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Net Prophet - by Dylan Tweney

December 7, 1998

AOL-Netscape merger foreshadows dark days for independent media

Since BankAmerica and NationsBank merged earlier this year, the resulting conglomerate is so huge, it hardly knows what to do with itself.

I've experienced the fallout firsthand: My car loan, arranged through CarFinance.com, was held by Barnett Bank, itself recently acquired by NationsBank, which is now part of the newly named Bank of America. Trying to get customer service out of this recursive banking behemoth has proven to be a nightmare as the consolidated companies struggle to integrate their disparate information systems.

That's why I suspect that the impending merger of America Online and Netscape is bad news for the two companies' tens of millions of users.

I expect the merged company to spend the most of next year failing to consolidate its mismatched customer bases, client interfaces, and server technologies.

As an Internet-commerce services and solutions provider, AOL will be assisted by the enterprise savvy of Sun Microsystems. For the lowdown, see "Sun, AOL join forces on I-commerce for businesses," at www.infoworld.com/printlinks.

But the primary benefit of the merger is for AOL's and Netscape's stockholders, not for the companies' customers.

What's more, the new AOL will be about as good for independent Internet content producers as Blockbuster Video has been for independent video rental shops. That is to say, it will crush them.

The combined company will be the first real Internet media and consumer commerce giant. AOL has 14 million subscribers; Netscape's Netcenter site has 9 million registered users and gets more than 20 million visitors each month. Together, the company will reach 60 to 70 percent of Internet consumers, according to some estimates.

It will also control as much as 35 percent of Internet advertising revenues. That's what it will draw from advertisements on Netcenter and AOL's Web pages.

This market share underscores a basic truth about Internet advertising: Only big media companies will be able to make serious money from banner ads. Small content producers must align themselves with a big corporate content distributor or perish.

Like network television, Internet media production is fast becoming dominated by a few giant corporations. Faced with a choice between advertising on AOL or some site that reaches a tenth as many eyeballs, advertisers will always choose the giant -- notwithstanding the smaller sites' claims about being better able to target their audiences.

That means that most Internet content providers will have to be acquired by or enter into distribution agreements with media giants like AOL. The alternative is extinction.

AOL, together with Netscape, will be the first Net media company to achieve truly critical mass. Lycos is playing catch-up by acquiring online audiences, such as those of Wired and Tripod. Look for other Net content providers that depend on banner ad revenues, such as Yahoo and Excite, to merge in response AOL's competitive threat.

As for the rest? A swarm of small content providers will continue to produce Web pages, to be sure, but they'll be sharing an increasingly small percentage of the ad market.

These players had better learn how to sell goods and services, and fast, because ad sales won't keep them afloat.

Do you think the AOL-Netscape merger spells doom for the Internet's independent media? Write me at dylan@infoworld.com.

Dylan Tweney (dylan@infoworld.com) has been covering the Internet since 1993. He edits InfoWorld's intranet and Internet-commerce product reviews.

Previous columns by Dylan Tweney

When taking measure of e-commerce, don't forget about the costs
November 30, 1998

Portal site for teens sheds some light onto possible future of Internet commerce
November 23, 1998

Catalog City site has potential to bring an end to a flood of paper.
November 16, 1998

Online retailers: You can't compete on customer service
November 9, 1998

Every column since August, 1997

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Copyright © 1999 InfoWorld Media Group Inc.

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