501 East Middlefield Road
Mountain View, California 94043
Telephone: (650) 254-1900
Fax: (650) 528-4124
Wholly Owned Subsidiary of America Online, Inc.
Incorporated: 1994 as Mosaic Communications Corporation
Sales:$461 million (1999)
NAIC: 51121 Software Publishers; 541512 Computer Systems Design Services
1994: James Clark and Mark Andreessen form Mosaic Communications, which is later renamed Netscape; begin offering software that allows users to browse on the Internet.
1995: Company makes initial public offering; shares more than double in a single day.
1996: Netscape acquires Collabra Software; becomes the most popular PC application in the world, with 38 million users; accuses Microsoft of anticompetitive business practices.
1997: Netscape relaunches its website as Netcenter, in a move toward becoming a major Internet portal.
1999: Netscape is acquired by America Online, Inc.
Netscape Communications Corporation, based in Mountain View, California, is one of the leading providers of open software designed for use on the Internet and intranets. Netscape offers a line of client and server software, development tools, and commercial applications to create a complete platform for live online applications. Since spring of 1999, the company has been owned by America Online, Inc., the world's largest online service provider.
Genesis of the Enterprise
James H. Clark, one of Netscape's founders, was born into poverty in 1944 in Plainview, Texas. Although prone to mischief, such as smuggling whiskey on high school band trips, he eventually earned a Ph.D. in computer science from the University of Utah, after first studying physics. Clark had discovered computers during a stint in the Navy, which he joined after dropping out of high school. His first teaching job, at the University of Santa Cruz, soured him on academia, so he began freelancing as a consultant, which seemed even more dismal to him.
Clark turned down an offer from Hewlett-Packard, having developed a dislike for big corporate culture during an earlier stint with Boeing. In 1979 Clark went to work as a professor at Stanford University, where he made three-dimensional graphics the focus of his research for three years. Finding it difficult to sell his ideas to existing computer companies, Clark founded Silicon Graphics Inc. (SGI), a computer workstation manufacturer, in 1982. That company went public four years later and later garnered popular fame for animating the dinosaurs of the blockbuster movie Jurassic Park. Eventually Clark became frustrated at being unable to guide the company into low-cost, network-friendly hardware, and he resigned in February 1994, passing up $10 million worth of stock options. In 1995, SGI's annual revenues were $2.2 billion.
Netscape's co-founder, Mark Andreessen, was born in 1972 in New Lisbon, Wisconsin, to a salesman and his wife, who worked for Land's End. As Andreessen grew up, the personal computer was also coming of age, and he wrote his first BASIC programs--video games--at the precocious age of eight. While a 21-year-old undergraduate who had first leaned toward electrical engineering, Andreessen was assigned to work on three-dimensional visualization software for the prestigious National Center for Supercomputing Applications at the University of Illinois at Champaign-Urbana. While working there for $6.85 per hour, he and six other peers created Mosaic, a graphical interface program for finding interesting Internet sites without the need for specialized programming knowledge. Within its first 18 months, Mosaic was credited with sparking a three-fold increase in the number of Internet users; the number of web sites grew by a factor of 100. After graduation, Andreessen began to work in Silicon Valley for Enterprise Integration Technologies, which produced Internet security products. Appropriately, his first connection with James Clark was electronic.
The future of the 'information superhighway'--the theoretical network for carrying interactive video, e-mail, and all types of data--was subject of much speculation in 1993. Existing telephone lines and cable television seemed possible means. Clark had been considering the Internet as a possible carrier for interactive video, so he sent Andreessen an e-mail message the same day he resigned from Silicon Graphics.
After two months of introductions, discussion, and debate about potential products, Clark and Andreessen formed Mosaic Communications in April 1994. Instead of working on 3-D video games or interactive television, Andreessen proposed making Mosaic even better, creating a 'killer' program to be known as 'Mozilla.' Clark supplied $4 million to set up the company's headquarters in Mountain View, California, while Andreessen led the development effort.
In November, the company was renamed Netscape, as the University of Illinois objected to the company's use of the name 'Mosaic.' Spyglass Inc., started by another U.I. alumnus, Tim Krauskopf, had licensed the name along with the software from the school. Later, Microsoft paid Spyglass for the rights to bundle Mosaic with its Windows 95 operating systems.
