Cyberspace Showdown

It's Netscape vs. Microsoft-with the Net's future at stake

Aside from getting a reading on technology issues, Bill Clinton didn't have a formal agenda when he flew into Silicon Valley on Sept. 11 to dine with eight technology-business leaders. But even before he got to the entree--aged beef tenderloin with chanterelle mushrooms--the President had zeroed in on the biggest battle in cyberspace: Internet upstart Netscape Communications Corp. vs. software giant Microsoft Corp. "He wanted to know what our strategy was," recalls Netscape Chief Executive James L. Barksdale, one of the guests.

That the contest caught even the President's eye underscores just how seminal it is: This battle is for nothing less than the soul of the Internet. Microsoft Chairman Bill Gates wants to steer the Net in a direction that will let it maintain its software hammerlock. Netscape--with a little help from some friends--aims to bust it open and create a new rival to Windows out of its Web browser and related software. The outcome could determine the nature of cyberspace for the next decade.

"NO CHANCE." That's why Barksdale's strategy is simple: Hit 'em with everything we've got. And although Clinton had no apparent role in it, Netscape got a helping hand from the Justice Dept. on Sept. 20, when its Antitrust Div. renewed a dormant probe, this time eyeing Microsoft's Web browser business. Microsoft denies any illegal behavior. But the news still gave Netscape, which had complained to Justice on Aug. 12, a much-needed boost, sending its stock up 12%, to 50 7/8.

To hear some industry observers tell it, it's a moot point: With its ownership of the PC desktop and its financial and technical might, Microsoft will soon turn the 2 1/2-year-old Silicon Valley startup into toast, they say. Already, Microsoft has caught up technically with Netscape on Web browsers, at least those running on Windows 95. And it can afford to give away for free the browser and other basic Net software that Netscape makes a living selling. Later this year, Microsoft will unveil a new browser melded so seamlessly into Windows that it could make Netscape's cash cow irrelevant. "Netscape has no chance," says Lawrence J. Ellison, chief executive of software maker Oracle Corp. "They will be wiped out."

Yet a legion of Netscape believers disagrees. Unbowed by Microsoft's nearly year-old assault on the Net, Netscape is throwing every legal banana peel, technology brick, and marketing brickbat it can in Microsoft's path. And surprisingly, many are finding their mark. Netscape is expected to be profitable this year on some $300 million in sales, up from $81 million last year. In browsers, Microsoft's latest Internet Explorer is gaining: Its market share doubled, to 8%, in the latest quarter, says Zona Research Inc. But Netscape's Navigator browser is still way ahead with an 83% share and 40 million copies distributed, though it seems sure to lose ground as Windows 95 takes off.

SERVER WARS. That doesn't bother Barksdale. Although the browser war has grabbed most of the spotlight, it's simply the means to a more lucrative end. The real war, says Barksdale, is being fought over the $10 billion he expects corporations to spend on Internet software by the year 2000. As companies set up their own "intranets," linking employees, partners, and customers, they'll need lots of Web "server" software. "That's where the money is," says Barksdale.

Netscape's corporate focus seems to be paying off: 80% of its revenues come from corporate customers, such as Chrysler, 3M, and AT&T. But more than half of that revenue still comes from browser sales. And Netscape is going up against some tough competition. Its main intranet opponents--Microsoft, with its BackOffice suite of business applications, and IBM, with its Lotus Notes group discussion software--have been perfecting their programs for years and are now extending them to work on the Net.

To press its advantage while it can, Netscape has released a blizzard of Web server software packages, priced from $300 to $4,000, to run Web sites from online storefronts to internal discussion groups. Microsoft's server offerings are still fairly limited, one reason it has been buying up Net startups with key technology. Another big plus for Netscape: While Microsoft's products run mainly on Windows, Netscape's work on most major operating systems--a key advantage for large corporations that use a diverse mix of computers.

Netscape is also furiously reinventing Navigator to become not just a way to browse the Web but a more complete "platform" on which to run all manner of programs. A new Navigator, to be previewed in mid-October, will allow people to engage more easily in discussion groups without the need for full programs such as Lotus Notes. It will also let them create multimedia E-mail messages and their own Web pages. The aim: to keep folks installing Navigator--and buying Netscape servers.

Still, Netscape's go-go pace may yet trip it up. Internet Travel Network founder Daniel Whaley says Netscape can't keep up with demands for technical support. Meanwhile, Netscape's technology road map is rife with potholes. Add-on programs to Navigator, called plug-ins, are cumbersome to install compared with Microsoft's comparable ActiveX programs. Netscape is counting on Java, the programming language from Sun Microsystems Inc., eventually to make it even easier to download programs automatically.

Aware of its shortcomings, Netscape is forging alliances. From Sun and Sprint to Hewlett-Packard and IBM, "Netscape has become the magnet of lots of other strong companies against Microsoft," says Henry R. Nothhaft, CEO of Internet-service provider Concentric Networks Corp. Adds Barksdale: "A lot of people are pulling for me."

Maybe so, but Microsoft, with its more than 100 million Windows users, still commands the attention of a key constituency: software developers. So on Sept. 9, Netscape launched an online showcase that it hopes will lure developers to the Netscape platform. Called AppFoundry, it lets customers download free trial versions of business software programs from the Netscape Web site. The number of programs is expected to grow from 15 to 100 by yearend, but that pales next to the more than 50,000 packages that run on Windows.

When it comes to markets Netscape doesn't have the time or expertise to pursue, it is expanding through joint ventures. In August, for instance, it formed Navio, a company backed by eight consumer electronics companies, including Sony Corp. and Nintendo Co., that will produce software for new Net-connected consumer devices. That frees up Netscape to concentrate on the corporate market.

If that didn't require chutzpah enough, Netscape is challenging Microsoft in marketing, too. Last April, it unveiled a new intranet strategy a day ahead of an intranet briefing planned by Microsoft. More recently, Netscape one-upped Microsoft's plan to offer Internet Explorer users free subscriptions to major online publications by offering Navigator users their own free subscriptions--delivered in full multimedia to their E-mail boxes.

In the end, Barksdale argues, the potential for Internet software is so huge that both Netscape and Microsoft could win big. "Netscape comes back punching," says Gartner Group Inc. analyst David Smith. So it does. But it's been a long time since even the nimblest counterpuncher really laid a glove on Microsoft's wily chairman.

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