Internet Wars -- Microsoft Vs. Netscape: Goliath Takes On David -- Navigator Still Ahead - But Losing Ground
Seattle Times Business Reporters
For millions of Internet users, surfing the World Wide Web is as easy as channel hopping on the TV or changing lanes on the freeway.
Click your computer mouse on one spot, and you're in the Lincoln Bedroom with news reports about President Clinton's campaign contributions. Click in another, and you're transported down the Amazon River with an adventure expedition. Computers near and far, collectively containing massive storehouses of information, can be tapped with the touch of a mouse button.
Just three years ago, navigating the Net involved typing out arcane computer commands on a keyboard. There were no pictures, no graphics, just plain text on a blank screen. Finding just one file of information spelled a lot of time and trouble.
Then Netscape, a small, Silicon Valley, Calif., company, popularized a software program called the Netscape Navigator browser. With Navigator, Web-surfing exploded.
Millions of Internet users obtained Netscape Navigator over the Internet by downloading the software for free.
The value of Netscape shares swelled from $28 on the first day of its public offering, Aug. 9, 1995, to a high of $170 on Dec. 5 that same year, making Netscape the foremost prospector in what came to be dubbed the Internet Gold Rush.
All of this happened so fast it seems ancient history now. Netscape's huge growth, from a handful of programmers to 1,800 employees, 10 buildings and an expected half-billion dollars in
sales this year if things continue at their current pace, helped to spawn the phrase "Internet time," a high-speed timeline that might be compared to dog years.
A lot of dog years have passed since Netscape's founding. Once portrayed as a giddy start-up marked by roller-blade hockey matches, round-the-clock coding marathons, pizza and Jolt cola, and the mood of a college campus after midterms, the company has entered a new phase. Its shooting star has run into Planet Microsoft.
BUSINESS BATTLE OF THE '90S
Fifteen months ago, the Redmond giant decided to get serious about the Internet. Never too proud to imitate a competitor's success, Microsoft issued its own browser, the Microsoft Explorer, offered it for free over the Net, made deals to ship it with new computers and versions of America Online and CompuServe, and vowed to build Web-browsing into its Windows operating system and business software.
The result: Analysts questioned Netscape's ability to compete with a company 10 times its size. Investors fell into line, causing a decline in Netscape's stock to its current price of $29.37, near its lowest point since that the first day of trading in August 1995. All of a sudden, the company once called Wall Street's poster child is finding fear, uncertainty and doubt wherever it turns.
It's an ironic turn for the fastest-growing software company in history. More than 50 million copies of Navigator are in use around the world. An estimated 12 million use Netscape's e-mail system. In January, the company turned in 1996 sales figures that would have blown the doors off most 3-year-old start-ups: sales of $346 million, up 405 percent. Profits of $20.9 million, compared with a $6.6 million loss in 1995.
But Microsoft's growing prominence on the Web is taking a toll. Most market-share surveys show Netscape's browser down 10 to 15 points from its peak of around 85 percent. Although the company says the browser is only one part of its business, and surveys vary wildly, the market share continues to be watched carefully by key analysts and investors.
With both companies poised to make major moves in Web technology this year, the Microsoft-Netscape duel is shaping up as the business battle of the '90s.
If Netscape survives, it will rank as the biggest upset since the iceberg vs. Titanic. If Microsoft wears Netscape down with continued assaults against each of the latter's revenue streams, it will take its place as one of the great corporate catch-ups in history.
Whatever else happens, 1997 will mark the year of choice for World Wide Web users.
Before Netscape appeared on the horizon, Microsoft was in danger of slipping into middle-aged lethargy.
"There were guys leaving Microsoft simply out of boredom," said Mark Eppley, chairman of Bothell-based Traveling Software. "Then Netscape came along and pow! It got folks energized again. There's nothing Microsoft loves better than a target in its gun sights."
Microsoft's No. 2 in command, combative Steve Ballmer "roars at the mention of Netscape," Forbes magazine recently reported. "We pore over (Netscape's) financial statements. We know exactly where they make their money."
Sitting in the eye of the storm, Netscape is treating the naysayers like dust devils rather than Hurricane Bill. From senior executives on down through the ranks, the company says it has a plan. The keys: Ignore the noise, move fast, stay focused, innovate.
"We have to take a leadership position and tell people where we think the technology is going to lead. And then, they either buy into it or not," said Marc Andreessen, 25, Netscape's co-founder.
