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Recovering Netscape still has work to do

The company faces strategic challenges in trying to create synergy between its disparate enterprise software and Web publishing businesses.

As Microsoft's antitrust woes have intensified, Netscape's fortunes have rebounded.

The company has come up with a new business

Jim Barksdale
Jim Barksdale
plan, its latest quarterly results have exceeded analysts' expectations, and its stock price is on an upswing after faltering for months. But it still faces strategic challenges in trying to create synergy between its disparate enterprise software operation and its Web publishing business, dubbed Netcenter.

"Netcenter is now showing more promise than it has in the past, but it is still a work in progress," analyst firm Zona Research said in a report this week.

Added Mary McCaffrey, an analyst with BT AlexBrown: "The enterprise focus has been falling together in a tighter manner. They are finally figuring out the niche, which is large [companies], not a bunch of smaller ones."

Though Netscape opened the year with its first-ever quarterly loss, the company's stock since has bounced back from its January nadir.

After reporting a fourth-quarter loss of $88.3 million, Netscape shares tumbled below 15, and the company announced that it was laying off 300 employees, or 9.4 percent of its workforce. The move marked the first layoffs in the company's history.

The stock jumped to around 30 last month, and since has settled in the 20s, after posting a break-even quarter for the three months ending April See related story: 
MS competitors bounce back 30. Most recently, Netscape shares jumped more than 9 percent, to 24.3750, after the company announced a new strategy made up of new alliances and a push toward e-commerce.

On the Web publishing side, Netscape has intensified its efforts to turn Netcenter into an Internet portal site that will keep visitors coming back on a regular basis. While the company was successful in the first place in attracting traffic to its Web browser, which uses the Netscape home page as its default start page, it still must work to create brand loyalty.

Last month, Netscape signed lucrative new search engine deals, including a two-year, $70 million deal with Excite to power the Netscape-branded search engine, which has added personalization features, news, a software store, and other elements.

But the trick will be to convert Netscape's Web site traffic into a benefit for the company's enterprise software business, and the link between the two is not immediately obvious.

"I don't see how Netcenter generates sales for enterprise software," said Zona analyst Vernon Keenan. "My main complaint is that it's still used as a showcase for Navigator, and I don't think portal visitors are interested. It may even be a turn-off."

Keenan thinks Netscape should add services to Netcenter, essentially moving the company into the service business.

But Netscape had a major success on the enterprise software side last month, with a major sale to Citibank across Netscape's enterprise product line--e-commerce software, Web application servers, and the like.

The Citibank deal marked Netscape's largest licensing deal to date. Netscape CEO Jim Barksdale said at the time that he sees a fast-growing market for providing software to major corporations, such as Citibank, as their technology demands increase.

Netscape's biggest challenge, though, lies in its need to adopt a strategy that will make it a consistent moneymaker. Analysts note that the company lost $54.2 million for the month of January, despite reporting a break-even second fiscal quarter. In addition, it posted a $10.1 million loss for the April quarter.

One Zona analyst said he thinks Microsoft's legal battle with the Department of Justice is not yet translating into a boon for Netscape.

"We're going to have to see some actual impact on Microsoft first," Balderston said. "We haven't see any stampede of companies wanting to bundle Netscape Navigator with Windows 98."