Microsoft's surprising $1 billion investment in Comcast announced Monday, its first major foray into a cable TV operation, cuts into a territory already staked out by Netscape. Comcast happens to be a major stakeholder in one of Netscape's best business partners, @Home, a pioneer in the field of fast Internet connections through cable lines and modems.
To many Netscape employees, this is a familiar story: Netscape innovates and Microsoft appropriates.
Last year, for example, Netscape launched Navio to tap the software market for Internet set-top boxes. But Microsoft, sitting on billions of dollars in cash, wound up stealing Netscape's thunder with a $425 million buyout of WebTV, the leader in that market. Netscape wound up selling its stake in Navio to Oracle, putting Microsoft in a strong position to exploit any PC-TV convergence resulting from such products.
Microsoft says it's just trying to compete, not thwart its rival at every turn. Either way, this week's cable TV deal shows that the software giant is turning up the heat on Netscape again.
This latest chapter began in September, when Netscape formed a strategic relationship with the @Home to provide client and server software to support services such as email and Internet news. As Netscape chief executive Jim Barksdale said at the time: "@Home's work to leverage both Netscape client and server software will provide consumers with a complete Internet solution."
Not only that, but Barksdale is also a board member of @Home. The companies have another common bond: @Home and Netscape are backed by Kleiner Perkins Caufield & Byers, the high-technology venture capital firm. In fact, the collaboration between the two companies seems to be a classic example of keiretsu, a Japanese term used by Kleiner Perkins to describe alliances between its networks of companies.
But then Microsoft crashed the party by buying into Comcast. Along with Tele-Communications Incorporated and Cox Communications, Comcast is a principal cable TV stockholder. Microsoft executives wasted no time expressing keen interest in @Home.
As Microsoft chief executive Bill Gates put it at a press briefing Monday, "It is imperative that we work together so Microsoft software fits with their systems." Added Greg Maffei, vice president of corporate development, "We hope to convince [@Home] of the merits of our software."
It's not as if the two companies are strangers. Microsoft and @Home recently began working together to offer the Microsoft Network online service to @Home subscribers for $6.95 a month. But that deal was limited to the content side of the business, not Internet software.
The comments by Microsoft set off some alarm bells inside @Home and Netscape, as employees wondered aloud what impact Microsoft's investment would have on the two companies' close alliance. Even though Comcast is an investor in @Home, some of the company's highest-level executives weren't tipped off to the deal until Sunday night, the eve of the announcement; some weren't notified until a press release was issued.
"That was Comcast's announcement," an @Home source explained.
On the record, Netscape executives say they aren't worried about Microsoft's latest move. Netscape marketing vice president Mike Homer said it would have "no impact." The executives point to last fall's strategic alliance with @Home and Barksdale's board seat.
For its part, Microsoft says it will not try to run Comcast's business affairs and will hold only an advisory board seat at Comcast. Venture capitalists who are involved say that Microsoft and @Home will make good content partners and can cohabitate with Netscape.
But, like the other battlefields between Netscape and Microsoft, this emerging one could provide some good theater.
Senior writer Nick Wingfield contributed to this report.