Browser wars: High price, huge rewards

When Microsoft saw Netscape's browser as a threat to its future, the company poured millions into research, marketing and legal fees. But the victor gets the spoils.
Written by John Borland, Contributor
In mid-1993, Microsoft was thinking hard about how Apple Computer might still become a threat.

Mosaic paves the way
10 year anniversary

The brainstorming sessions were run by then-Senior Vice President Brad Silverberg, who would ultimately head the company's Internet and Windows 95 strategies. He concluded that Apple would be dangerous in only one way: if it put all its resources behind making the company synonymous with this powerful medium called the Internet.

It was the right fear, but the wrong company. Two years later it would be Netscape Communications and its Navigator Web browser that would epitomize the young medium's explosive potential.

"Microsoft ran the risk of being made irrelevant as the technology advanced," said Silverberg, who left Microsoft in 1999 to found Ignition Partners, a venture capital group. "Netscape was a real competitive threat. Platform leadership for the PC was at stake."

As recorded by history, and the log files of every Web server, Microsoft won the war. But it paid a heavy price: well over $100 million a year in development and marketing costs for Internet Explorer, according to federal court documents, an antitrust battle that attorneys estimate may have cost as much as $100 million in legal fees, and shattered relationships with government and industry figures.

Was the fight worth it?

For the most part, according to industry veterans, the answer seems to be yes. Although Netscape never developed into a serious threat to Windows, it definitely had that potential.

Today, Microsoft continues to dominate the PC software industry, holding more than $52 billion in cash and short-term investments despite the stagnation in high-tech spending. This, analysts say, points to the Redmond, Wash., giant's ultimate success--the preservation of its leadership status and a formidable war chest to fend off any threat to the Windows empire, whether it be Web browsers, Java, Linux or any other technology.

"People laugh at how this big company might be scared of these little things, but that's how they operate," said Rob Horowitz, chief executive of analyst firm Directions on Microsoft. "They look at threats and take them very seriously. It's a strategy that's served them well."

As monumental as they were, the browser wars started off slowly. When Mosaic was released in 1993, only a handful of people at Microsoft were focused on the Internet. By the end of 1994, when Netscape released Navigator, a small Microsoft team had put together a browser strategy and licensed technology from Mosaic spinoff Spyglass to create the first version of Internet Explorer, but the company was still focused on the release of Windows 95.

That started to change in early 1995. In May of that year, Gates sent a now-famous memo to his top staff highlighting the "Internet tidal wave," ordering them to refocus much of the company's activities on the Net. Gates noted that Netscape appeared to be trying to take over Windows' role in software development, a move that could potentially "commoditize the underlying operating system."

The call to arms stemmed from Microsoft's obsession to protect the Windows operating system, which was and is the only near-universal platform on which other software developers can base their own programs. If software developers could have written their code instead for Netscape, which in turn could work with any operating system, the need to run Windows on every machine might have quickly diminished.

Maybe it was a little paranoid, but Netscape developers had the same thought.

"There was certainly discussion that, as the Web becomes mature and as the browser becomes mature, the need for the underlying operating system as it is goes away," said Jon Mittelhauser, one of the early browser developers who worked on Mosaic and later at Netscape.

With friends like this...
In mid-1995, a Microsoft team visited Netscape and proposed a "special relationship" that would relegate the Navigator browser to pre-Windows 95 operating systems--an offer that Netscape CEO Jim Barksdale later testified "blatantly implied that we should either stop competing" or Microsoft "would kill us."

In December 1995, Microsoft articulated its Internet strategy to the world, and Gates promised that Internet Explorer would be free of charge forever. The company was pushing employees to do everything they could to raise the browser's market share, as underscored in an April 1996 memo to top Microsoft staff from Brad Chase, then a senior executive.

"We want people to think 'Internet=Microsoft,'" Chase wrote in the memo. "This is 'make or break' time: The next six months are critical. If the industry does not see signs of success of our Internet Explorer...platform and technologies, we will lose our best chance to regain leadership."

The company threw resources at internal development. The original Internet Explorer team was just five or six people. By the time Silverberg and others decided to rewrite the browser almost completely for version 3.0, released in 1996, the team had grown to 100. By 1999, it was more than 1,000.

