Netscape Communications Corp

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NETSCAPE COMMUNICATIONS CORP.

Netscape Communications Corp. was co-founded in 1994 by James H. (Jim) Clark and Marc Andreessen. Clark, a former associate professor of computer science at Stanford University, had founded Silicon Graphics Inc. (SGI) in 1982. Having left SGI earlier in the year, Clark contacted Andreessen with a proposal to start a new company to develop an improved version of Mosaic. Mosaic was a graphical user interface (GUI) for the World Wide Web that integrated text, graphics, and sound. It made the Web accessible to a wide range of users and was responsible for a 10,000-fold increase in Web users over a period of two years. When Mosaic was made available for free over the Internet in 1993, more than 2 million copies were downloaded in the first year.

Andreessen had been part of the team of programmers that developed Mosaic in 1993 at the National Center for Supercomputing Applications (NCSA) at the University of Illinois at Champaign-Urbana, where he was attending college. Andreessen had recently graduated from college when he was contacted by Clark, and the two decided to combine Andreessen's technical know-how with Clark's business expertise to launch their own company. Established in April 1994 with $4 million in start-up capital from Clark, the company was first called Mosaic Communications Corp. However, NCSA, which held the copyright to the Mosaic software, objected and the company was renamed Netscape Communications Corp. later in the year. Andreessen, then 22 years old, became Netscape's vice president of technology. His job was to make the Web browser Mosaic faster and more interactive. He persuaded several NCSA team members to join him at Netscape, and the company soon released its new browser. While the development team wanted to call it Mozilla, short for Mosaic Killer, the company's marketing executives insisted on calling it Netscape Navigator. Netscape Navigator shipped in December 1994. Jim Barksdale, formerly with AT&T's McCaw Cellular division and Federal Express, was hired as the company's CEO in January 1995.

WEB BROWSER MADE INTERNET MORE ACCESSIBLE

Like Mosaic before it, Netscape Navigator was distributed for free over the Internet. Interested users could simply download it using a modem. It was an immediate hit, and Netscape claimed to have captured 70 to 75 percent of the browser market. Netscape Navigator featured an open architecture that enabled it to work with all kinds of computers and operating systems. The open architecture concept, known as TCP/IP (Transmission Control Protocol/Internet Protocol), was the same concept upon which the Internet was based. Netscape also sold an improved version of Netscape Navigator for $40. The company signed up resale partners, including Apple, AT&T, Hewlett-Packard, IBM, and others, and by 1996 was selling products in 29 countries. By early 1996 it had signed up more than 1,000 Internet service providers to distribute Navigator to their customers.

The easy availability of the Web browser created a lot of goodwill for Netscape, which the company hoped to capitalize on by selling high-priced software and Web servers that were used to build and run Web sites. Version 1.0 of Netscape's NetSite Web Server was released in December 1994. Netscape's Web servers, which sold for between $1,500 and $50,000 each, enabled companies to create online or "virtual" stores where customers could view products and purchase them online with credit cards. It was a time when electronic commerce over the Internet was in its infancy, and Netscape was providing a key element that would help it to achieve explosive growth in the coming years. Netscape also marketed its servers to corporate customers for their corporate intranets, where orders could run into the hundreds of thousands of dollars. Large companies found that Netscape's Web servers could communicate easily with outside networks, and Netscape gained a 70-percent market share among the Global Fortune 100 companies in the lucrative corporate intranet market. The first officially branded Netscape Enterprise Server product, version 2.0, was released in March 1996, and corporate sales accounted for some 80 percent of Netscape's revenue that year.

