AOL Seeks to Dominate Electronic Commerce

Article excerpt

America Online built itself into the most potent force in cyberspace largely by appealing to families with chatty teen-agers who want to flirt online and adults looking for an easy way to send electronic mail while checking the weather and sports scores.

Now, the company has to get serious if it is to win the hearts and minds of corporate executives in pin-stripe suits.

Nearly lost in the complexity of America Online's deal to buy Netscape Communication is America Online's announcement that it will enter an entirely new market: working behind the computer screen to help companies open and operate online stores. Netscape already has created software that made it a player in providing support for what is already known as electronic commerce. But America Online now says it has ambitions to offer a much wider array of software, consulting and services for online merchants. "Most companies that sell to consumers realize that they need to get into the e-commerce space," said America Online President Robert Pittman. "We see a major business in offering them an end-to-end solution." The market is big and growing bigger by the day. Forrester Research estimates that $325 million will be spent this year on electronic commerce software and another $5.3 billion on services that range from graphic design to the turn-key operation of entire online stores. By 2002, Forrester estimates, the combined market for electronic commerce services and software should top $35 billion. "E-commerce services are the silver bullet that will enable companies to be able to take advantage of the true business opportunities on the Web," said Traci Gere, an analyst at International Data. "The market is growing very rapidly, but it is very fragmented." Analysts say the leader today in e-commerce services is IBM, which has a full line of offerings from sophisticated software products to hand-holding consulting. Other competitors include well-known information technology consulting companies such as Andersen Consulting, the spinoff from the Arthur Andersen accounting firm; Electronic Data Systems, which runs computer systems for big companies, and PricewaterhouseCoopers, which offers accounting and consulting separately but under one umbrella. Software companies like Microsoft and Netscape sell packaged programs, typically with little or no consulting to help customers use them. There are also plenty of new companies that have sprouted up to provide electronic commerce services. Some, like Agency.Com and Organic Online, started basically as advertising and design firms. Others, including U S Web and Viant, have emphasized programming and consulting. In fact, those two strains are blurring together, as exemplified by U S Web's pending merger with CKS Group. America Online argues that its advantage in this increasingly crowded bazaar is its ability to combine a broad subscriber base of about 15 million customers with Netscape software, plus hardware from Sun Microsystems, which has joined in America Online's venture into electronic commerce engineering. "This is the first time anyone has put a true end-to-end solution that starts with the silicon and ends with the audience," said Barry Schuler, America Online's president for interactive services. "We start with Sun's line of servers, then the commerce tools to build a store, the support services to process orders and then a deal for online real estate that can drive the traffic." Despite the advantages Netscape and Sun bring, analysts say that America Online faces a variety of problems in its new quest. Chief among them is whether it can appear to have the consistency, focus and follow-through that corporate customers demand. "AOL is not the first company that comes to my mind when it comes to business-quality software," said Robert Chatham, a senior analyst with Forrester Research. Its decision to keep Netscape as a separate unit and offer electronic commerce services in partnership with Sun will not enhance its credibility, Chatham said. …


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