But Microsoft's aggressive distribution strategy eventually drew the attention of federal regulators, leading to one of the most complex and bitterly contested legal battles in corporate history. As documented later in voluminous court filings during the government's historic antitrust case, Microsoft:

• Gave the software away for free to Internet service providers and computer makers.

• Offered to pay whatever ISPs owed to Netscape if they agreed to switch from its rival.

• Paid America Online to convert subscribers to software using Internet Explorer technology.

• Provided co-marketing funds and lowered Windows pricing to PC makers that agreed to promote Internet Explorer.

• Labeled Internet Explorer an integral part of the Windows operating system, thereby prohibiting computer manufacturers from modifying or deleting it.

The multipronged strategy apparently worked. By January 1998, Microsoft executive Joachim Kempin was able to report to CEO Bill Gates that Navigator was being shipped through only four of 60 outside distribution channels, such as ISPs and computer manufacturers. Later that year, Internet Explorer's market share had caught up to Navigator by some critical measures.

Then came the official surrender: By November, AOL had agreed to purchase Netscape for $4.2 billion. For most practical purposes, the war was over by the following year.

"I don't think you can question that Microsoft got what they wanted out of it," former Netscape developer Mittelhauser said. "They made Netscape irrelevant, which was their goal from the start. You can question how real a threat it was, but perception is as much a key factor as reality."

A Windows Web
Microsoft never succeeded in making its name synonymous with the Internet, as Chase and Silverberg had hoped, but it did block Netscape from achieving the same goal. As a result, Internet Explorer is used by more than 95 percent of today's Web surfers, according to OneStat.com.

Reader Resources
ZDNet White Papers

Greg Sullivan, lead product manager for Microsoft's Windows client division, says that the computing community as a whole has benefited from the Web's standardization around Internet Explorer. Competing platforms would have meant that developers would have had to duplicate their efforts more often, he said.

"There is benefit to everybody who's involved," Sullivan said. "In general, a standard is very useful, whether it's de facto or du jour. It enables a level of consistency and a level of investment and minimizes some of the redundancy that can occur."

Critics say the lack of real competition in the browser business has stopped innovation in its technology. Although software efforts with tiny market share such as Opera, Apple's Safari, and the open-source Mozilla project are evolving, they note, Internet Explorer itself has made no sweeping advancements in Web browser technology in years. The back button, bookmarks, address bar and home page button--all original Mosaic features--are still the basic tools of Web navigation.

"The features we had in Mosaic are pretty close to what we have in Internet Explorer in 2003," said Jakob Nielsen, an expert on software usability and interfaces. "It's not identical, but it's very much the same."

Microsoft employees, present and former, disagree. They contend that, under the hood, major strides were made in Internet Explorer's integration into the Windows system and the component-built model that helped win over big companies like AOL.

In a way, Silverberg said, the fact that Internet Explorer never became synonymous with the Internet can be a measure of Microsoft's success. "The ultimate compliment one can give to a piece of software is transparency," he said.

Nielsen added that Netscape never made any huge advancements either. Even Netscape co-founder Marc Andreessen says his company had slowed its pace of innovation by the end of true competition. By that time, Netscape had been forced to give away its browser for free, following Microsoft's lead.

"By the time Netscape was sold, the commercial incentive for innovation in the browser had gone almost to zero," Andreessen said.

Others contend that the little browser advances have in sum been crucial to making the Web a mainstream consumer phenomenon. "The ease of use and aesthetics are just unbelievable compared to what they were even four years ago," said one senior executive at a major PC company, who asked not to be named.

Aside from technology, perhaps Microsoft's most enduring legacy in the browser business is its public reputation for controversial pressure tactics with rivals and partners alike. Even years later, analysts say the lack of any serious punishment for Microsoft's deeds during the browser wars has left potential partners wary. Few now, as then, are willing to talk on the record about their experiences.

"Vendors realize that they have to keep working with Microsoft and try to put a good face on it," IDC analyst Roger Kay said. "They're aware that Microsoft is holding all the cards and is dealing itself all the good ones."

Mittelhauser agreed: "Now you're back to doing everything the way it was pre-Netscape, where everything goes back to Redmond."

News.com's Mike Yamamoto contributed to this report.


Do browser upstarts stand a chance? Mosaic revolution--10 years after

Editorial standards