To say the Netscape grew exponentially in its first two years would be an understatement. Beginning with the two founders and an assistant, employment grew to over 250. Not surprisingly, the first new hires were five of Andreessen's programming colleagues from the University of Illinois, as well as other programmers, software developers, and cryptographers. Clark also assembled the best management team he could find. In January 1995, the company hired Jim Barksdale away from AT & T's McCaw Cellular division--a $2.3 billion a year business&mdashø be Netscape's CEO. Barksdale had earlier helped organize Federal Express into the state-of-the-art shipping dynamo it was to become. Andreessen served as vice-president of technology, in charge of overseeing product development, while Clark gave himself the job of 'Head of PR.'
Like the University of Illinois had done with the original Mosaic, Netscape gave away most of its Netscape Navigator browsing software free of charge, which generated goodwill from the community of Internet users. Nevertheless, it was an extremely controversial move for such a new company. Netscape did manage to avoid packaging costs--interested parties simply downloaded the software via modem. It also established an ultimate base of virtual shoppers.
In order to make money, the company charged from $1,500 to $50,000 to supply companies with web servers, the means to establish web sites on the Internet. The most expensive systems could create 'virtual' stores in which customers could examine photographs and descriptions of products, order and pay for them with credit cards. This market had plenty of room for growth: in the mid- 1990s, less than ten percent of Internet users participated in electronic commerce. By late 1996, it was estimated that more than 24 million North Americans used the Internet.
In December 1994, the company began selling improved versions of its browsing software for $40 per package. Resale partners included Apple, AT & T, Hewlett-Packard, Digital, IBM, Novell, to name only a few. By 1996, Netscape was selling its products in 29 countries. It also brokered arrangements with more than 100 Internet service providers to distribute Navigator to their customers. One of the keys to the system's acceptance was its ability to work with all kinds of computers and operating systems, referred to as 'open architecture,' a concept, in the form of TCP/IP (Transmission Control Protocol/Internet Protocol), that made the Internet itself possible.
The openness of the company's servers made them attractive for establishing internal corporate networks, dubbed 'Intranets,' that could also communicate easily with outside networks. Soon, Netscape approached a similar market share in this lucrative arena as it had on the Internet, gaining 70 percent of the Global Fortune 100 companies as customers, including AT & T, Hewlett-Packard, Lockheed Martin, McDonnell-Douglas, Silicon Graphics Inc., CNN, Dow Jones, National Semiconductor, Motorola, and Eli Lilly. MCI was Netscape's first major client.
Preparations for a Secure Future in the 1990s
In April 1995, a consortium of Adobe Systems, International Data Group, Knight Ridder, TCI, and Times Mirror bought an 11 percent share in the company. Netscape's initial public offering (IPO) came in August 1995. The first day market capitalization was worth $2.2 billion. The stock originally sold for $28 a share; after a day of trading, it was worth $75. On December 5, it peaked at $171. Clark owned 32 percent of the company, which made him, according to press reports, the first Internet billionaire. As Time noted, the year was a record one for high-tech IPOs in the United States: $8.5 billion in capital was created for these new ventures. IPOs in all industries raised $29 billion. The success of the initial public offering came in spite of the fact that Netscape had not yet posted a significant profit.
Although Bill Gates dryly characterized the excitement over new Internet stocks as 'frothy,' Microsoft, too, entered the market. Late in 1995, Microsoft offered a version of its own browser, called Internet Explorer 2.0, free for downloading, as well as including a browser with the new Windows 95 operating system. Numerous strategic alliances were subsequently formed. While Netscape teamed with MasterCard to develop Secure Courier encryption standards, Microsoft and Visa announced the development of Secure Transaction Technology. In January 1996, Netscape and VeriFone, the largest credit card transaction processor, announced their plans to develop credit card payment systems for use over the Internet that would use the new Secure Courier technology. Soon afterward, Netscape teamed up with America Online, the largest provider in the United States of on-line services. The deal allowed AOL to offer improved Internet access through the Navigator browser (even though it had earlier spent $41 million to acquire similar technology) and strengthened Netscape's market share. GTE and MCI had earlier agreed to use Navigator in their networks.