The development and introduction of Netscape Navigator drained nearly all of Netscape's capital. In order to raise more capital, the company sold an 11-percent interest to a consortium of media and computer companies that included Adobe Systems, International Data Group (IDG), Knight-Ridder, TCI, and Times Mirror. The next step was to raise money in the public equity market by going public. Without having turned a profit, Netscape went public on August 9, 1995. Its initial public offering (IPO) was one of the hottest of the 1990s and one of the first for Internet-based companies. The success of Netscape's IPO has been credited with starting the investor craze for Internet start-ups that lasted until the end of the decade. Netscape's stock was first offered at $28 a share. However, it was worth $75 after one day of trading and peaked at $171 on December 5, 1995. The company's first-day market capitalization was $2.2 billion.

Netscape enjoyed phenomenal growth from 1994 to 1996, with sales rising from $1 million in 1994 to $81 million in 1995 and $346 million in 1996. In April 1996 Netscape announced it had its best quarter to date, with earnings of $4.7 million on revenue of $55 million. Netscape improved on that later in the year with a quarterly profit of $7.7 million on revenue of $100 million. Barksdale commented that the company made too much money and should have used more revenue to build its business. After reporting losses in 1994 and 1995, the company turned a $21 million profit in 1996.

INVOLVED IN OTHER E-COMMERCE INITIATIVES

Netscape also was involved in other initiatives that helped the development of e-commerce. One problem hindering such development in 1995 was the lack of a secure payment system that would enable customers to make credit card payments over the Internet. Netscape joined forces with MasterCard to develop the Secure Courier encryption standard, while Microsoft and Visa developed the Secure Transaction Technology. Netscape teamed with Verifone, the largest credit card transaction processor, to develop a credit card payment system for the Internet using the Secure Courier technology in January 1996. Netscape was all too aware of security issues, having suffered a security breach in September 1995 when two hackers at the University of California at Berkeley cracked the security code in Netscape Navigator. Netscape corrected the problem and posted warnings on the Internet. The company also established a "Bugs Bounty" program, giving prizes to users who identified flaws and potential security problems with the browser.

In 1995 and 1996, Netscape also entered into several strategic alliances. America Online (AOL), the nation's largest provider of online services, agreed to offer improved Internet access by using Netscape Navigator. Both Netscape and Microsoft worked with Hewlett-Packard to develop a Hypertext Markup Language (HTML) that could be printed as seen on screen. Netscape also worked with Sun Microsystems Inc. on the development of JavaScript language, which allowed programs to be imbedded in Web pages.

Netscape was expanding its technological base by acquiring other software companies. In January 1996 it acquired software developer Callabra Software Inc. for $108.7 million. Callabra's main product was Share, a system that enabled simultaneous e-mail discussions and document sharing among network users. In February 1996 Netscape acquired Paper Software Inc. and its 3-D programs for the Internet. During 1997 Netscape improved its position in the business software market by acquiring Digital-Style, which made Web graphics tools, and Portola Communications, which made messaging systems.

In 1996 and 1997, Netscape continued to form joint ventures. Actra Business Systems was created by Netscape and GE Information Services (GEIS) to develop e-commerce software. Netscape bought out GEIS' interest in November 1997 for $56.1 million and assumed full ownership of Actra. Together with Novell, it established Novonyx, and Netscape and Oracle formed the joint venture Navio Communications Inc. to produce consumer-oriented Internet software. Oracle purchased Navio from Netscape for $60 million in May 1997.

CONFLICT WITH MICROSOFT

In January 1997 Netscape joined an alliance with Oracle, IBM, and Sun Microsystems to develop common standards for all of the company's software products. The NOIS alliance, as it came to be known, was seen as a response to Microsoft's growing dominance in several key sectors of the software market. Netscape also released Communicator, the successor to Netscape Navigator.

By 1997 Netscape's leadership position in the browser market was dwindling. Early in the year it still had about 70 percent of the market but was losing market share to Microsoft's Internet Explorer. Microsoft had introduced Internet Explorer 2.0 in 1995 after the company had licensed Mosaic from Spyglass Inc., which had obtained the rights to the Internet browser from the University of Illinois. In August 1996 Microsoft shipped Explorer 3.0, which was considered to be the equal of Navigator. However, it was the introduction of Internet Explorer 4.0 in 1997 with Windows that caused the most serious erosion of Netscape's position. By bundling Internet Explorer with its operating system, Microsoft made the Internet accessible from the computer user's desktop and, at the same time, eliminated the need for a separate Web browser.

