Netscape shifts focus to "ESPs"

When is an automaker an Internet service provider?

The answer to that question explains much of Netscape Communications' strategy as the company hones its business model and tries to recover from repeated missteps in the enterprise software sector.

After losing much of its lead in the browser market and failing to make much headway in the groupware market targeting midsized businesses, Netscape is now devoting much of its resources to court large companies that are demanding more robust Web server and email software. Those types of applications are most often found on the servers of Net access providers.

These companies, with many thousands of employees and perhaps millions using its information systems from the outside, are demanding server software with ISP-grade scalability and reliability, according to Netscape.

But don't call Netscape's new customers ISPs. Instead, Netscape considers these "Global 2000" companies "ESPs," or enterprise service providers. Not only do these firms provide their employees with basic email and Web access, but also with an array of communications and data services through their corporate intranets, such as human resources and health insurance applications.

The trend toward information systems departments functioning more like service providers is a natural fit with Netscape's strengths, according to Ben Horwitz, the company's vice president for the mission control server line.

"What kind of software do you need to service not only the employees but also a million partners and customers?" Horwitz asked rhetorically. "That's where we're strong today and where we're improving in the future."

Perhaps even more importantly, these companies make much of their information available to their offsite partners, clients, and dealers through extranets. Between extranet and intranet applications, these firms have enormous software demands, and it is this demand that Netscape plans to mine.

Companies in need of these applications must choose between either developing them themselves or farming out the work. Either way, Netscape is angling to play a part in the process.

E*Trade, for example, created its own extranet software for handling its users' stock market trades and accounts. But user demand soon outstripped the in-house software's scalability, and the online trading firm purchased Netscape's Application Server in order to accommodate more users.

The Netscape lineup of products for its ESP initiative includes the server suite SuiteSpot, which is slated for upgrade later this year under the code name Apollo; Netscape Application Server, gained with the acquisition of Kiva Software; and CommerceXpert software, gained with the buyout of Actra.

Netscape recently previewed a server technology tailored for telephone companies and ISPs, code-named Troopers ISP, that the company says will provide up to ten times the scalability and performance of its current offering. But that technology has yet to find its way into Netscape's product line.

For companies that choose to outsource their ESP needs, Netscape is drawing not only on its own services but also those of its Netcenter partners.

Netscape's shift in focus toward the high-end ESP market is the result of a growing number of pressures on the company and the industry as a whole over the past few years.

For Netscape, Microsoft's offense in the browser war forced it to give its Navigator browser away for free in order to maintain its majority market share. Once it became clear that browser revenues were on the way out, Netscape set its sights on the enterprise server market. But when the company's earnings fell below expectations in the last quarter of 1997, in part because of sluggish server sales, it became clear that this alternate plan was not going to resuscitate the company.

Netscape's latest shift in strategy moves the company away from a number of different opponents and obstacles, Microsoft among them.

"Part of the goal was creating a business model that didn't put us head to head with competition that wanted to kill us," Netscape spokeswoman Andrea Cook said.

Indeed, Netscape has maneuvered out of Microsoft's line of fire and appears to have created a fairly unique business in a hot product area.

That market has moved distinctly away from demanding software and toward demanding services. On that score, Netscape delivers not only the underlying server software on which to build those services and the partners with which to sell or rent them, but also the highly trafficked Netcenter real estate from which to advertise and offer them.

Analysts praised Netscape's ESP focus and agreed that the company has carved out space that, for the time being, is not crowded.

"We've seen an increasing trend in companies that want to take some of their core businesses and make them available through the Internet to both customers and partners," said Tim Sloane, analyst with the Aberdeen Group. "And we've also seen a rise in clients who want to outsource what have been traditionally internal departments, such as health benefits. From a vendor strategy or vision perspective, I believe what Netscape is trying to do with Netcenter and this ESP initiative gives them real differentiation in the market and seems to be lining up with a key trend that seems to be occurring."

Whatever the value of the strategy, Netscape still needs to implement it, Sloane added. That will require establishing Netcenter as a software distribution center and business rendezvous, as well as establishing Netscape's server software as a major supplier to large organizations and ISPs.

Other analysts praised Netscape's decision to go after the high end of the market.

The ESP model offers targeted companies a number of benefits, according to IDC senior analyst Juliana Nelson. Companies can rent and scale applications to gauge their needs without making a large investment in development or acquisition. In addition, extranet applications are often the types of offerings that keep users coming back.

"When Netscape was asking its customers what they were looking for, they said they needed to offer a level of service that would invite retention," Nelson said. "The ESP initiative addressed these demands by allowing companies to evolve to a service-based model."