At first glance, the merger between America Online and Netscape would seem a certain cause for an ulcer among small Internet service providers, who just saw one of their top vendors combine with their largest competitor.
But that doesn't seem to be the case, at least not yet. According to Chris Alan, who heads San Diego-based ISP Electriciti, the merger will benefit all Internet players because of its projected impact on Internet commerce. During a phone interview before Thanksgiving, Alan spoke enthusiastically about the since-completed deal, which he says will be a boom to merchants and other businesses looking to do business over the Web.
"Nobody cares about browsers anymore, and Netscape is licensing its source code anyway," Alan said. "What happens with this deal is that standards-based electronic commerce just got a kick in the pants."
Alan's comments were made in response to questions about the newly merged company's potential threat to local ISPs that compete with AOL for subscribers and must buy software from Netscape. Netscape's Navigator Internet browser holds about 45 percent of the market, running almost neck-and-neck with Microsoft's Internet Explorer, depending on which survey you want to believe. AOL is the nation's largest ISP with more than 14 million subscribers.
But the views of Alan, along with others reflected across the media, are more focused on the merger's impact on online commerce. Both AOL and Netscape have poured vast amounts of resources into this area in the last year, and their merger could form a fully integrated Internet company with both the expertise to help businesses use the Web plus an enormous customer base to deliver to them.
The national media is reflecting this view as well. This week, both U.S. News & World Report and Newsweek are sporting cover stories on Internet shopping, using the merger as a hook for their coverage. With the Christmas season here and a strong economy to boot, online retailers are forecasting their most lucrative season yet. Even President Clinton, who saw his presidency threatened partially by the hyperspeed Internet news cycle, is pushing for more Americans to make their purchases via the Web.
But it is still too early to fully asses the impacts of the three-way deal between AOL, Netscape and Sun Microsystems. Although AOL will gain control over Netscape's Netcenter Web portal and Sun will handle most of the software development chores, many other issues still remain unclear. For instance, how AOL will distribute Netscape's browser when it has a deal with Microsoft to distribute its browser in exchange for placement on the Windows desktop. Also unclear is how AOLs reputation for poor customer service, which developed during its frequent busy signals period of early 1997, will affect its ability to approach corporate customers, which are they key in this new market.
What's certain, however, is that the $4.2 billion deal will play a big part in altering the face of the Internet, potentially moving it from a high-tech hobby to a key component of Americans' lives. Several smaller ISPs like San Diego's Electriciti and SimpleNet have switched their focus from simply hooking up subscribers to the Internet to providing businesses a wide range of services for actually using the Web to expand their markets. According to Alan, the highly visible AOL deal gives online commerce a legitimacy that has been alluding it for the last two years.
"AOL wants to be the electronic commerce provider, and you can't do that with proprietary software," Alan said. "The idea is to use the Internet to reach all customers, and that way everybody can play."
Buying A PC? You've Got Company
Holiday shoppers this year are going to be flooded with, among other things, offers to buy unbelievably cheap personal computers at prices almost unheard of a year ago.
But with the growing number of so-called sub-$1,000 PCs (meaning computers that sell for $1,000 or less) on the market be significant enough to bring up the number of U.S. homes with a computer? A recent survey by a La Jolla-based firm thinks that it will, especially given the growing popularity of online shopping and stock trading.
According to figures gathered by La Jolla-based ZD Market Intelligence, about 48.5 percent of U.S. households owned at least one computer as of August. That is up from the 44.8 percent reported by the firm in January. At that rate, computer penetration should eclipse the 50 percent barrier easily by the end of the year, the company said.
These numbers are a sharp contrast to recent years, which have marked a bit of a slump in the industry that most people though was immune from cyclic pressures. Household penetration levels were 29.4 percent in January 1994 and grew to 38.5 percent in the next two years, according to data from ZD Market Intelligence. It grew to 40.7 percent in January 1997, the year that sub-$1,000 PCs began appearing on the market.
According to ZD analyst Matt Sargent, the rise in numbers is mainly the result of sub-$1,000 computers weighing heavy in the market. Once shunned by the top equipment makers, this market has proven to be the jolt needed by an industry that has seen its numbers slag in recent years. Makers from IBM, Hewlett-Packard and Compaq have put out several models in this price range, as well as several smaller brands. Even high-end direct maker Gateway has unleashed a sub-$1,000 machine.
As PCs with price tags under $500 begin to show themselves, Sargent says the penetration rate likely will continue to rise at strong rates. "I don't see any reason for this to change," he told Dow Jones Newswires.