The rise and fall of Netscape

When Netscape employees first heard their company was going to be bought by America Online in November 1998, they worried whether their dogs would still be allowed in the office. A year and a half later, the dogs are still allowed, but little else is the same. Key executives and engineers cashed in their options and left, and the company that once was synonymous with the Web itself -- the pioneer of the Net as we know it -- is now merely the "at-work" arm of AOL's multi-brand media strategy.

"The merger has been a disaster," said Michael Cusumano, professor at MIT's Sloan School of Management and co-author of "Competing on Internet Time," which details Netscape's struggles in its now legendary browser war against Microsoft. "All the best engineers and managers have left. Sun has taken over the client software. ... They're no longer a player."

Founded in 1994 by Web-browser innovator Marc Andreessen and Jim Clark, Netscape Communications Corp. was built on the Silicon Valley recipe of outstanding technological innovation mixed with the leadership of a charismatic CEO -- in this case, Jim Barksdale -- and the undying energy of a brilliant and youthful staff who truly believed they were shaping the future.

But by 1998, the company had faltered. The Prometheus that brought the fire of the Web to the people was bleeding red ink, mired in a battle with Microsoft over browsers -- the details of which are at the core of the ongoing federal antitrust suit against the Redmond giant. (Microsoft is a partner in MSNBC.)

That's when America Online (AOL) stepped in. In what was perhaps the most significant high-tech merger that year, the Dulles, Va.-based online service shelled out more than $10 billion for Netscape in a three-way deal with Sun Microsystems -- Sun effectively took over the business software divisions of Netscape.

The Valley breathed a collective sigh of relief: Surely AOL would switch its then 15 million users to Netscape Navigator as the browser of choice and turn the tables on Microsoft. Netscape would once again walk among the gods.

But it wasn't to be. AOL's now-nearly 21 million subscribers still use Microsoft's Internet Explorer to surf the Web, and Netscape's "browser share" has continued to plummet. The much-heralded version 5.0 of Netscape's browser -- known in the industry as "Mozilla" -- has been the victim of repeated delays and has yet to reach even "beta" status. And AOL has turned what was perhaps the most valuable asset of the deal -- the Netscape brand name -- into a catch-all brand used for the Netcenter portal aimed at the workplace as well as its free Internet service in Europe.

MSNBC conducted interviews with numerous former Netscape employees over a series of months, all of whom spoke on the condition of anonymity.

Their story -- the story of clashes of corporate cultures and visions -- is both a parable for a maturing Internet industry and the possible foreshadowing of what AOL watchers might expect as the mega-merger with media giant Time Warner takes shape.

Despite numerous requests to AOL and its Netscape subsidiary to discuss this story with relevant executives, none were made available. An AOL spokesperson merely e-mailed a copy of a month-old press release available on its Web site.

The most noticeable change at Netscape's Mountain View, Calif., headquarters is the people. Most of the folks originally associated with Netscape are gone. Former CEO James Barksdale left to found his own venture capital firm, taking with him former Chief Financial Officer Peter Currie. Co-founder Marc Andreessen stayed on with AOL as chief technology officer before departing last fall to start his own company, Loudcloud. Mike Homer, who ran the Netcenter portal, went on a sabbatical from which he never returned.

Like dandelion spores in the wind, Netscape alumni have floated around Silicon Valley and sprouted new companies wherever they've landed.

Tellme Networks was founded by former Netscape Vice President of Technology Mike McCue and former Product Manager Angus Davis. They brought with them John Giannandrea, who as chief technologist and principal engineer of the browser group was involved with every Navigator release from the first beta of 1.0 in 1994 through 4.5 in October 1998.

Ramanathan Guha, one of Netscape's most senior engineers, walked away from a reported $4 million salary at AOL to join Epinions.com -- and was soon joined by Lou Montulli and Aleksander Totic, two of Netscape's six founding engineers.

Other Netscape alumni helped start Responsys; some are at Accept.com and AuctionWatch. Crowdburst's Spencer Murray was lead engineer for the Unix version of the browser. Spark PR is nearly entirely staffed by former Netscape PR people and represents a number of startups from Netscape alums. There are many others -- all havens for Netscape refugees.

One of the main reasons for the exodus came down to simple economics. Many of the top people at Netscape already had their stock options vested even before AOL came along. But after they were bought, the value of those options shot up.

"When AOL's stock went up, the stock of most of the creative people was worth a ... fortune," said Harvard Business School professor David Yoffie, who co-authored "Competing on Internet Time" with Cusumano.

