Former rival Netscape faces trials of its own

The scrappy upstart from Silicon Valley dreamed of using its Navigator Web browser to loosen Microsoft's grip on the desktop. But within a few short years, the juggernaut from Redmond, Wash., eclipsed Netscape's star and set the stage for its historic antitrust trial.

Netscape had a key role behind the scenes and on the witness stand in the court fight against Microsoft. Testimony detailing Microsoft's competitive tactics against the browser pioneer was at the heart of the government's case.

But Microsoft remains as dominant as ever, particularly after Thursday's decision by a federal appeals court to vacate Judge Thomas Penfield Jackson's ruling to split Microsoft in two. And Netscape continues to fade.

So thoroughly has Microsoft come to dominate browsers that Netscape, now under the ownership of AOL Time Warner, positions its Netscape.com portal as the centerpiece of its business.

"Netscape's browser is no longer a mainstream phenomenon," said Gartner analyst David Smith. "Basically, over time, the market had all the money sucked out of it, and Netscape stopped investing in the browser. Now Netscape no longer exists as a company."

Netscape is credited with bringing the Internet to the masses with its easy-to-use Navigator, at one time commanding more than 80 percent of the market for Internet browsers. The company had a rapturous reception on Wall Street, enjoying one of the most spectacular IPOs in history in August 1995, with its stock soaring 300 percent in the first five months. Its early success helped spur Microsoft's late entry into the Internet business.

Now, more than three years after Netscape decided to transform its Web site into a full-service portal, the site's direction remains murky to analysts, who compare it to the ill-fated Pathfinder, a portal project that belonged to what was then Time Warner.

"They've tried many different strategies, and I'm unsure if this is going to work," said Jupiter Media Metrix analyst Patrick Keane. "The prevailing sentiment is, this is Pathfinder redux."

Times have changed, he said. Netscape "still tells a pretty compelling traffic story, but the market doesn't value that traffic the way it used to. Two or three years ago, 12 million unique users were worth $3 billion or $4 billion. But that's not necessarily the case anymore."

The irony: As a browser company, Netscape laid the groundwork for the portal businesses it now finds itself struggling to compete against. Portals don't spark the same fire they did just a short while ago. Excite.com, Yahoo, AltaVista and others have all lost their luster in recent months as they have found revenue much more difficult to attract than readers.

Netscape declined to provide any executives willing to talk about the company. It did, however, supply an outline of its areas of focus.

"Netscape has evolved from a browser company to become a provider of a range of tools and services including Web mail, search, IM, calendar, Netscape radio, and a host of others," a Netscape representative wrote in an e-mailed response to queries from CNET News.com.

Apart from instant messaging--technology that America Online either created or acquired--all of those tools and services are to be found on the Netscape.com portal, formerly known as Netcenter. Netscape also touts Netbusiness, a portal for small-business owners that includes the AOL, Netscape and CompuServe brands.

The company claims 38 million registered users for the portal and cites Nielsen statistics showing that the site reached 21 million unique visitors in April, both from home and from work, with the average time per visit at 46 minutes.

Netscape.com's traffic initially came from the fact that it was the default for people using the Netscape browser. Netscape capitalized on that traffic to a certain extent, charging search destinations such as Yahoo and Lycos to funnel the traffic their way.

"Netscape as a company built Yahoo, Lycos, Infoseek," Keane said. "The ironic thing is why they allowed those things to be created instead of doing it themselves. Why divert all this traffic somewhere? They were getting pretty high carriage fees (at) the time, but in retrospect, compared to the market caps of the companies that were created, it was pennies."

In departing from its browser roots, Netscape branched into corporate software. The company has developed software that allows businesses to forge online links with customers, suppliers and partners.

But its strategy was characterized by missteps and missed chances, analysts say.

When America Online bought Netscape, the online service quickly partnered with Sun Microsystems to create a new entity called iPlanet that melded Sun's e-business software with Netscape's.

iPlanet merged Sun's and Netscape's application servers--which run e-commerce and other Web-based transactions--into a single product. The alliance also brought together the pair's corporate e-mail software, keeping Netscape's directory software and augmenting it with technology from Sun. Directory software serves as a central information database--or "yellow pages"--for computer users, systems and applications.