Both companies are focusing on the lucrative business market as more corporations and institutions turn to the Web for internal communications. The market for "intranets" - Web-like networks that corporations and businesses are using to streamline in-house handling of forms, company announcements, electronic mail etc. - is expected to reach $28 billion by 1999, according to Zona Research of Redwood City, Calif. That's a third higher than the most optimistic of last year's projections.
The year of "1995 was all about the rise of the public Internet, and 1996 was about taking those technologies inside companies with intranets," said Netscape's Bob Lisbonne. "And I think 1997 will go down as the year when the Internet and intranet were linked and harnessed to do new and really exciting things."
Intranets let companies exchange not only e-mail but files, forms, meeting schedules and documents over the Web. Considered far more efficient than phone calls or even face-to-face meetings, these "groupware" systems offer huge returns on investment for companies shifting multiple computer systems over to the uniformity of the Web. The next step, the "extranet," will be for companies to share internal documents, data and communications over the Internet with partners, clients and customers, Lisbonne said.
An International Data Corp. study last year found that a company typically gains a return on investment of 1,000 percent or higher - that is, it makes back the money spent in just a month or two, due to efficiencies and low administration costs.
Given the stakes, it's not surprising that Microsoft and Netscape are vying ferociously for a big piece of this business. In coming months, both will ship products featuring widely heralded "push" technology. With push, often characterized as the television-ization of the Web, pre-selected online content, such as news or stock-market reports, appears automatically on the computer screen without the viewer having to search for it.
Also on tap for Microsoft will be upgrades of its e-mail and groupware product, Exchange, and the release of Windows 97, an upgrade of Windows 95, its operating system, which will be more closely tied in with the Web.
Netscape, meanwhile, is poised to release Constellation, a new form of browser that not only offers push technology, but overlays, or hides, Microsoft's Windows 95 desktop. Instead of the icons on the Windows desktop, the user sees selective Web pages, news bulletins, corporate updates and other customized information from the Internet.
FREE AND FREE FOREVER
The Microsoft-Netscape head-butting began 18 months ago after George Gilder, author and research fellow for Seattle's Discovery Institute, had a long cover story in Forbes ASAP magazine headlined, "George Gilder Thinks This Kid Can Topple Bill Gates."
The "kid" was Andreessen, a then 23-year-old University of Illinois graduate who had made his mark co-authoring a Web browser called Mosaic for the National Center for Supercomputing Applications. In Silicon Valley, the tall, stocky, rapid-fire talking Andreessen already was being dubbed the next Gates. Gilder's thesis was that Microsoft's ballyhooed software of the year, Windows 95, was generating far less excitement down in the trenches than Netscape's new browser, Navigator.
If Gilder's challenge was not enough of a wake-up call, in November lightning struck again. Rick Sherlund, leading software industry analyst for Goldman Sachs, the company that had taken Microsoft public in 1986, delivered a double whammy. Calling Microsoft's Internet strategy unfocused, he downgraded Microsoft stock, while simultaneously upgrading Netscape shares.
Within days, Gates and Microsoft were on the attack. In a now-legendary Pearl Harbor Day address Dec. 7, 1995, Gates vowed to "embrace and extend" the Internet while focusing particular attention on grabbing browser share. The target: Netscape Navigator, then enjoying 80 percent to 85 percent of the market. The strategy: Give away Microsoft's browser.
Netscape had pioneered the for-free model from its inception, but the company asked users to register and pay for the software if they liked it.
"When we say the browser is free, we're saying something different from what other people are saying," Gates declared without naming Netscape. "We're not saying you can use it for 90 days, or you can use it unless you're a corporation, or you can use it and then maybe next year we'll charge you a bunch of money."
Free, and free forever. It was quite a pronouncement from the man who, as a young entrepreneur, suggested in an audacious letter to computer hobbyists nearly two decades earlier that software, theretofore shared among programmers or distributed free with hardware, was something people should pay for.
In Redmond, Microsoft's Internet Explorer browser overnight gained the stature of another Windows 95 megaproject. The hunt was on.
By last March, Netscape announced at a San Francisco developers' conference a series of moves to expand its technology into PC operating-system territory carefully guarded by Microsoft.
The next week, at the same location, Microsoft announced that America Online would adopt Microsoft's Internet Explorer as its standard Web browser, bringing 5-plus million users into the Microsoft fold. CompuServe, the other leading online service, soon followed, and Microsoft gained potential access to more than 10 million additional Web users at the expense of Netscape.