And those who hadn't already gotten rich looked around the Valley and saw startups as the gold-paved road to wealth. As one Netscape alum said: "The person who used to sit next to me left just a few months before I did and was already a millionaire."

But there were other reasons, too.

Netscape employees always saw themselves as the underdog. They were an aggressive band of revolutionaries. They were small. They were nimble. And they were changing the world.

"When we started this company, we were out to change the world. And we did that," Jamie Zawinski -- the 20th person hired at Netscape (when it was still called Mosaic) and one of the biggest evangelizers for Mozilla.org, the open-source project for Netscape's still-unreleased advanced Web browser -- wrote the day before he resigned from AOL last spring. "Without us, the change probably would have happened anyway, maybe six months or a year later, and who-knows-what would have played out differently. But we were the ones who actually did it. When you see URLs on grocery bags, on billboards, on the sides of trucks, at the end of movie credits just after the studio logos -- that was us, we did that. We put the Internet in the hands of normal people. We kick-started a new communications medium. We changed the world."

They had a vision and they were believers. In the glory days of Netscape, Barksdale and Andreessen were famous for their "all-hands" meetings where they would have the room of employees shouting like they were in a tent revival.

"You came out of one of Barksdale's all-hands meetings and you were like, 'I believe,' " said an ex-employee. "You really believed in the vision that he laid out, and you had a great feeling about your company."

But all of a sudden, Netscape employees found themselves part of a giant, slow-moving corporation. And a company led by the notoriously drab Steve Case to boot. But the differences between the companies ran much deeper than Case's Dockers and blue chambray shirts.

By the time AOL stepped in, Netscape had transformed from a Web browser and server software company into a hybrid of the Netcenter portal, enterprise and server software that basically provided e-commerce applications, and (oh yeah!) they still were (kinda sorta) a browser company.

AOL cared about one part of Netscape: the Netcenter portal. Technology schmechnology! AOL wanted a brand name to complement the weakness of its flagship -- which is that most AOL users only log on in the evening when they get home. Netcenter gave an instant inroad into the crucial "at-work" portion of the market.

As it has repositioned itself from an online service to a media empire, AOL has adopted what is known as a multi-brand strategy. That is, it keeps each of its subsidiaries as separate companies with separate identities and functions. AOL uses its flagship as its family-friendly full-service brand, while CompuServe is its discount brand. Similarly, AOL has kept the AOL Instant Messenger separate from the ICQ chat program -- even though the two do basically the same thing -- because they attract different audiences.

The multi-brand strategy will be increasingly important for AOL as it absorbs Time Warner, with its myriad brand names. Having Netcenter positioned for users in the workplace and small businesses fit perfectly into the strategy -- and was by itself worth the cost of the merger to AOL.

To the old-timers at Netscape, however, Netcenter was a means, not an end. Netcenter was there to bring in money that would allow them to make the technology they loved -- the technology that was changing the world.

"AOL always turned its nose up at technology -- what Netscape was trying to do," said an ex-Netscape executive. "The opportunity AOL had was to make Netscape the technology arm of AOL. As rich of a resource as Netscape was (for technology), equally notable is at AOL the lack of that resource. AOL had a hard time understanding how to best tap into it."

Even as AOL paid lip service to Netscape's technology -- naming Andreessen its chief technology officer -- it was nothing more than that. Lip service.

"All Andreessen got was a corner office -- Case thought Andreessen was an idiot," said Rob Enderle, vice president at Giga Information. "All they wanted is that Web presence. ... They got the (Netscape) name; they just had to figure out how to get rid of the people."

That turned out to be a pretty simple task.

The browser group had already basically spun off into Mozilla.org and was rapidly falling victim to the problems of the open-source movement -- which can be best summed up by the Chinese adage: "Too many captains will steer the ship up a mountain."

"If there's a cautionary tale here, it is that you can't take a dying project, sprinkle it with the magic pixie dust of 'open source,' and have everything magically work out," Zawinski wrote. "Software is hard. The issues aren't that simple."

As for the enterprise software group, they had become essentially employees of Sun Microsystems as part of the pact between the companies.

So what was left of the former Silicon Valley power center?

"It was worse than being dead -- call them the living dead," said Enderle. "You have to wonder, for the folks that stayed, what opportunity they saw."

More than a culture clash, the AOL merger brought with it an entire new world view -- and it was one that was diametrically opposed to the original Netscape philosophy.

"They were no longer in control of their own company," said Yoffie. "The heart and soul of the Netscape engineers' culture was to try to change the world through technology, not to change the world through media."

