November 24, 1998 4:10 PM PST
Netscape's business software to get a lift
But the future remains murky for application servers and enterprise messaging software, where Netscape and Sun have competing offerings.
The deal didn't come cheap for Sun Microsystems either: For the right to market Netscape's enterprise software, Sun will pay America Online at least $350 million over the next three years, said Sun's William Ruduchel, who negotiated the pact.
"We had to agree to a commitment on continuing revenues. We're happy, and there's upside for both parties," said Ruduchel, Sun's chief strategy officer. "We put a lot of money on the table."
In return for the fees, AOL will buy Sun hardware and services worth $500 million at list price for use by itself and its e-commerce partners.
Ruduchel hinted that separate application and messaging servers from Netscape and Sun would be combined, but he promised that existing customers would not be stranded by having their product discontinued.
"We will sell Netscape products, combine them with ours, figure out a way to protect customers, and move forward," Ruduchel said. "That was the premise of the deal going into it."
"In both of those businesses, NetDynamics and Kiva, there's more to the business than the core piece of code," he added. "There's lots of complementary features."
Both companies have committed to enterprise Java beans as their future direction, he noted.
The same applies for the two rival messaging server offerings. "We may even sell competing products for a while," Ruduchel said. So far, engineers from both companies haven't been involved in discussions about the product futures.
Both Ruduchel and Sun chairman Scott McNealy see the AOL deal as a major endorsement of its Java strategy, which AOL will support and use for new Internet appliances that would connect to AOL-Netscape content.
"We're confident that at the end of the day, we will have Java almost everywhere," Ruduchel said.
Sun and AOL put the promise of electronic commerce at the center of their interest in Netscape.
"We found that we agreed [with AOL] that e-commerce was going to explode, but the biggest problem area was that it was do-it-yourself for the customer," Ruduchel said.
He described Sun and Netscape sales forces as "collaborative, with no overlapping territories," and noted that Sun had kept the NetDynamics sales force and support operations in place within Sun after that acquisition.
But while AOL insisted that Netscape's current organization would remain intact, Ruduchel hinted at something different: "Engineering teams could be all Netscape or all Sun or mixed."
"They have a great sales force, and they will continue to sell it," Ruduchel said. "We will integrate the product line and make it work for the company. We tried to structure the deal so we solve the problem for the customer. We don't want to get hung up with details."
The deal for Netscape's software is consistent with Sun's efforts over the last three or four years to grow its software business, Ruduchel said.
"We're trying to build synergy as a software business. The whole Java journey may have distracted us," he added.
The deal also lets Sun sell directly to ISPs, which might bridle at buying from competitor AOL. Sun also will sell Netscape software that doesn't run on its Solaris operating system, as it does for NetDynamics, which has both HP-UX and Windows NT versions of its software.
For e-commerce software, however, Solaris is Netscape's development platform, although it has Windows NT versions of several products in its CommerceXpert family and plans to release an HP-UX version of its CommerceXchange software by March. Linux demand is strong as well, but the company has announced no plans to port to Linux.
Steve Sauvignano, who runs Netscape's e-commerce software operation, waxed enthusiastic about benefits of the deal.
"This gives us assistance and critical mass on the street for enterprise customers, more presence in the field organization, and really strong enterprise experiences of Sun," Sauvignano said.
On the AOL side, Netscape hopes contacts with large brick-and-mortar businesses that want to sell online will translate into purchases of Netscape e-commerce applications. Sauvignano thinks that will mean Netscape's enterprise scale software will be in demand from would-be AOL customers.
"I see Sun as the mother of all OEM relationships," Sauvignano said. He expects more sales people pushing Netscape applications will mean more customer feedback on how to improve the software.
"We believe this is a very positive thing," he added. "We believe it will blow our opportunities by two orders of magnitude."