AOL, Sun Ration Out Details on Sun-Netscape Alliance

The companies are upbeat about the market for their integrated e-commerce software products, but don't fill in all the blanks.
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America Online (AOL) and Sun Microsystems (SUNW) - Get Report released some details about the new alliance between Sun and AOL's newly purchased Netscape subsidiary when they met with Wall Street and the press Tuesday. But they held back on many more.

They didn't say how the new venture, targeted at companies that want to establish online stores, would divide up revenues and profits between Sun and Netscape. They wouldn't talk about what type of financial results they expected, and how soon they would see them. And they didn't even say what the name of the new venture would be, or what brands it would use in the marketplace. For now, the Sun-Netscape alliance is going by the name of, well, the "Sun-Netscape Alliance."

But they did explain how they would move to execute their vision, previously known as an end-to-end e-commerce solution, now referred to as a "silicon-to-eyeballs solution." Headed by Barry Schuler, president of AOL's Interactive Services group, the alliance will deliver new versions of Sun and Netscape software as scheduled this year. Then, rather than continue parallel development, it will integrate corresponding products from Netscape and Sun starting in the first quarter of 2000.

So, for example, version 4.1 of Netscape Messaging Server will be released in the second quarter of 1999, followed by version 4.0 of Sun Internet Messaging Server this summer. An alliance messaging server will supersede both products the first quarter of next year. An alliance directory/security product is due in the second half of 1999. An application server product, following up on Sun's NetDynamics 5.0 and the forthcoming Netscape Application Server 4.0, will arrive in early 2000.

"One brand, one price list, one sales force, one message to the marketplace," was how Sun COO Ed Zander put it.

Executives at the New York briefing expressed confidence that the venture, which eventually will comprise 2,000 employees drawn from Netscape and Sun, would be a success from the start. Unlike most other Internet companies, "we have real revenues, real products, and, I think, real profits, too," Zander said.

"We want to be the '.com' software company," said Sun executive Mark Tolliver, now president and general manager of the alliance. "We want to be the world's leading software company for the .com age," he said, a reference to Sun's ad campaign asserting that it's the "dot" in ".com."

Managing the new alliance, though, could get tricky. Employees in the organization will be compensated by their respective parent companies, and receive additional compensation from the alliance. Netscape managers will end up supervising Sun employees, and Sun managers would oversee Netscape staff. Schuler explained that a person from one company couldn't fire someone from the other, though he could throw that person off a particular team and back to the other parent company.

When will sales from the new organization exceed pro-forma combination of the software that Netscape and Sun are already selling? After the press conference, Tolliver said it would take a few weeks or months for things to change. But he said there's a demand for an all-in-one software solution. Customers are saying, he said, "'Don't give us this .com stuff -- tell us what we



The Sun-Netscape alliance won't change the size or type of customer that Netscape and Sun have, Tolliver said, though selling Netscape's products through Sun's sales force will expand Netscape's international reach. "Geographically, we should be doing a lot better," Tolliver said.

In their presentations, there was little on how bringing their two operations together will expand their client base. Following the presentation, Schuler said AOL has helped companies put together e-commerce software and services after AOL has sold them space on the service. But he said that assembling these solutions on a case-by-case basis won't work as more companies come online. "That's not scalable," he said; if all goes as planned, the alliance's solutions will be.

"It's nice to see a unified management team, but I think it's certainly not without its challenges," said

Merrill Lynch

analyst Henry Blodget, who has a buy rating on AOL. (Merrill has been involved in underwriting for AOL.) Specifically, he cited the logistics of large corporations working together on an organization that for tax reasons, they can't spin off into a separate company. "That's challenging," Blodget says, "expecially when there are other companies focused like laser beams on this space."

But at the briefing, Schuler was confident. "If we can't pull this off, we'll go to the moron hall of fame," he told his audience.