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Netscape deal threatens partner

With its acquisition of Kiva Software, Netscape gains new technology and new blood--but it has also put another business relationship in doubt.

    With its acquisition of Kiva Software, Netscape Communications (NSCP) is gaining new technology and new blood but has put another business relationship in doubt.

    Netscape currently resells high-end server and tools products from NetDynamics, a privately held Silicon Valley company with about 140 employees. However, NetDynamics' application server products compete with the main product Netscape just bought, the Kiva Enterprise Server.

    The companies take pains to differentiate the two products, but analysts say there's likely too much overlap for Netscape to continue as a NetDynamics reseller in the long term.

    "The current releases are directly competitive, and the differences are subtle at best," said Michael Goulde, senior consultant at the Patricia Seybold Group. "The main difference is that NetDynamics has a significantly larger customer base than Kiva."

    Because of that similarity, Goulde predicted, Netscape would have to terminate its reseller relationship with NetDynamics "because it's too confusing to customers."

    Jamie Kiggen, managing director of financial analyst firm Cowen and Company, is also sure that the Kiva purchase will affect the Netscape-NetDynamics relationship. But he is also confident that the deal will ultimately benefit NetDynamics by raising industry awareness of the application server market, a wave that the company hopes to ride to a public offering next year.

    Moreover, NetDynamics president and CEO Zack Rinat said Netscape's reseller efforts account for less than 5 percent of his company's revenue. Analysts agreed that if the companies go their separate ways, it won't have a significant effect on NetDynamics' bottom line. The company received a third infusion of private funding in October that brought the running total to $15.4 million.

    Both Netscape and NetDynamics claim that their relationship will continue in its current form, but the commitment on both sides was clearly less than enthusiastic.

    "Netscape is still reselling our products, and it's going to be in the near future," Rinat said. "But we need to sort it out and see how long it's going to happen."

    Rinat pointed out that the reseller agreement can be terminated by either party at any time on grounds of "convenience." He did not say if or when his company would exercise that option.

    Netscape representatives were equally guarded in their assessments.

    "A lot of that conflict is to be determined, depending on NetDynamics and their decisions going forward," said David Butler, Netscape's director of server product marketing.

    Butler, positioning Kiva as the front-runner, said: "Clearly, NetDynamics has a goal to get toward the type of applications that Kiva's been successful with in the past year, but that doesn't happen overnight."

    He added that Netscape was focused on finishing current sales of NetDynamics products and that it will continue to include those products on its price list.

    When asked if Netscape would actively promote NetDynamics, Butler said, "We're not going to go in and tell customers that it's not going to solve their problems. We'll solve customers problems with NetDynamics if that's what they want."