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Monday, July 8, 1996
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[Image] THE CUTTING EDGE
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[Image] Dominance
[Image]AP Microsoft, Netscape Battle for Net
BUSINESS Dominance
INTERNET By JULIE PITTA, Times Staff Writer
ACADEMY
ΚΚΚΚΚThe atmosphere is a bit tense
TIMES PICK these days at the Netscape
Communications Corp. campus here, and
SPECIAL it's not hard to see why: The
REPORTS 2-year-old upstart, despite its
remarkable success in establishing its
FRONT PAGE software as the standard for the
[Image] Internet, is now entering the critical
NATION & phase of a life-and-death struggle with
WORLD Microsoft Corp.
[Image] ΚΚΚΚΚ At stake is nothing less than
STATE & control over software standards for the
LOCAL Internet--and the powerful influence
[Image] over a wide range of next-generation
SPORTS computing technologies that such
[Image] control would bring. Until recently,
BUSINESS & Netscape enjoyed a comfortable lead,
TECHNOLOGY but Microsoft, making an impressive
[Image] recovery from some early stumbles, is
LIFE & quickly closing the gap.
STYLE ΚΚΚΚΚ In the past six months, Microsoft
[Image] has released three new versions of
CALENDAR Internet Explorer, its "browser"
[Image] software for the World Wide Web, with
COMMENTARY the latest considered by many analysts
[Image] to be nearly as good as Netscape's
WEEKLY Navigator. It has boosted its share of
SECTIONS the browser market from close to zero
[Image] to 7%, according to the market research
firm Dataquest, and stands to gain even
more via an agreement making Internet
Explorer the preferred browser on
America Online.
ΚΚΚΚΚ
ΚΚΚΚΚ Microsoft is giving away its
Internet "server" software for Internet
host computers--where Netscape had once
hoped to make most of its money--for
free to anyone who buys its Windows NT
software operating system, thus
threatening one of Netscape's most
important long-term profit centers.
Netscape shares dropped $4 last week to
$58.25 on investor fears that earnings
will fall short of expectations.
ΚΚΚΚΚ And more generally, the Redmond,
Wash.-based giant has vowed to use
every arrow in its overstuffed
quiver--most importantly, the immense
and growing base of computers that use
its Windows operating system--to defeat
one of the few companies that could
seriously damage its sprawling empire.
ΚΚΚΚΚ "Look, they caught us by surprise
at a time when we were very busy,"
Steve Ballmer, Microsoft senior vice
president, says of Netscape. "But we
came from behind--far behind--in
spreadsheets and word processors, and
look where we are today. In Internet
time, they are not that far ahead."
ΚΚΚΚΚ At Netscape, whose second-quarter
sales of $55 million were about
one-fortieth those of Microsoft, the
tone is simultaneously dismissive and
defensive. "Everything Microsoft does
is to boost Windows or Back Office
because that's where the money is
coming from," says Netscape co-founder
Marc Andreessen. "But that cripples
their ability to compete."
ΚΚΚΚΚ Netscape President Jim Barksdale
strikes a less combative note: "I don't
know why they think they need to put us
out of business to be successful," he
says. "We're just a small outfit
compared to a company with the size and
breadth of Microsoft."
ΚΚΚΚΚ As the two companies battle for
market share--and for the nebulous but
important psychological edge that's
known in the business as
mind-share--they're running every play
in the marketing book.
ΚΚΚΚΚ On the day Netscape was holding
an important technical briefing last
month, for example, Microsoft manager
Michael Hebert was phoning reporters
and vowing to expose "the Netscape
myth."
ΚΚΚΚΚ "Netscape is trying to build a
really broad set of products with a
small group of engineers," Hebert said
conspiratorially. "They really don't
have good quality-assurance procedures
in place."
ΚΚΚΚΚ *
ΚΚΚΚΚ When pressed, though, Hebert
couldn't cite any examples of faulty
products having slipped through
Netscape quality control. "I don't want
to give any specifics because to be
honest, I don't know of any," he
conceded.
ΚΚΚΚΚ Microsoft recently hired a
little-known market research firm to
"prove" that Netscape's browser is not
as popular as commonly thought.
Predictably, the Microsoft-commissioned
report put Netscape's share at 60%
rather than the roughly 80% reported by
the top market research firms like
Dataquest.
ΚΚΚΚΚ Netscape quickly lashed back with
its own study, which determined that
its browser was not only the Internet
leader, but the most popular single
piece of computer software of all time.
Both companies posted their findings on
the Web, where they joined a set of
warring white papers that each uses to
tout its own products and strategies
while denigrating their rivals'.
ΚΚΚΚΚ More concretely, Microsoft scored
a coup with the America Online deal,
under which Internet Explorer will be
the preferred browser for more than 5
million AOL members, in exchange for
Microsoft's giving AOL a preferred
placement in Windows 95. No one was
more surprised by that agreement than
Netscape, which had tried to cut a
similar deal with AOL, even offering a
board seat and an equity investment.
ΚΚΚΚΚ "When something like this
happens, you find out who your real
friends are," Andreessen said
afterward.
ΚΚΚΚΚ *
ΚΚΚΚΚ Still, Netscape retains some
formidable strengths. The company has
in effect pioneered a whole new way of
operating in the software business,
improving its products on almost a
weekly basis and posting the new
versions on the Internet, rather than
working months or even years on major
new releases. The notion of a finished
piece of software packaged it in a
colorful box--Microsoft's specialty--is
slowly becoming passe.
ΚΚΚΚΚ That has helped Netscape to stay
ahead of its rival with a superior set
of products. And it also boasts a
strong relationships with the software
companies that are developing new kinds
of products and services for the
Internet.
ΚΚΚΚΚ "They've been in this business
for two years, and they've learned what
these people need," says Chris LeToq, a
market researcher at Dataquest.
ΚΚΚΚΚ Although browsers are
important--Netscape gets about 60% of
its revenue today from Navigator--much
of the money in the future will be made
in selling server software, which is
used to create Internet Web sites and
to build the internal corporate
networks known as intranets.
ΚΚΚΚΚ A recent study conducted by
Forrester Research of Cambridge, Mass.,
indicates that 89% of Fortune 500
companies plan to set up an intranet
sometime during the next year. Of those
who have done so already, two-thirds
have purchased Netscape's server,
according to International Data Corp.,
and some observers think Netscape has a
good shot at retaining that share.
ΚΚΚΚΚ "While Microsoft is just getting
up to speed on the Internet, Netscape
is drilling down with very specific
solutions for vertical markets," says
Hamish Forsythe, a vice-president at
mFactory, a designer of multimedia
development tools.
ΚΚΚΚΚ In the long run, Netscape's
success may depend on whether the
Internet really results in a whole new
way of computing, one that renders the
high-powered desktop computers of today
less important as more and more
functions migrate to the network.
ΚΚΚΚΚ Companies, including Sun
Microsystems, Oracle Corp. and Apple
Computer, are developing low-cost
"network computers" designed
specifically for surfing the
Internet--and such machines will
essentially use an Internet browser
instead of Windows.
ΚΚΚΚΚ But whether network computers
will ever catch on is a matter of
heated debate. In the meantime, few are
willing to predict whether Netscape
will be able to hold off its formidable
rival. Fewer still envy the task.
ΚΚΚΚΚ Julie Pitta can be reached via
e-mail at Pittaj@aol.com
ΚΚΚΚΚ
Copyright Los Angeles Times
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