The U.S. Department of Justice, with the support of Netscape, complained that Microsoft was guilty of anticompetitive behavior in marketing its browser and asked a federal court to fine the company $1 million per day. A November 1997 survey of corporate information technology (IT) managers by the magazine Computerworld revealed that 59 percent of them felt that tying Explorer to the operating system gave Microsoft an unfair advantage. While most of the survey respondents were using Navigator, more than half said they would switch to Explorer in 1998. By April 1998 Microsoft had captured some 40 percent of the browser market, while Netscape's share had shrunk to 60 percent. Netscape's share of the browser market would decline even further, and Netscape CEO Jim Barksdale became more vocal in accusing Microsoft of unfair competition. When the Department of Justice filed an antitrust suit against Microsoft in 1998, Barksdale was the first witness to be called.

ACQUISITION BY AOL AND SUN

Although Netcape's annual revenue reached $534 million in 1997, the company reported a surprising $88 million loss. It laid off 300 workers. Reports soon began to appear that the company was for sale, and Netscape did nothing to dispel the rumors. Netscape's stock had fallen dramatically, but the company had $261 million in the bank. With no debt, it appeared to be a desirable takeover target, and IBM, Oracle, Sun Microsystems, and AOL were all reported to be potential suitors.

In April 1998 Netscape acquired Kiva Software, strengthening its position in the Web server market. Later in the year it acquired AtWeb, which provided automated Web site management and marketing services, and NewHoo, a directory-based search service. These acquisitions would enhance Netcenter, Netscape's portal to the Internet.

After nine months of takeover rumors, AOL announced in November 1998 that it would acquire Netscape for $4.2 billion in a stock-for-stock transaction. By this time Netscape's share of the browser market had fallen to 41 percent, compared to Microsoft's 44 percent market share. After passing regulatory approval in March 1999, the transaction was completed, creating what The Economist called the "world's most powerful Internet company." As part of the deal, Sun Microsystems would pay $350 million over three years to license Netscape's software, and AOL agreed to purchase $500 million worth of servers from Sun. The terms of the three-way deal made it clear that AOL was primarily interested in the consumer side of Netscape's business, which included Netcenter and the company's Web browser, while Sun Microsystems would benefit from Netscape's server business for corporate intranets and e-commerce.

Following the sale of Netscape, Marc Andreessen was named AOL's chief technology officer, but he left after six months to form a new Internet services company, Loudcloud Inc. Jim Barksdale, who realized $700 million from the sale of Netscape, departed to focus on Internet-related investments and philanthropy. Netscape co-founder Jim Clark was involved with other Internet start-ups, including the vertical portals Healtheon and myCFO.

SUN-NETSCAPE ALLIANCE

In mid-1999 the Sun-Netscape Alliance adopted a new brand name, iPlanet, which would be used on such products as the Netscape Application Server and the Netscape Web Server. In August 1999 the alliance introduced the iPlanet Commerce Integration Suite, which enabled companies to build online trading communities. PC Week's review of the alliance's new iPlanet Web Server Enterprise Edition 4.0 said it "has cemented its position as a top-of-the-line enterprise Web server, providing the power, scalability and features needed to run the busiest and most complex Web sites." Infoworld noted that the Web server was capable of meeting the challenges associated with ensuring reliable uptime, strong security, and acceptable performance.

The Sun-Netscape Alliance also was forming partnerships that would make it a key technology provider for companies that wanted to outsource their e-mail networks. In August it made an agreement with Frontier Corp. whereby Frontier would build an e-mail outsourcing service using Sun-Netscape servers that would support millions of simultaneous users. Frontier also planned to offer calendaring and scheduling features based on software from Sun-Netscape. A similar agreement was made with USA.net, a leading provider of hosted mailboxes.

