9.31 Netscape Communications Corporation

Netscape is now part of AOL (America Online), a global Internet services and media company. The company was founded in 1983, and once numbered some 30 million users of its Internet suite. AOL was acquired by Time Warner, but then spun off as a separate company in May 2009.

History

Netscape was a small but highly innovative company that developed a popular web browser, a web server, the still-used Secure Sockets Layer Protocol (SSL) for safe online communication, and JavaScript, the most widely-used language for client-side scripting of web pages. Unable to beat competition from the free Apache web server, however, and the marketing muscle of Microsoft, the company merged with AOL in 1998.

It was Netscape's web browser Mosaic that popularized the Internet. When Mosaic Communications Corporation changed its name to Netscape Communications, the browser was renamed Netscape Navigator, and a first version launched in late 1994. The browser immediately became popular: there was little competition and the program was free, intuitive, modest in memory requirements and produced excellent page displays. Netscape made a successful IPO in August, 1995. Though a last-minute decision doubled the initial offering to $28, the stock soared to $75 on the first day of trading, and the company's revenues doubled every quarter in 1995.

Netscape experimented with prototypes of a web-based system which would enable users to access and edit their files anywhere across a network, a system that Microsoft saw as a threat to their operating system monopoly. Finally waking up to the importance of the Internet, Microsoft released version 1.0 of Internet Explorer with its operating system in 1995, rapidly developing new versions until by Version 4 it had a browser considered more stable than Netscape on the Macintosh platform. Microsoft also targeted the Netscape server with its own Internet Information Server (IIS), which was bundled free with Windows NT. On November 24, 1998, AOL announced it would acquire Netscape Communications in a tax-free stock-swap valued at US$4.2 billion, an acquisition that enabled AOL to become less dependent on the Internet Explorer web browser. Netscape's server products and its Professional Services group became part of iPlanet, a joint marketing and development alliance between AOL and Sun Microsystems.

Challenges

Netscape's demise in 2008, when AOL withdrew support, is often placed at Microsoft's door — the company's deeper development pockets and unfair marketing tactics — but the fault was more Netscape's unsatisfactory revenue model and bad business decisions. {1} {4}

Netscape was a small company, and drew its revenues from

1. Software sales of the Netscape server, and
2. Licensing of its browser code to add-on developers.

Though somewhat overpriced, the Netscape server was popular with companies wanting an alternative to Microsoft products, but when the open source (i.e. free) Apache server appeared on the scene, that source of revenue quickly dried up. Apache was the superior server, and when supplied with the cPanel interface (as it commonly is today), even non- technical staff had ready access to web traffic statistics, scripts, database links and a host of other functions. Microsoft servers continue to be used by corporate America, but the worldwide breakdown in June 2010 was 54% to Apache and 24% to Microsoft.

Among Netscape's licensees was Spyglass, which in turn licensed the code to Microsoft, which then used it as a base for its own Internet Explorer. Microsoft's browser was not particularly good ( patchy support for browser standards, and repeated security lapses) but by being bundled free with Microsoft operating systems, it soon became the de factor interface for the general public. Microsoft also made a licensing agreement with AOL to edge out Netscape, and released a web authoring tool, FrontPage, to create pages looking better in Internet Explorer.

Netscape was acquired by AOL, and the browser further developed, but the result was a bloated program that took too long to download and install. Usage share fell from 90% in the mid 1990s to under 1% by 2006.

Finally, as a result of an agreement between Microsoft and Apple, which required that Internet Explorer be the default browser on the Mac OS, Netscape lost another major market share.

Browser Revenues

For comparison, browsers developers earn their revenues as follows: {3} {6} {7} {8}

Browser

Revenue Sources

Internet Explorer

1. Other Microsoft software sales

FireFox

1. Search engine royalties (95%) and

2. Fees from Google (toolbar) and other application developers (5%)

Chrome

1. Google advertising revenues

Safari

1. Apple hardware sales

Opera

1. Engineering fees, maintenance fees

and shares of sales income and

2. Search engine royalties.

Netscape

1. Server sales and

2. license of browser code to application developers.

Threats

Threats to Netscape came from:

1. Replacement of Netscape server by free Apache server.
2. Under-capitalization.
3. Lack of strong partnerships.
4. Marketing resources of Microsoft.

Points to Note

1. Rapid development of innovative products.
2. Vulnerable business model.

Questions

1. Explain the single, most important conclusion to be drawn from the Netscape story?
2. What were the main threats to Netscape, and which proved fatal?
3. Looking at Mozilla successors, what could management have done to better ensure the survival of Netscape?

Sources and Further Reading

Need the references and resources for further study? Consider our affordable (US $ 4.95)  pdf ebook. It includes extensive (3,000) references, plus text, tables and illustrations you can copy, and is formatted to provide comfortable sequential reading on screens as small as 7 inches.

   Get your eBook here.