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Netscape part of AOL's road to dominance?

Although it came as a surprise to many, the news that America Online is in negotiations to acquire Netscape fits in with the online giant's grand strategy.

Although it came as a surprise to many, the news that America Online is in negotiations to acquire Netscape Communications fits in with AOL's grand strategy.

Should the talks result in an acquisition worth an estimated $4 billion in stock, AOL could likely secure ownership of some of the most valuable assets associated with the Internet--thus gaining formidable control over how Netizens access, browse, surf, and behave on the Internet.

Central to AOL's plan is traffic, because of the increased revenue a bigger audience attracts. Moreover, the key to audience growth is luring more people onto its properties by acquiring companies that have loyal users as well as the potential to draw in new users.

The acquisition of Netscape would give AOL both. AOL See special coverage: AOL to buy Netscape would get the firm's Netcenter portal, which already has built up a loyal customer base. And it also would get the new customers lured to Netcenter through Netscape's Navigator browser. Browsers distributed by Netscape direct Web users to the Netcenter home page.

The browser also could give AOL a direct vehicle to offer software downloads to potential new customers.

The deal also would join two companies that enjoy tremendous brand recognition among online users.

Netscape has become synonymous with the Internet for novices, said Abhishek Gami, an analyst at William Blair & Company. "They think Netscape is the Internet," he said.

Many novices also equate AOL with the Internet.

AOL currently owns some of the most popular and widely used properties on the Web. It has locked up the online services market with its 14 million-strong membership base. It also owns CompuServe and the extremely popular instant messaging service ICQ, which it acquired in June. It also has its own instant messaging client in AOL Instant Messenger, which boasts millions of registered users--and the firm directs all of its proprietary service users to is highly ranked Web portal AOL.com.

While clearly dominant in the online services space, AOL has taken on the greater challenge of competing on the Web for advertising market share and lucrative partnerships with e-commerce merchants--revenue streams that have turned Yahoo, Excite, and Lycos into heavyweights.

Though AOL.com ranks high where traffic is concerned, its primary audience consists of its online service users, and AOL has been looking to attract new eyeballs from other markets--such as users in the workplace.

"The acquisition would expand AOL's reach to consumers at work," said Derek Brown, an analyst at Volpe Brown Whelan. "It can extend the AOL franchise into a new customer base and the at-work customer base that they have had a less successful time penetrating."

Acquiring Netscape would be another step in AOL's "multibranded" portal strategy, which calls for the company to own a variety of Internet portals that serve different audiences, instead of trying to make an all-encompassing gateway in the Yahoo model.

In addition, multibranded portal strategies also could open doors for more lucrative deals with merchants.

"The beauty of a multiportal strategy is, you get to sell exclusives to four different competitors on four major portals and have them all happily--or somewhat happily--coexist," said Adam Schoenfeld, an analyst with Jupiter Communications.

Lycos has pursued this strategy, acquiring a variety Web properties to become tenants in its network of sites.

In addition, Netscape and AOL joining forces could likely whitewash both companies' slow emergence onto the Web space.

Analysts have traditionally viewed Netcenter and AOL.com through the same lens--portals sitting on gargantuan audiences, but slow to leverage that advantage on the Web. It was not until this summer that the two companies began beefing up their portal offerings by launching redesigned sites, personalization features, and a number of Web-based services.

Analysts expect AOL to finally inject the much-needed marketing resources that Netcenter so far has lacked.

"The irony is that AOL is in a better position to push forward the Netcenter strategy than Netscape is," said Scott Smith, e-commerce analyst at Current Analysis.