Driving force behind AOL deal: eyeballs

November 30, 1998|By Mike Himowitz

Think about what happens when you log onto the Internet. Chances are good that you sit down at your computer, click on an icon that dials the phone and sit back, waiting for something to happen.

The nature of that "something" is important to a lot of people because you're a valuable commodity. You're a set of eyeballs attached to a wallet - a potential customer for advertisers and online merchants. To get to the wallet, they have to capture the eyeball - and it looks as if America Online may capture yours, whether you know it or not.

In fact, eyeballs were one of the driving forces behind AOL's decision to acquire Netscape Communications in a $4 billion stock swap.

Why? Well, let's get back to what happens when you log on to the Internet. If you're one of AOL's 14 million subscribers, you'll see AOL's colorful start-up screen and, most likely, hear that annoying "You've got mail" message.

Actually, you're not on the Internet yet - you're on AOL's proprietary service - the one with all the chat rooms, buddy lists, investment forums and online merchants who pay America Online for a crack at your eyeballs.

When you tell AOL to connect you with the Internet, the service seamlessly transfers you to the World Wide Web - where you're no longer under AOL's direct control. Except for one thing - the "home page" you're likely to visit first is also owned and operated by AOL (www.aol.com).

In Web parlance, it's known as a "portal," a page that gives you quick links to news, financial information, entertainment, weather and other goodies. It also gives advertisers another shot at your eyeballs. You can tell AOL's Web browser to use another home page, but most people don't.

The Web browser in AOL's latest software release is actually a customized version of Microsoft Internet Explorer. The customized tool bar at the top of the page contains links that give AOL's advertisers and merchants yet another shot at your eyeballs.

AOL incorporated Microsoft's Web browser as part of a deal that benefits both parties. In addition to making the operating system that runs 85 percent of the World's desktop computers, Microsoft wants to control the technology that you and I use to connect to the Internet. This is one of the reasons the government has hauled Microsoft into court on antitrust charges. In any case, since AOL is the world's largest single provider of Internet access, Microsoft gets its browser on a lot of desktops.

In return, AOL gets a chunk of money from Microsoft and - this is important - a prominent place on the Windows 98 desktop that appears when you take a new computer out of the box and start it up. This makes it more likely that you'll choose AOL as your Internet provider.

Now let's consider what happens when AOL owns Netscape.

Netscape produced the first successful commercial Web browser, Netscape Navigator, which introduced millions of users to the Internet. Netscape's dominance of the browser market dragged Microsoft into the Internet battle, and Microsoft eventually developed a Web browser that was just as good, or better. But Microsoft escalated the war by giving the browser away and then incorporated it into Windows 98 - one of the key arguments in the Justice Department's case against the giant.

To meet the threat, Netscape had to give its browser away, too, which eliminated Navigator as a source of revenue. But at least half the people who log onto the Web still like it and use it.

Although it now owns Netscape's browser, AOL isn't likely to abandon its relationship with Microsoft. Why give up a deal that provides millions of potential customers? AOL has another shot at Netscape users, since Netscape's home page is the start-up location for people who install Navigator on their computers. That gives AOL control of two of the most popular start-up pages on the Web - and a shot at a lot of eyeballs.

On the other end of the business (the one that has a potential for making money directly), Netscape sells the server software that allows businesses to create Web sites and on-line commerce systems. So AOL will have another shot at income from the companies who want the eyeballs it's providing through its on-line service and Web portals.

But we're not through yet. A few months ago, AOL spent $287 million on an Israeli start-up company called Mirabilis, which makes a phenomenally popular little program called ICQ (as in "I seek you").

ICQ allows Internet users to send instant messages and chat. Mirabilis claims more than 20 million users - eyeballs that AOL now owns. The company is expected to release a new version of ICQ software shortly - what would you bet that AOL figures some way, no matter how unobtrusive, to give its advertisers a shot at them?

Back door to AOL: If you like America Online but you're tired of busy signals and disconnects, there's a more reliable, if slightly more expensive way to hook up with the service. Let someone else provide your Internet connection and use that to log onto AOL.

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