AOL, Microsoft and the Internet's Berlin Wall

AOL (AOL) may deny it, but the online world is looking more and more like Berlin a la 1988. On the Internet side of the wall, a free-speech, feature-rich environment for some 40 million-50 million users. But on the AOL side, as the recent instant-messaging hassle shows, lie 18 million users in a tidy but increasingly obsolescent world that may come to look like something cooked up by the East German Communist Party. And forget about getting anything over the wall.

Now, AOL is having an increasingly hard time defending this bubble world, and a new, potentially more costly problem is emerging: The issue of using plain words to replace those kludgy old URL Web addresses stuffed with alphanumeric hash. This means that surfers would be able to type in "Ford Explorer" in their browsers instead of having to remember "http://www.fordvehicles.com/explorer/."

But as much of a boon as this innovation might be to users, it threatens AOL's own internal site navigation and its lucrative keyword business, and forces AOL into yet another conflict with archrival Microsoft (MSFT). Not only that, its own Netscape browser could be placed at a competitive disadvantage to Internet Explorer.

The New Way to Walk the Web

To understand how AOL has almost nothing to win in this battle and quite a bit to lose, you need to look first at a lavishly funded private company, RealNames of San Carlos, Calif., that recently closed on $70 million in financing from a major consortium of white-shoe venture capital firms led by Morgan Stanley Dean Witter Venture Partners and Goldman Sachs Capital Partners.

Microsoft has sided with RealNames and its white-shoe financiers and has built the RealNames system into Internet Explorer 5.0. eBay (EBAY) thinks it's such a great idea that it has registered more than 1,200 keywords and plans to pay RealNames 15 cents a clickthrough. AltaVista has signed on to RealNames in such a way as to hit you right in the face -- right at the top of the page with a RealNames blast when your search uses a word that somebody paid RealNames to register.

What's more, the system as designed by RealNames would cost small Web operations even more than they are already paying. In addition to the $35 per year they pay for their URL, they must pay RealNames $100 per year for 2,500 clickthroughs per month for every keyword they register.

Now there's nothing really unique about charging for keywords: AOL has been doing it for years inside its proprietary system.

What the big bucks are betting on here is that the RealNames system will become the defacto high-level Web domain naming scheme, one that will replace, or greatly erode, the importance of having ".com" or some other suffix tacked on to increasingly difficult-to-obtain Web address names.

Gartner Group analyst Kathy Hale said there is nothing to stop RealNames from linking company names and other RealName words directly to IP addresses, thus bypassing entirely the current system (http://...). RealNames, she said, makes Network Solutions (NSOL), the Internet Corporation for Assigned Names and Numbers and domain name registrars -- including AOL's new venture -- "irrelevant." This may be one reason that Network Solutions hedged its bets in 1998, investing in RealNames as part of the latter's previous $17 million in financing.

It is also the reason Microsoft is behind RealNames -- not only with its IE integration, but also with Microsoft Network, which has registered half a dictionary's worth of RealName keywords, and will be paying fees as well.

'The real issue here is whose interest is being served.' -- Ross Rubin, Jupiter Communications

But that's not AOL's only problem. The big rub here (if we ignore the user-service issues of putting paid links first in search results) is the fact that Netscape -- now owned by AOL -- does the whole plain word thing now for free in a system it calls Smart Browsing, a system it says it implemented first.

So, with the newest versions of Netscape, type in "Ford Explorer" and you get taken directly to the same URL as the one that Ford (F) paid RealNames to take people to. But the user service issue in this paid/free dichotomy becomes clear when you type "Chevy" into either IE5.0 or an AltaVista search. While Netscape takes you to "http://www.chevrolet.com/car/," AOL returns a "not found" message and AltaVista and IE 5.0 give a list "of near matches" that include some official sites relating to Chevrolet -- and such other sites as a Chevrolet dealer in Arizona. The result is a search experience that can range from the chaotic to the eerily controlled -- for reasons that are largely undivulged to the user.

"The real issue here is whose interest is being served," says Jupiter Communications analyst Ross Rubin, who emphasized that a paid naming system serves merchants and the people selling the names, while a free system serves users.

Netscape's manager for search and directory services, Dariusz Paczuski, says, "We believe that user benefits are the most important -- which is why we're free." He says he has a team responsible for building a list of trademarks and keywords and linking them to the appropriate site.

But the real collision comes with AOL, which provides its 18 million users with a modified version of IE that bounces plain-language keywords back behind the wall, into its own proprietary, pay-for-play keywords. Type in "Ford" on the AOL service and you get a "not found" message; ditto Chevy.

The Horns of a Dilemma

Netscape says no decision has been made on whether AOL will adopt Netscape's browser or stick with its archrival's. Regardless of which is selected, AOL would have to slash out the plain-language code in the browser unless it gives up its proprietary keyword system and associated revenue. But this may not be so simple: potentially tying AOL's hands in the matter is the call for a "common name resolution protocol" that RealNames has proposed and is designed to resolve which system (RealNames, Netscape or others) will handle a plain-language address.

The stakes are high: The ultimate success of the standard could put Network Solutions and other domain registrars -- including AOL's new effort -- out of business, determine the fate of Netscape and disrupt the internal navigation system that AOL has used since its inception.

Clearly, if AOL hunkers down and sticks with its proprietary keyword system, they will leave its users with a browser with noticeably inferior capabilities. But cooperating with the standard means that AOL will lose a lucrative, and heretofore exclusive, income stream. Plus, some longtime AOL merchants may very well lose the right to a keyword that they have had for years.

Microsoft and Netscape's Paczuski insist they are all for it. AOL's position hasn't been made public: An AOL spokeswoman promised to provide comment, but no one from AOL has returned calls.

This situation, along with the instant-messaging hassle, clearly expose the frailties in trying to maintain a proprietary Berlin Wall in the face of a market that has embraced open standards. Much of AOL's success lies in being able to bottle up its customers inside its proprietary walls, but if these last two tiffs are any indication, those evocative pictures of Germans taking a sledgehammer to the hated wall may become the rallying cry for millions walled up from, of all places, Vienna, Va.

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