Sun, rumored to be in line to get its hands on Netscape's business applications software if America Online buys the Net pioneer, could wind up owning, or at least having a substantial interest in, Netscape's server and electronic commerce software.
Sun could then sell these solutions, which are considered superior in certain aspects to equivalent Sun products, to corporations or incorporate the technology into its own server offerings.
But Sun might do all that without actually buying Netscape's software business, said Gartner Group analyst Chuck Shih, who formerly worked in Netscape's software unit.
"It doesn't make sense for Sun to buy it," said Shih, arguing that highly profiable Sun won't want Netscape's software business to crimp Sun's profits. "The real question mark is what's going to happen to the software stuff if [Netscape and AOL] merge and Sun doesn't have a part in it. Without Sun, AOL doesn't know how to deal with e-commerce applications."
Shih, who has been talking with his former Netscape colleagues today, says they think Sun will be a key OEM channel for Netscape software, not their new owner.
On the hardware side, AOL and Netscape could boost Sun's so-far fruitless efforts to break into the Internet client market. Sun has rolled out a number of Internet client proposals, but most have gone nowhere due to lackluster application support. By combining these devices with content and applications from AOL and Netscape could suddenly make these devices appealing.
AOL might even benefit. With Sun as a partner, AOL could move into the market for providing ISP services to corporations.
Sun and Netscape are old friends, at least in Internet time. Netscape was an early Java licensee in May 1995, and Sun's Solaris has generally been the first operating system that Netscape has supported with its software. The two companies also share an antipathy toward Microsoft.
At first glance, the two companies appear to have overlapping products in their arsenals. Both have acquired application servers: Netscape bought Kiva Software in November 1997, and Sun purchased NetDynamics earlier this year. Both companies also market email servers and other Web software.
"Kiva is regarded as the best of the two, so NetDynamics may be the one that gets tossed out," said Scott Smith, e-commerce analyst at Current Analysis. "But I would think that engineers as savvy as Sun's would come up with solutions to bind the two together."
"Sun has an opportunity to pick up some interesting enterprise servers that could very well help them build their Solaris platform into an Internet platform," said Software.com president Valdur Koha, whose company makes messaging software for service providers, competing with Sun and Netscape corporate email software.
Koha thinks Sun will pick one corporate email product, noting Netscape's version has more users and can be integrated with Netscape's other enterprise software, perhaps giving it an advantage.
Smith also sees Sun as an unsteady partner in the deal, noting that it has in the past backed out of deals, including its long flirtation with Apple Computer several years ago.
Sun plays critical role
Jim Balderston, analyst at Zona Research, thinks Sun plays a critical role in the overall deal, particularly because AOL has no notable successes in the business market.
"My guess is that AOL would try to sell off the business applications," such as e-commerce and application server software, said Ross Rubin, who heads the telecommunications technology practice at Jupiter Communications. "It once tried to get into the tools business in acquiring Navisoft, and that came to nothing."
Rubin lists Hewlett-Packard, Symantec, IBM, or smaller e-commerce players like Open Market, Broadvision, or Vignette as potential buyers. IBM has reportedly looked at Netscape in the past and decided not to pursue it.
"Sun would gain much more of an enterprise software story, as well as additional application server technology and an opportunity to distribute Java through the AOL user base," the Extraprise Group wrote to clients today, which thinks the overall deal could challenge Microsoft in several markets.
But Smith thinks AOL may hold onto Netscape's application software.
"AOL needs another market to get into--its 14 million consumer subscribers has to be near the top," he said, noting that AOL would love for more daytime users of its network, meaning businesses primarily.
Richard Doherty, principal analyst at the The Envisioneering Group, thinks Sun could become the big winner in a three-way transaction.
Sun's client hardware struggles
Sun's so far unsuccessful labors to sell client hardware have included consumer and business Internet computers (the JavaStation), set-top box reference designs (through its Diba subsidiary), processor reference designs for clients (picoJava), and operating systems and software for devices. Sun has also acquired companies such as Beduin and Chorus Systems, to help it develop Java-based device software, but with few results so far.
By teaming up with AOL and Netscape, Sun would get access to a large base of subscribers and developers who might look at a Sun client because it is AOL-enabled and comes with a Netscape-branded browser. Sun would make the OS and reference specifications for designing devices. The other two companies would provide branding and customers.
"There are 15 million people out there who would buy an 'AOL Box.' Would [consumers] buy a cable set top box for faster AOL? Sure. Buy a handheld for 'Portable AOL?' Sure. [These devices] all become AOL viewers propelled by Java," Doherty said. "Sun has tremendous potential with its Java technology that has been largely untapped."
That could shift the balance of power in the industry, he added.
"The moment the consumer understands that he doesn't have a Microsoft OS in it [the device], Microsoft's apparent control of the industry dramatically changes," he said.
"AOL is working on a strategy to make it 'AOL Anywhere'. They want to get it off the PC and get it onto anywhere you want to go," said Sean Kaldor, a consumer analyst with International Data Corporation.
"They need to develop an AOL 4.0 to run on Windows CE," he said, for example. AOL is expected to come out with announcements for viewing AOL on devices such as cable boxes and handhelds PCs in the first half of 1999.
The Sun deal could bring them closer to that goal. "You could imagine a series of devices based around the Diba reference design with a Java OS and a Netscape client interface," he said.
Sun, he further hypothesized, may also not turn out to be the only beneficiary. Netscape also has investments in Network Computer Incorporated, the Oracle subsidiary dedicated to set-top development.
AOL could also use the deal to move into the corporate ISP space.
Steve Tirado, vice president of network computer systems at Sun, said separately today that ISPs are going to become crucial in delivering this sort of technology and more critical as corporate backbones in general. While Tirado did not mention specific deals, he mentioned AOL as one of the companies that could benefit from this trend.
"You're going to be seeing an AOL or an AT&T or one of these big ISPs offering your complete environment" including hardware, software, services and connectivity, he said. "The 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."