Remaking the electronic economy

Merger of Internet firms could simplify consumer access, creating mall of future.

America Online is poised to pull together a NATO of the Internet - an alliance of firms whose merger could alter the balance of power in the 21st century's electronic economy.

If it goes through, the complicated AOL-Netscape Communications-Sun Micro-systems deal could simplify consumer access to the vast quantity of information and products now available online, and make it more likely that giant "portal" Internet sites will be the malls of the future.

But a merger of this scale in the still-new world of bits and bytes remains something of a gamble. For one thing, it might alter the government's antitrust case against Microsoft - or even attract the attention of trust-busting authorities itself. It will take time and a lot of effort to make everyone's technology work together.

For these and other reasons the real ramifications of the deal could take a while to become apparent.

"Joe Schmoe doesn't really care about all the [Internet] bells and whistles. What he wants to do is get online, get the scores, see if we bombed Saddam, and write to his uncle in Cleveland," says Joe Burns, a professor of communication at Susquehanna University in Selinsgrove, Pa. "I don't know if Joe will see a tremendous difference."

As with a military alliance, the three firms involved in the deal bring different strengths and weaknesses to the joint effort.

AOL - which would buy Netscape outright, then license a big piece of it to Sun Microsystems - is the biggest online service for consumers. Once seen as a slow-moving firm that would be swept away in the Internet revolution, it has moved quickly to add World Wide Web access to its proprietary content sites. No less a competitor than Microsoft has lately been known to fume about AOL's ability to keep its hold on millions of electronic consumers, many of them relatively novice.

For Netscape, the big plus of the deal is that it gets to survive - albeit as part of a larger entity.

Netscape's Internet browsing software was revolutionary when it first appeared. But in recent years Microsoft, through its Internet Explorer software, has turned this market into debilitating trench warfare and taken enough market share that Netscape has been forced to start giving its source-code secrets away for free, in hopes that clever independent developers will produce add-ons that make it more valuable.

Sun would get Netscape's business-oriented software. This would allow it to fight Microsoft's increasing incursion into the world of custom business Web sites and electronic commerce.

The result would be a multiheaded firm that could give consumers access to the Internet, software for navigation, and custom Web sites for businesses. In short, it would be a reflection of what many experts think will be the data firm for the next century, when online activity promises to revolutionize behavior more profoundly than did the personal computer itself.

"It's the natural evolution of the Internet market," says Melissa Bane, a program manager at The Yankee Group in Boston.

Ms. Bane says the prospective deal is particularly good news for AOL, the acquiring partner. AOL has been a powerhouse when it comes to signing up new consumers, but it has still lacked the reach and presence on the Internet of developing rivals such as Yahoo!.

The deal could make AOL strong in what are known as "portal" sites - designation Web sites that offer a wide array of services, from shopping to searching guides for the Web maze itself. While AOL already has a popular portal of its own, Netscape's Netcenter portal is the No. 1 site for businesses touting their products on the Web.

"Revenues are increasingly less focused on connecting folks than on Internet commerce, and you have to be able to reach as many consumers as possible," says Bane.

The deal could also position AOL to leapfrog past Microsoft and position itself as the premier provider of Web content in the 21st century - to possibly include the "digicasting" of hundreds of channels of television via the Web.

"The potential is so large that it is something we can only at this point try to imagine," says James Ledbettter, the New York bureau chief of The Industry Standard, a newsmagazine of the internet economy.

The more prosaic matter of the deal's effect on the ongoing US anti-trust suit against Microsoft is also something that at this point remains uncertain.

Microsoft defenders are using the proposed deal to point out that the Internet market is so volatile, and unpredictable, that the very concept of "monopoly" is an outmoded one.

One of the reasons Microsoft has been so vilified, and feared, within the industry itself is that it had its hands in so many different kinds of software and Internet businesses.

If the AOL deal goes through, American Online will be in a similar position - perhaps blunting the thrust of the government's charges, says Bane.