By the end of 1999 Sun-Netscape was competing in the consolidated electronic billing market. It offered iPlanet BillerXpert Consolidator Edition software as a way for retail banks and other organizations to adopt consolidated electronic billing. Such organization could realize considerable savings over paper-based billing systems by using a single system to issue bills electronically. At this time no other single method or system was available for issuing bills electronically.

New Web servers were released in the first half of 2000, including the iPlanet Web Server, Enterprise Edition 4.1, which upgraded the Netscape Enterprise Server 2.01. Sun-Netscape also unveiled the iPlanet Wireless Server, which offered wireless access to e-mail, directory, and calendar services. In February Sun-Netscape introduced its iPlanet Portal Server, which gave companies an out-of-the-box package for deploying portals. The package included membership services, personalization services, security, and integration services. The product was aimed at e-commerce portals and came in three versions.

NETSCAPE 2000-2001

AOL's Netscape division released a beta version of Netscape 6, the successor to Netscape Communicator, in April 2000 at the Internet World conference. Netscape 6 included a new browsing engine nicknamed Gecko, which increased the speed at which Web pages were displayed. Until this time, Netscape had made only minor revisions to Communicator 4.5, which shipped in October 1998. After three beta versions were released during 2001, the commercial version of Netscape 6 was finally released at the Comdex show in fall 2000. Estimates of Netscape's share of the browser market ranged from 20 percent to as low as 12 percent. This was compared to between 80 and 88 percent for Microsoft's Internet Explorer. Netscape 6.01 was released in May 2001 to make the browser more stable and fix some glitches that had been discovered.

Traffic at Netcenter lagged well behind that of other portals. In January 2000 Netcenter had 347,000 unique visitors, compared to 37 million for Yahoo!, 26.2 million for AOL.com, 15.6 million for Go.com, 13.8 million for Lycos, and 9.9 million for AltaVista. America Online, in the process of completing its merger with Time Warner, announced an advertising campaign designed to recast Netscape Netcenter as a business professional's portal. In addition to adding AOL features to Netcenter, such as instant messaging and e-mail services, AOL was integrating content from Time Warner into the site. Netcenter's new default pages for categories such as news, sports, and money, would become CNN, Sports Illustrated, and Money. Time Warner-owned CNN also became Netcenter's premier broadcast news partner, replacing Walt Disney Co.'s ABC after ABC's contract with Netscape expired in December 1999.

In Fall 2000 AOL unveiled its new Netscape Netbusiness service, which was designed to help small businesses build Web-based storefronts and engage in business-to-business e-commerce. AOL formed a partnership with Las Vegas-based marketplace developer PurchasePro to develop Netscape Netbusiness. Organized in three sections—My Industry, My Business, and My Life—Netscape Netbusiness Marketplace included e-mail, a business version of Netscape Instant Messenger, industry-specific news, market research, expert opinions, maps and directions to member businesses, and community tools for sharing information. In late 2000 and early 2001 AOL entered into several alliances designed to strengthen its Netscape Netbusiness division, including an agreement with Hewlett-Packard that would link the HP Business Store to Netbusiness and give HP access to the 140,000 mostly small businesses that were using the Netbusiness hub. Other new partners included BroadVision Inc., which would offer personalized e-commerce software; CD-ROM replicator Viva Magnetics; online agricultural marketplace eFruit; and ProfitScape, which handled business-to-business transactions. Monster.com agreed to develop a recruitment industry marketplace for Netbusiness.

The introduction in 2000 of a new version of Netscape's browser and the launch of Netscape Net-business indicated AOL Time Warner's commitment to its Netscape division. When AOL was in the process of merging with Time Warner, some analysts thought Netscape would be neglected, disappear, or be sold off. Instead, it appears that Netscape, one of the original enablers of e-commerce, will continue to impact the way e-commerce is conducted for the foreseeable future.