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Deal could reverse Netscape's slide

An acquisition of Netscape by America Online could strengthen the Internet software maker and give AOL additional ammunition against Web-based rivals.

An acquisition of Netscape Communications by America Online could strengthen the Internet software maker and give AOL additional ammunition against Web-based rivals.

Netscape, which once

Jim Barksdale
Jim Barksdale
dominated the market with its pioneering browser technology, has been forced in the past couple years to shift its business focus away from its browser roots as software giant Microsoft has steadily chipped away at the company's market share

Netscape was cofounded in 1994 by Silicon Graphics founder Jim Clark after he saw the programming handiwork that allowed nontechnical users to easily navigate the Internet, created by Marc Andreessen, then a 22-year-old student.

In Netscape Time, the working title for a book by Clark that is slated to be published next spring by St. Martin Press, Clark gives a first-person account of meeting browser guru Andreessen, working together to figure out "the next big thing," and eventually giving birth to Netscape.

And indeed, they struck gold.

The company's revolutionary Web navigation technology, Netscape Navigator browser, allowed users to experience the Net as pictures, texts, and sounds with a click of a button rather than having to enter arcane programming codes.

At the new company, Clark became chairman; Andreessen became vice president of technology, and James Barksdale became its CEO and president. Together, these executives are commonly known in the industry as "Clark, Bark, and Marc." Barksdale has been offered a seat on AOL's board.

When the company went public in 1995, after less than two years in operation and still far from posting any profits, it followed the now legendary market "moon shot" that often is associated with the explosive rise of the Internet and Silicon Valley's accompanying fortunes.

But Microsoft, nervous that this technology would render its See special coverage: AOL to buy Netscape Windows application obsolete, entered the market with its own browser, Internet Explorer, even giving it away for free.

With this aggressive marketing strategy, the software giant gained ground on Netscape, forcing the smaller company to also start giving its browser away to try to hold on to its lead. Although Netscape still has the lead with just more than half the market, at least according to some counts, it is a paltry showing compared to the days when it controlled more than 80 percent of the market.

The confrontation between Microsoft and Netscape not only drained Netscape of a revenue stream from its browser, but also led to sagging morale at the start-up. In January, Netscape announced that it would cut 300 jobs--the first layoffs in the company's history. At the time, recruiters cautioned that the company could have difficulty holding on to the programmers that were not given pink slips because those employees would fear that this round of cuts was the first of many.

America Online, the largest Internet access service, hit Netscape hard when it made Microsoft's Internet

Marc Andreessen
Marc Andreessen
Explorer browser its default in 1996, giving Microsoft what many saw as a huge edge in the battle for browser market share. That deal, however, sowed some of the seeds of the antitrust trial now underway in Washington against Microsoft by the federal government and 20 states.

An AOL executive last month testified that AOL chose the Internet Explorer browser instead of Netscape's because it received a coveted spot on the user's desktop from Microsoft. Last week, rumors surfaced that AOL and Netscape were in negotiations over making Navigator the online giant's default browser.

While Netscape may have a slight market lead, it doesn't seem to have the upper hand in the browser battle. Instead, the company has shifted its focus toward its Web portal and back-end software business.

Netscape's Netcenter competes against the likes of other Web portal giants such as Yahoo, Excite, and Lycos. Netscape's Navigator software still gives a boost to Netcenter as people visit the site to download the browser.

Netscape today has also branched into creating the software that runs and manages computer servers that run Web sites.

The dynamics are likely to change drastically with the possible acquisition of Netscape by America Online, a stock swap deal that the companies confirmed they are discussing. As part of the possible pairing, Sun Microsystems also could gain control of Netscape's business software operations. If completed, the deal would help both AOL and Sun compete against Microsoft.

A merged AOL and Netscape would result in an online powerhouse, combining AOL's 14 million subscriber service with a strongly branded Netscape portal site. The move would add bulk and muscle to both their services in the battle against Microsoft's MSN site.

In early November, after four years and seven months with the company he cofounded, Andreessen stepped back to take a sabbatical from Netscape. Although the sabbatical is not Andreessen's first vacation, it will be his longest absence from Netscape to date. He is expected to return to work January 4.

Andreessen, who this month invested an undisclosed amount of his personal funds in Replay Networks, might spend part of his sabbatical at the small Silicon Valley start-up whose technology he said may do for television what Netscape did for the Net. Replay Networks is developing digital television recording systems that it hopes will replace today's traditional home videocassette recorders.

Based in Mountain View, California, Netscape currently employs more than 2,000 people in 17 countries and reported revenues of $346 million in 1996, as compared to $85 million in 1995. The company expects to release its financial results tomorrow for fiscal quarter and year ended October 31.