The lines of power have been drawn. Four companies emerged in 1999 as gatekeepers of the Internet Economy: America Online, AT&T, Microsoft Corp. and Yahoo.
These companies determine how people get on the Net, what they see when they get there and how they shop. While they followed different paths to dominance, they share one thing: The biggest names in technology, commerce and media want to get in bed with them.
The power of the gatekeepers was evidenced last week when the world's largest media company, Time Warner, agreed to be acquired by AOL. It was billed as a "merger of equals," but the position of chairman went to AOL's Steve Case; the first word in the name of the new company is expected to be "AOL"; and AOL shareholders will hold a slight majority of the stock in the combined company.
Yet that was only the latest in hundreds of alliances that AOL and the other three have formed. To assess the reach of these four companies' networks, we researched marketing and distribution deals struck with the top 10 computer makers, Internet service providers and portals, as well as with top e-commerce and media companies. AOL emerged as the most seamless Web conglomerate, with major agreements in every business segment on the Net. Its proposed deal with Time Warner gives it a new potential for offering broadband access, while its arrangements with Gateway and Wal-Mart should yield millions of new customers.
The other three clearly are huge players, but they have holes. Yahoo, for instance, hasn't done a major deal with an Internet service provider.
Much of Microsoft's reach on the Web depends on its distribution of software.
Its proprietary service was the No. 3 ISP in the third quarter of 1999, but it will need to up the ante to compete.
AT&T has moved into content with the November announcement that its cable-modem investment, ExciteAtHome, would spin off the media portion, Excite, into a tracking stock. Still, with only a few content-side deals, AT&T remains largely a carrier.
So will AOL's latest move spur the other three gatekeepers to team up? So far, the only significant deal among the lot is Microsoft's $5 billion investment in AT&T, but the software giant's troubles with the Justice Department are likely to hinder further moves. That leaves the possibility of a Yahoo-AT&T pairing.
Could another marriage of pipeline and portal, like Time Warner and AOL, be around the corner?
AOL Time Warner
America Online's proposed $166 billion merger with Time Warner creates an Internet juggernaut. Not only does AOL gain a wealth of media access through Time Warner, it has an instant broadband play by way of Time Warner's investment in Roadrunner. And it's not the only recent significant deal by AOL.
Gateway: In October, AOL agreed to invest $800 million in cash and stock in Gateway in return for placement on desktop screens and control of Gateway's ISP service. Wal-Mart: AOL signed a marketing deal with Wal-Mart in December to launch a cobranded Internet access service. It's the quintessential AOL deal, aimed at people who aren't yet on the Web.
AT&T may have stumbled early with its content plays, but it remains a gatekeeper when it comes to its network. Its biggest deal of 1999 was the acquisition of TCI. That gave it voting control of ExciteAtHome. Though the telco has since wrestled publicly over what to do with its broadband access partner, AT&T will have a powerful ally in a growing business if it can figure it out. Yahoo Late in 1999, Yahoo pulled off its partnership deal of the year, creating BlueLight.com with Kmart. The significance? Instead of playing itself as a mall, Yahoo finally decided to muss its hair and join the e-commerce fray.
Microsoft's historic dominance has come from its deals to supply Windows to PC makers, but the gasp you heard back in May was reaction to Microsoft's agreement to take a stake in Ma Bell. While the deal calls for the telco to use Windows CE technology in its set-top boxes, it could mean a lot more - anything from getting Microsoft Net properties distributed over AT&T pipes to a pre-emptive strike against an AT&T-AOL deal.