Number
29
Netscape Communications
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In the beginning, a trip into cyberspace was no piece of cake. Your modem crawled along. You needed expertise in mysterious electronic procedures, such as FTP and TelNet. Your connections failed constantly, and when they didn’t, your computer crashed. The early Net was undeniably great, but it also was not ready for prime time. It didn’t get there until 1994, when Tim Berners-Lee and researchers at the University of Illinois unveiled a new way to convey data online. They developed a new software program dubbed “Mosaic” that helped everyone access it.
The pioneering combination has already paved the way for everything—from America Online to online banking. It also led directly to Netscape Navigator, a commercial version of Mosaic from its original developers. A Fortune 500 computer executive immediately took the burgeoning cyber-community by storm—because his product worked as advertised, could be downloaded for free from the Web, and was the only player in a game that suddenly had everyone’s attention.
More than 6 million copies of Netscape’s new application were put into use within six months of its availability. And the company—much like the Web—took off. Less than 10 months later, it executed one of the most extraordinary initial public offerings in Wall Street history. Five million shares of its stock went on sale at $28, double the initial estimate. And in one day the stock soared as high as $78 before closing at $58. The company turned its first quarterly profit four months later, the share price reached $170, and market capitalization hit an astonishing $5 billion. Netscape responded by enhancing the online site that its browser pointed new users to automatically, quickly making it one of the Web’s most visited. It also kept producing updates of the browser itself and related products aimed at businesses and Internet developers.
By its second birthday, some 38 million individuals were using Navigator and the business world’s top companies were commercial clients. This naturally caught the attention of Bill Gates and his crew at Microsoft, which answered with a similar application of their own.
The rest, as they will be saying for years, is history.
Netscape was founded in April 1994, a few months after Dr. James H. Clark was unceremoniously forced out of the computer systems company that he started 12 years earlier. Angry with his treatment at the Mountain View, Calif.-based Silicon Graphics, and in search of new challenges, Clark hooked up with 23-year-old Marc Andreessen from the University of Illinois on the recommendation of a friend. Andreessen was a creator of Mosaic, the new Web-accessing software developed at the university’s National Center for Supercomputing Applications. He had left the Urbana-Champaign campus for Silicon Valley after calls to commercialize the graphical interface browser fell on deaf ears. Like Clark, he now felt he had something to prove.
The two hit it off immediately. Their first idea, a venture to put Nintendo games online, didn’t pan out. Andreessen then suggested that they develop an application to compete with Mosaic, an idea he had previously rejected out of hand. Clark, impressed with the early Web’s possibilities, enthusiastically agreed. They recruited much of Andreessen’s programming team from the original project, and a round-the-clock effort kicked off in new offices not far from Clark’s old Mountain View stomping grounds. By October they posted an experimental version of their “Netscape Network Navigator” on the Web, and online denizens began eagerly downloading the exciting new software “available for all popular desktop environments.”
Much like a lot of software developed during the early days of the Internet, Netscape’s products were based on so-called “open standards” that worked with virtually any operating system. Coupled with a price that started at $39 (but was quickly dropped to nothing), it proved a perfect fit. Navigator was a bona fide hit before the company’s first anniversary. And it brought in James L. Barksdale— former chief executive at AT&T Wireless Services—to guide it to the next level as president and CEO. The future looked so bright, in fact, the company also decided to go public even though it was just 16 months old and had never shown a profit. The resultant initial public offering on August 9, 1995, was one of the most successful that the stock market had ever hosted. Netscape followed with its first profit, an updated browser, and a press release announcing that its products were now used by 15 million people around the world and more than 70 companies in the Fortune 100.
The roll continued during 1996, when the stock split and AOL began edging further onto the Web by officially making the Netscape browser available to its 5 million customers. Quarterly revenues from ads on the Web site and business-based products increased more and more, and by June Netscape’s 38 million customers led it to proclaim Navigator “the world’s most popular PC application.” In the fall, its Web site recorded an impressive 100 million hits per day, and quarterly revenue reached an astounding $100 million—representing a 329 percent boost over the previous year. Clearly, the Web was shaping up as a powerful economic and cultural force, and Netscape was in the forefront in both areas.
