In Japan, AOL-Netscape deal merges underdogs

America Online's buyout of Netscape Communications brings together two underdogs who have been battling for respect in Japan's Internet and corporate software markets. The deal will take time to play out in Asia, where AOL has operations in Japan, Australia and early next year is expected to launch service in China. The consensus among observers -- both inside and outside the companies -- is that in Japan the deal will bolster AOL and Netscape.

America Online's buyout of Netscape Communications brings together two underdogs who have been battling for respect in Japan's Internet and corporate software markets.

The deal -- under which AOL will buy Netscape for $4.2 billion and will jointly develop the next version of Netscape's software clients with Sun Microsystems -- will take time to play out in Asia, where AOL has operations in Japan, Australia and early next year is expected to launch service in China, according to John Barber, representative director of AOL's Japan unit.

The consensus among observers -- both inside and outside the companies -- is that in Japan the deal will bolster AOL and Netscape.

"It's probably the only way for Netscape to survive in Japan," said one source close to Netscape who asked not to be named.

Launched amid great fanfare in 1995, Netscape Japan has struggled to find its place in a market where IS buyers traditionally have a bigger-is-better approach to vendors. Though Netscape is nearly neck-and- neck with Microsoft Corp.'s Internet Explorer on the browser front, Netscape has struggled to win large corporate customers for its server offerings, according to consultancy Access Media International Inc.

Pressure on Netscape in Japan "is tougher than in the US," said one Netscape source who asked not to be named. "Microsoft here is really strong and we're really weak."

The troubles at Netscape's Mountain View, California headquarters have reverberated at the local unit to the point that the Netscape employee described the current atmosphere as "chaotic."

Among Netscape's problems is an ongoing struggle to find a strong local leader. Itsuo Sugiyama was fired last month after serving less than a year as Netscape Japan's president. The Hewlett-Packard veteran was never able to adapt to Netscape's culture, the Netscape staffers and industry observers said.

Left without a leader, the company has churned through many employees over the past year and has several on the verge of leaving, sources said.

Netscape customers also look favorably on the deal, according to one marketing manager. "The reaction from our customers is good," said the Netscape employee. "They feel Netscape will be more stable because of the acquisition."

AOL's Japan unit meanwhile has its own uphill battle to compete with local Internet service operators. AOL-like services run by NEC and Fujtisu -- each with over 2.5 million users -- far overshadow AOL's 150,000 subscribers in Japan.

"We're growing reasonably well but not growing as fast as we would like to grow," said AOL's Barber.

At least for now, Netscape and AOL will remain separate entities in Japan, Barber said. With 150 employees, 18-month-old AOL Japan is about six times as large as Netscape Japan, but it doesn't have as strong a presence, he said.

"Arguably Netscape is a better brand name (in Japan) than AOL, and they are also in the corporate market," Barber said.

Aware of the unrest at Netscape's Japan operations, Barber is nevertheless "an optimist" and believes the combination of the two companies and Sun -- which has a strong presence in Japan -- will help "iron out" the difficulties the companies face in Japan.

Netscape is based in Mountain View, California and can be reached at +1-650-254-1900 or on the World Wide Web at http://www.netscape.com/. AOL, in Dulles, Virginia, can be reached at +1-703-448-8700 or at http://www.aol.com/. Sun Microsystems Inc., in Palo Alto, California, can be reached at +1-650-960-1300 or at http://www.sun.com/.

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