America Online (AOL), the online services company long dismissed in the computer industry as "the Internet on training wheels", showed this week that it may be the swiftest thing around. After round-the-clock negotiations, the company reached an agreement to buy Internet pioneer, Netscape Communications for $4.2 billion (£2.9 billion) in stock. The deal represents a bet that the ideas, technology and name recognition of Netscape will enable AOL to bring millions more people online to create long-elusive mass markets in e-commerce, entertainment and communications.
The new AOL would team up with computer company Sun Microsystems to create a powerful competitor to Microsoft, the world's biggest software company. Though AOL would have revenues of only about a quarter the size of Microsoft's $14 billion total, its sales in the rapidly expanding online industry would be comparable to Microsoft's.
Right away, AOL would be able to set up new Internet shopping sites for companies that cannot be bothered running their own, and handle advertising and marketing. Further down the road, the deal might speed arrival of the day when Internet access is not so much by computer but by everyday devices.
Above all, AOL hopes to transform online commerce and communication by making computer technology so easy to use that it's largely invisible.
The deal sends a powerful message to Silicon Valley, where companies are famous for stressing evermore complex products over ones that people can easily use: people who want to go online shouldn't have to be computer programmers. "Everyone loves to watch TV but very few people understand how it works. The same is true with the telephone system," said Mr James Barksdale, chief executive of Netscape. For the Net to become equally widely used, AOL believes, the technology must fade into the background.
From the start, emphasising what the technology can do for people - instead of what they must learn to make it work - has been one of the unique strengths of AOL. While many Internet companies required substantial patience and computer skills to get online, AOL has required just a single disk.
"We're aiming for the mass market," said Mr Steve Case, AOL chief executive. "The magic of AOL is what happens in front of people's screens. Even though this may surprise you, [AOL users] are more focused on what the service can do than on whether they're connected to AOL or the Web. They don't care what technology is in place to make [communications] happen."
AOL, in partnership with Germany's Bertelsmann group, employs more than 400 people in Dublin in a customer service centre serving Germany, France and Britain. It recently announced an expansion of this operation to Waterford, where it is expected to create a further 150 jobs.
Just a year ago, the idea that AOL would take over Netscape would have been unimaginable. Netscape has become a symbol of Silicon Valley verve and innovation, employs 40 people in the Citywest business park in Dublin and plans to increase that figure to 300 within three years. It shows how much the industry is changing, said Mr John Seely Brown, chief technology officer for Xerox and widely called an industry visionary.
As part of the deal, Sun will sell and help develop technology which Netscape has created for businesses and pay AOL at least $350 million for the privilege. AOL has said it will buy at least $500 million worth of computer technology from Sun.
Together, Sun and the AOL team believe they can offer businesses technology that will make it easier for them to set up "store fronts" in cyberspace, and sell goods and services on the Web. Moreover, Sun chief executive, Mr Scott McNealy, believes Sun's Java programming technology might help add computer "smarts" to a wide variety of appliances, including telephones, set-top boxes, souped-up identification and credit cards.
Promoted by AOL, which currently has 14 million subscribers and grows ever day, these devices might well become common, many industry analysts believe.
Netscape built its name with the public through its Navigator browser, software that lets people explore the Internet. But this past year, it has put much energy into building a huge site on the Web, called Netcenter. Millions of people visit it every day. AOL hopes that through the merger, Netcenter will be helped to emerge as a key site for commerce.
Looming over these developments is Microsoft. One of the advantages that its executives have long touted is their company's ability to provide "end-toend" software services for customers. It has charged into electronic commerce from many directions, including through its own online service, the Microsoft Network, and a site on the Web called MSN.com. Its most advanced operating system technology, recently renamed Windows 2000, is due out sometime next year and promises to challenge Sun's technology.
Another area of competition with Microsoft would be browsers, software that lets people explore the Internet. The fight between Microsoft's Internet Explorer and Netscape's Navigator is at the heart of the antitrust case raging between the US government and Microsoft. "Microsoft represents the ultimate competitor to many parts of this puzzle, though not all," said Mr Barksdale. Microsoft cuts a wide swath, but Mr Barksdale says the new combination is a powerful force - more powerful than any of the individuals companies could have hoped to have been on their own.
