bank.

Two other e-commerce software vendors, Open Market and Connect, have exited the hosting business, but neither had the huge volumes of traffic to their Web sites that Netscape hopes to leverage.

"We wanted to be first and foremost a software company, and our customers look down their noses at [us] being in the same business they were in," said Keith Lietzke, Open Market's vice president of industry marketing.

Internet commerce analysts, noting that the commerce hosting business is exploding, panned the idea of Netscape becoming a hosting service.

"It baffles me," Torrey Byles, of Granada Research, said. "It sounds like a desperate move. Are they going to build their own data center from scratch? Do they have a partner lined up, an existing ISP, that already has some infrastructure?"

"I don't think it's a good strategy," Erina Dubois, of Dataquest, concurred. "Barksdale has an enterprise software application strategy and to get into the hosting business is not their core competency at all. I think they are reaching for something to generate revenue."

Vernon Keenan, of Zona Research, agrees that becoming a CSP is "a potentially cannibalistic activity" for Netscape's sales to other CSPs, but he thinks Netscape may be capitalizing on its well-regarded reputation.

"It's an opportunity to meet the needs of thousand and thousands of smaller retailers and other folks who wish to participate in the electronic economy ...[but] can't afford to do their own hosting," Keenan said. "But it would be a pretty risky decision on their part."

Since Netscape's buyout of Actra, which closed December 15, Netscape has been virtually silent about its plans for Internet commerce software. That, Savignano said, will change soon.

"Over the next quarter to quarter and a half, you will see a lot more presence in the market from us than in the last months," he said.

Netscape will target businesses selling to other businesses via the Web, in part because its software for selling to consumers, Merchant System and Publishing System, have been shipping for some time. The three products from Actra, called its CommerceXpert line, are primarily intended for business-to-business e-commerce.

Savignano views IBM and Microsoft as Netscape's chief rivals in the e-commerce space, discounting as competitors Open Market, Ariba, and Pandesic, a joint venture of Intel and German software giant SAP.

"Most of the people I read about in the press I don't worry about," Savignano said. "IBM, Microsoft--those are the people who are going to have a position in this market going forward." He termed Microsoft's current offerings as "interesting products in the low-end space" and called IBM "a good competitor, much more focused on business-to-consumer."

"Our suite of applications is as much a turnkey solution to the problem as you can have," he added. "There's always going to be customization, but we are not a toolkit solution." Many e-commerce software offerings, including those from IBM and Microsoft, are regarded as tools for merchants to build their own sites, not finished applications.

Netscape pushes the three CommerceXpert applications, Merchant System, and Publishing System as an integrated suite. It is rewriting Merchant System, its oldest Net commerce software, with code from the CommerceXpert line.

It intends to add new features--product configurators, integrating with legacy systems, bidding or auction aspects--but also to rely on still-unannounced third parties for shipping and tracking, supply chain management, and other pieces.

Savignano's group, with about 150 developers and marketers, is using technology from another Netscape acquisition, Kiva Software, to support back-end services among its e-commerce applications as well as providing Kiva's development to customers to modify their Internet storefronts.

Marketing will be through Netscape's own sales force and systems integrators, although no alliances have been announced. However, KPMG is scheduled to occupy a new building directly across the street from Netscape headquarters.

In the e-commerce market, Netscape clearly intends to capitalize on its brand.

"As people go to solve problems, they want to know: Do you understand the Internet? Do you support standards? Can you draw eyeballs? Do you have experience building community? Can you bring customers to the party? Do you have a history of doing hosting yourself?" Savignano said.