As expected, AOL and Netscape signed on the dotted in a $4.2 billion deal today, but the real news was the simultaneous announcement of a three-year AOL-Sun strategic alliance covering e-commerce and the development of "next generation Internet devices".

Basically, AOL has hopped straight out of its Microsoft alliance and bought its way into the Sun-Netscape-Java camp. The e-commerce side is important, but the device side is particularly obviously up AOL's street, and supports something AOL cheekily calls its "AOL Everywhere" strategy. Evidently the boys from AOL think the carefully-crafted tripartite deal frees them entirely from Microsoft thralldom and have therefore dared to thumb their noses at Windows Everywhere. But does that mean CEO Steve Case will retract previous claims that AOL switched to IE for entirely commercial reasons?

The key plank of AOL Everywhere will be the use of Sun PersonalJava to offer AOL services "across a range of next generation Internet devices". These will include PDAs, cellphones and pagers. Together, Sun and AOL say they will develop the next generation of Netscape Navigator and Communicator clients, while AOL will support Sun Java in its e-commerce solutions.

Sun COO Ed Zander also suggests that Sun Jini technology, which envisages networks of smart, communicating devices, will play a part in the deal. On the e-commerce and Internet server fronts it seems AOL will be retaining ownership of Netscape's upscale products. The tweo companies will work together to provide complete turnkey solutions plus consulting services for e-commerce, and will co-market them, majoring on Sun's Solaris as a platform but also supporting others catered for by Netscape. Sun will sell Netscape middleware, and the two companies will use one anothers sales channels.

The financial side is also interesting. Sun becomes a lead systems and service provider to AOL, which guarantees to purchase systems and services to the value of $500 million at list price through to 2002. Sun will pay AOL $350 million in licensing, marketing and advertising fees over the next three years.

So, gentle reader, thinking caps on. How much is AOL paying Sun, and how much cash goes in the other direction? And, indeed, when? AOL has acquired (for a substantial sum, we concede) a leading browser together with a strong portfolio of Web server and middleware software, and as you can't actually own Apache, you could say AOL has acquired the leading ownable Web server. On top of that it has gained sufficient backing from Sun -- the sort of thing that would have helped an indepedent Netscape vastly -- to be able to expand market share for these products, and via the PersonalJava connection it stands a good chance of becoming a sort of official supplier in the consumer business for Java-based appliances.

But you could maybe figure the Sun-AOL deal as zero-sum, with if anything upfront cash travelling from Sun to AOL, rather than vice versa. If we're right, this gives you a pretty clear idea of how far Sun is prepared to go, and how much it's prepared to sacrifice, in order to blow Microsoft out of a key strategic partner and further its Java plans. But who's to say Sun is wrong? ®