As the rapid growth of the Web’s raucous period continued through 1997, tales of Netscape’s extraordinary success—and those of other online pioneers like America Online, Yahoo!, and Amazon.com—certainly did not go unnoticed. Potential competitors who suddenly found themselves on the sidelines of the biggest gold rush since the actual 1849 Gold Rush hurriedly developed strategies to catapult them into the game. Unfortunately for Netscape, Bill Gates and Microsoft zeroed in on the browser market.
It was obvious from the start that Microsoft considered its new Internet Explorer central in its belated attempt to conquer cyberspace. It took the aggressive approach in ensuing marketplace battles, nonetheless. Microsoft made many enemies and rapidly brought on the first in a series of legal challenges that grew more serious over time. Netscape, unwilling to back down from the threat to a business that it almost singlehandedly created, tried ramping up for the bruising Browser War. For a time, Clark, Andreessen, and Barksdale managed to match their rival from Redmond upgrade for upgrade. Both browsers matured so similarly, in fact, arguments about their relative merits came to resemble those over Pepsi versus Coke.
But the continuing assault took its toll. By the time 1997 came to a close, Netscape found itself facing a $115.5 million net loss. It responded by forming a new division that would focus on making Netcenter the Web’s leading hub site or “portal.” It added news headlines, discussion groups, networking tools, and “a marketplace where users can shop for popular items such as books, music, travel ser vices, flowers, discount products, software, and much more,” as a press release touted. It all proved too little too late, though. With Microsoft usurping more and more of the browser market, and other sites such as Yahoo.com, Amazon.com, and aol.com also vying to become top portal, Netscape was hopelessly outflanked.
The inevitable arrived in an announcement on November 24, 1998. AOL— Netscape’s erstwhile partner and competitor—had agreed to acquire the browser firm in a “stock-for-stock, pooling of interests transaction” that increased in value over time to around $10 billion. Closing was set for the following spring. America Online took great pains to emphasize that its new subsidiary would remain headquartered in Mountain View, and its employees would be welcomed into the parent company. Yet everyone who knew Netscape knew that it would never be the same.
Netscape’s portal site surpassed 13 million members early in 1999, but for the first time Internet Explorer passed Navigator in market penetration.
The Web community was generally down on the AOL acquisition, and things were looking rather bleak for the team from Mountain View. Most critics thought it only coincidental that the sale was announced and consummated just as the U.S. Justice Department was filing its industry-shaking browser-based antitrust suit against Microsoft, but they couldn’t decide whether it helped or hurt the government’s case.
Some of the pessimism inside and outside of Netscape was alleviated when Marc Andreessen was named America Online’s new Chief Technology Officer. And observers generally approved when AOL announced a new organization that integrated both companies, a new alliance with Sun Microsystems that used Netscape to boost its e-commerce performance, and a new pledge to keep developing and releasing updated browsers. But the mood soured when AOL announced that around 1,000 positions would be eliminated equally from Netscape’s forces and its own to reduce what it called “job redundancies.”
New browsers did indeed arrive at first, and they generally continued matching Microsoft feature-for-feature. Netcenter registration kept climbing as well, but within two months the Sun alliance was proving fractious—particularly to those who supported Netscape’s commitment to open standards and multiplatform software. Delays in an additional browser updates also began taking their toll, and suddenly almost no one was happy. In September, co-founder Andreessen found the situation no longer palatable and left to start another firm.
Things seemed to pick up in 2000, with Netcenter registration soaring to 25 million, along with the Netscape 6 browser grabbing good reviews. But Netscape’s market share had by then fallen to 30 percent, and an existing agreement between Microsoft and AOL ironically still made Internet Explorer its default browser. No matter the eventual outcome, though, Netscape’s pivotal role in Internet history already has been sealed.