By summer, Netscape charged Microsoft with anti-competitive practices and hired aggressive antitrust attorney Gary Reback to represent it. In August, both companies released upgrades of their browsers, touching off a feature-by-feature battle the industry trade press dubbed "browser wars."
If Netscape wants to look on the bright side, it can consider the historical precedent of its Pacific Northwest rival. Eight years ago this spring, Microsoft was under fire from Wall Street. Apple had won a key ruling in its eventually unsuccessful "look and feel" lawsuit against Microsoft over Windows, and IBM was pressuring Microsoft to support the OS/2 operating system instead of Windows.
Jon Shirley, the Tandy executive Gates had brought in as president in 1983 to give his young company the steadying influence of a respected industry leader, dismissed the gloomy headlines with a wave of his hand.
"This whole thing is looked upon on Wall Street with the sense that if you don't walk on water all the time, you're just terrible," he said. "You're absolutely in the pits, or you walk on water. And nobody walks on water all the time."
Netscape Chief Executive Jim Barksdale, who, as the one-time head of McCaw Cellular, engineered its merger with AT&T, is providing a similar message.
When the Microsoft threat was raised in 1995, Barksdale noted wryly, "It's going to be a dogfight, but we think we have God on our side." In 1996, he was similarly pithy: "They have a much bigger bulldog to feed." Asked if he would resort to other canine analogies against Microsoft in 1997, Barksdale responded with what might be considered Netscape's motto:
"Just remember," he said, "it's not the size of the dog in the fight, but the size of the fight in the dog."
------------------- Microsoft & the Net -------------------
Key dates in Microsoft's quest for the Net:
November 1990: Gates coins the phrase, "Information at Your Fingertips," describing concepts for accessing information electronically that later became reality with the World Wide Web.
May 1991: Microsoft registers the domain name "microsoft.com," now the address of its home on the World Wide Web.
June 1991: Microsoft hires J. Allard, who in coming years consistently pushes Microsoft to take the Internet seriously.
May 1993: Gates gives go-ahead to Marvel, code name for Microsoft Network.
April 1994: Netscape Communications, whose Navigator browser is destined to transform the Internet, incorporates.
August 1994: Microsoft Net activist Ben Slivka proposes that the company develop a World Wide Web browser.
October 1994: A Microsoft executive retreat focuses on Internet. Gates writes key memo outlining what he sees as a major shift in personal computing.
December 1994: Netscape distributes first version of Navigator free over Internet.
August 1995: Microsoft issues first version of its Internet Explorer browser.
August 1995: Windows 95 released. Netscape becomes publicly traded, going from $28 to $75 a share before closing at $58 its first day of trading.
December 1995: Gates gives "Pearl Harbor Day" address outlining Microsoft Internet strategy publicly for first time.
March 1996: America Online says it will feature Microsoft's browser. Microsoft licenses Java, the hot Web programming language.
August 1996: Microsoft releases updated browser, Internet Explorer 3.0; "browser wars" start. Netscape releases version 3.0 of Navigator.
September 1996: Microsoft releases Windows NT 4.0, an upgrade of its high-end corporate operating system.
Fall 1996: A bevy of World Wide Web sites is unveiled, including Mungo Park (adventure travel), Expedia (travel), Sidewalk (arts and entertainment), CarPoint (auto purchasing) and others.
November 1996: Microsoft announces Merchant Server, its electronic shopping system for the Web, and shows off several other Web-related technologies.
December 1996: Microsoft releases updated Microsoft Network with a TV-like look. It also announces deal with PointCast to broadcast MSNBC content over the Web.
January 1997: Microsoft releases intranet-oriented Office 97, integrating the Web with its best-selling Excel, Word, PowerPoint, Access and new Outlook desktop applications.
----------------- Redefining `fast' -----------------
The Internet has changed the way high-tech companies grow. Microsoft was considered one of the fastest-growing, but it looks plodding compared with Netscape.
-- Netscape, founded in April 1994, reached $100 million in revenues by September 1996. It took Microsoft, founded in 1975, nine years to reach that same mark.
-- Netscape hired its 500th employee in January 1996, a year and nine months after it was founded. Microsoft didn't hit that mark until 1984, after nine years.
-- Netscape made its initial public stock offering in August 1995, 16 months after it was founded. Microsoft first issued stock in 1986, 11 years after it was founded.
Copyright (c) 1997 Seattle Times Company, All Rights Reserved.