That difference made many feel that if they were to stay at the new Netscape, they were joining their old enemy.

"AOL is about centralization and control of content," Zawinski wrote. "Everything that is good about the Internet, everything that differentiates it from television, is about empowerment of the individual. I don't want to be a part of an effort that could result in the elimination of all that."

So the engineers left, and Netscape became a media company.

To that end, AOL President Barry Schuler hand selected James Martin to run Netcenter last June. Martin, with 15 years heading up business units for International Data Group and 15 years at Ziff-Davis, was the perfect candidate for the new media and marketing focus of Netcenter. And he and Schuler were old friends as well.

But through his tenure, Martin has been given little direction from his old crony. According to an ex-employee, Martin didn't even know whether he could call Schuler to ask for more direction.

The word "rudderless" has been used to describe the result.

In a sense, it wasn't Netscape the company that AOL really bought. What AOL purchased was a recognizable brand name it could use to fight its battles. This became extremely clear when, in an attempt to fight off the threat of free Internet access in England, AOL launched "Netscape Online" as its competitive free ISP. All AOL used from Netscape -- the company back in Mountain View, Calif. -- was its name. In fact, according to an ex-employee there at the time, the folks back home were among the last to know how their company name was being used overseas.

"Just like they were able to use CompuServe to blunt the free-PC battle," said Yoffie. "To a very significant degree what AOL saw themselves buying was a brand. The actual technology, the actual portal -- they were far less important."

The technology in the Netcenter portal was essentially stripped out and replaced with new technology from AOL Products -- such as the calendar features that are standard across all of AOL's properties. AOL Products, run by former Netscape Senior Vice President and General Manager John Paul, is universally hailed by Netscape alums as a last vestige of the old Netscape technology focus in the new company.

All of the history, and all of the changes, begs one simple question. What is the future of Netscape?

"The AOL acquisition of Netscape has actually been beneficial for Netcenter," said Tell me co-founder and former Netscape executive Angus Davis. "It's an online media company now. With AOL, that's been their business since Day One. ... It's been good in attracting people who have expertise in media."

And Netcenter is still a top destination -- the fifth-most visited site on the Internet, according to Media Metrix. Netscape's Open Directory Project -- which uses volunteers to compile a Yahoo!-like directory -- is now bigger than Yahoo!'s directory and is being used not only by the AOL sites, but by Lycos and others as well.

AOL recently announced that it plans to use the Netcenter portal to distribute content from its newly acquired Time Warner companies -- something it is barred from doing with its flagship AOL because of a contract with CBS. And it is not hard to see how that could quickly become a very profitable use of the many mergers.

"We're going to use the Netscape template as the template for all the Time Warner properties," AOL Interactive President Bob Pittman said at the Merrill Lynch analyst's meeting this week in New York. "The Netscape Open Directory platform will allow us to build the properties in a more robust way and at a lower cost."

As for the browser, AOL swears it will release a beta version of the long-awaited Mozilla browser within weeks -- merely two years overdue.

The question that perhaps no one can answer is whether Netscape -- which was in dire straits in 1998 -- would have any of this if AOL had not bought it. The company may not have survived on its own.

But for anyone who ever sat in a Barksdale "all-hands" meeting, none of that matters. The only thing clear is the Netscape they knew is gone forever.

"We did have something special there," said one alum.

And those who choose to wax nostalgic can say that, once upon a time, a group of engineers tried to change the world -- and succeeded. And they can remember the Internet before branding and huge corporations with multibillion-dollar market valuations ruled.

They can remember how on the day the final version of the Mosaic browser was launched in October 1994, the company had a total power outage. The lights, the televisions, the computers all were out. When the power came back that evening, they finally got the program on the server before their midnight deadline. They turned out the lights and watched 2 million people download the first commercial Web browser before the company had even posted an official announcement that it was there.

Someone rigged the computer to make a cannon sound every time a copy was downloaded, and they sat and listened to the explosions in the dark until The Wall Street Journal was delivered with a story about their launch.

"I'd go home now if I thought I could drive there without dying, so instead I'm going to curl up under my desk again and sleep here," Zawinski wrote in a diary entry that night. "Maybe we're not doomed; people on the Net are talking about Mozilla with all caps and lots of exclamation points. They're actually excited about it.

"I've just noticed that there's still purple ink on the inside of my right wrist spelling the word VOID: the hand-stamp from a concert that I went to last week. I left work, went to the show, and came back to work immediately afterwards. I've been here since."