Understandably, Netscape put a great deal of effort into making Internet transmissions secure. Nevertheless, in September 1995, two hackers at the University of California at Berkeley managed to undermine the Navigator security code. The company corrected the problem and posted warnings to users on the Internet. Damage to the company's image appeared to be mitigated by the newness of the field, the newness of companies specializing in this area of technology, and the lack of reliable and easy-to-use web software elsewhere.
Netscape's innovative way of attacking the security problem mirrored its marketing strategy; both involved giveaways. To strengthen its new browser software, the company distributed beta versions--test copies disseminated before the product's commercial release. To spur the testers, Netscape, in its 'Bugs Bounty' program, offered prizes ranging from coffee mugs to $1,000 for the first people to identify flaws, particularly security lapses.
In January 1996, Netscape purchased its neighbor Collabra Software Inc. for $108.7 million. One of Collabra's main products was Share, a system enabling simultaneous e-mail discussions and document sharing among network users. Subsequent releases of Share combined these facilities with Navigator's Internet access capabilities. In February, Netscape acquired Paper Software, Inc., which had recently developed 3-D programs for the Internet.
The Browser Wars
By June of 1996, Netscape Navigator had 38 million users, making it the most popular PC application in the world. Its fierce competitor, Microsoft, however, was far from giving up the fight. In August, the company released its 3.0 version of Internet Explorer, beating Netscape's release of Navigator 3.0 by just a few days. In addition, Microsoft had enlisted the aid of some very powerful allies in its efforts to promote Explorer; both MCI Communications Corp. and America Online had agreed to offer Explorer 3.0 as their 'first choice' browser.
In August 1996, Netscape sent a letter to the U.S. Department of Justice (DOJ), charging Microsoft with anticompetitive practices and urging the DOJ to investigate Microsoft's business practices. Netscape maintained that Microsoft was using its dominance in personal computer operating systems to influence computer manufacturers, Internet service companies, and others into making Microsoft's software the primary choice for accessing the Internet. Netscape also accused Microsoft of charging PC makers less for its Windows 95 operating system if they agreed not to pre-install other Web browser programs. The antitrust investigation of Microsoft would continue for years, and in 2000 a Federal judge would call for the break-up of Microsoft into two smaller companies.
In September 1997, Netscape relaunched its website as Netcenter. The new site offered access to Internet software, content, and community resources, grouped into easy-to-navigate categories. Three months later, the company added an online shopping site to Netcenter. These measures helped move Netscape away from being primarily a browser maker to being a significant Internet portal.
Changes in Policy, Focus, and Ownership
In January 1998, Netscape surprised the industry by announcing that it would make the source code for Communicator 5.0 available for modification and redistribution on the Internet. By so doing, the company believed it could benefit from the creative power of programmers on the Internet by incorporating their best enhancements into future versions of the software. As promised, Netscape posted the source code on the Internet on March 31. In the ensuing months, the company also released the code for its Messenger product and its Directory Software Developer's Kit.
1998 was also a year of intensified focus on the Netcenter aspect of the business. In the spring, the company established a new division devoted solely to the development of Netcenter, and subsequently initiated a 60-day campaign to improve the site. The greatest change of the year, however, came in November, when Netscape announced that it had agreed to merge with America Online. The merger, a $4.2 billion stock-for-stock transaction, was completed in February 1999. Netscape co-founder Andreessen was named to the post of chief technology officer at America Online.
2000 and Beyond
Under the parentage of America Online, Netscape continued to build its presence as an Internet portal. Toward that end, the company enhanced its Netcenter site with such features as a Personal Finance channel, an improved Entertainment channel, America Online instant messaging, an Internet Security Center, an expanded Small Business channel, and various other additions. Netscape also continued to broaden its line of software products, with a continuous stream of new Internet-related applications and improved versions of existing applications. As the company moved into the future, it seemed apparent that it had successfully negotiated the transition from a 'browser provider' to a multi-faceted Internet and intranet software developer and major Internet portal. With the backing of its parent company and its own strong record of success, Netscape appeared poised for continued growth on many fronts.
Principal Operating Units: United States; Japan; Europe; Latin America.
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