Netscape's CommerceXpert family of applications has survived under iPlanet. It includes merchant software for consumer sales and purchasing software that allows businesses to buy goods from their suppliers online.

But its commercial software has met with limited success. In the arena of e-commerce software, Netscape and later iPlanet saw opportunity wane as its own proprietary technology was eclipsed by those based on Sun's Java programming language.

Mike Gilpin, an analyst with Giga Information Group, said missteps by Netscape hurt its e-business efforts, although he predicts the company's partnership with Sun will allow it to survive as the No. 3 player in the market behind IBM and BEA Systems, at least for the foreseeable future.

"What happened was almost poetic justice in terms of open standards," Gilpin said. "Netscape had criticized Microsoft for being closed and proprietary and for trying to take over the Internet. But a substantial reason their products didn't take off was that they were closed and proprietary, that they didn't take advantage of open standards."

Browser missteps--and opportunities
Of all its business plans, though, it was Netscape's strategy for browser technology itself that has been the most surprising. Ultimately, by some accounts, it was also the most disappointing.

After stubbornly continuing to charge for its software despite Microsoft's Internet Explorer being free, Netscape in 1998 began giving away its browser and went one step further, providing the source code to companies and developers under the Mozilla open-source development organization.

The advent of Mozilla sparked a trend by corporations that wanted to replicate the success of grassroots open-source movements like those that produced the Linux operating system and the Apache Web server. Companies that followed suit with their own open-source projects included Apple Computer, Novell, Corel and Hewlett-Packard.

Mozilla may have been a trendsetter, but Netscape has found less conspicuous success in producing a browser based on its work. In the 32 months of delays and strategy shifts that separated Mozilla's founding and its first release, Microsoft had gained an additional and decisive advantage in what remained of the desktop browser war.

And when the browser finally came out, consumers and critics alike blasted it, deeming Netscape 6 not ready for prime time.

The reception to Netscape 6's release bolstered Microsoft's claim that Netscape lost the browser war because of its own missteps.

"One of the stories never written was about Netscape's own business decisions and how they impacted their success on the marketplace," said Microsoft representative Jim Cullinan. "What about their all-Java browser that completely failed, or their decision not to componentize their browser while Microsoft made significant strides when we improved our technology from 2.0 to 3.0?"

It hasn't been all mishaps for the company on the browser front. Netscape has emphasized a recent agreement with Sony to include the browser and other AOL technology in Sony's PlayStation game console.

Other Netscape browser wins off the desktop include the use of Gecko--the browsing engine under construction at Mozilla--in Gateway's Connected Touchpad.

Then again, few Web surfers go online via game consoles and Net appliances yet. And the delays that hurt Netscape on the desktop are already damaging its efforts in the non-desktop browser market. Norwegian browser maker Opera Software has attributed its ability to gain traction in the new battle for the microbrowser market to Netscape's delays. And AOL recently announced it would market a microbrowser under the Netscape brand--but using Nokia technology.

At the same time, a large chunk of Microsoft's lead over Netscape could disappear overnight if AOL decides to make Netscape 6 the default browser on its proprietary America Online service. Tensions between AOL and Microsoft could leave an opening for that gambit, though AOL has danced around the possibility since acquiring Netscape.

AOL is also at work on a browser project, code-named Komodo, that would let AOL subscribers replace IE with Netscape.

AOL is the world's largest Internet service provider with some 30 million subscribers. But even if a large portion of those customers switched from IE to Netscape, the company still could not regain its title as the browser champion.

"I think Microsoft takes Netscape seriously because AOL is a big enough company and they have a technology that they could use to change the browser market overnight," said Gartner's Smith, who estimates that Microsoft--once the underdog--controls about 85 percent of the desktop browser market. "AOL-IE is enough to make a sizable dent, but we're beyond the point that, were AOL to (use its own technology), it would change the leadership."

News.com's Wylie Wong and Erich Luening contributed to this report.