Netscape's last big chance

Netscape Communications is on thin ice, and spring is fast approaching. The once auspicious Internet company must prove that it is financially viable and that it won't get pounded by Microsoft in the Web server market as it did with browsers. If not, Netscape will lose its remaining credibility with the IT managers whose dollars the company so desperately needs.

Netscape Communications is on thin ice, and spring is fast approaching. The once auspicious Internet company must prove that it is financially viable and that it won't get pounded by Microsoft in the Web server market as it did with browsers. If not, Netscape will lose its remaining credibility with the IT managers whose dollars the company so desperately needs.

"I'm kind of neutral right now," says Roger Walters, chief information officer at Booz, Allen & Hamilton, an erstwhile vaunted Netscape customer . "A lot is going to depend on how well it does in the next six to 12 months."

Netscape is in serious straits following events that dampened the enthusiasm of even its most ardent IT supporters. Those events include the following:

-- Layoffs, takeover rumors, an $UU88 million dollar fourth quarter net loss, preparations by key executives to sell off stock, and dim prospects for net profits in early 1998;

-- An unpredictable new strategy of giving away browser source code for free, and backpedaling from its June 1997 intentions to deliver by early 1998 Communicator 5.0, formerly code-named "Mercury";

-- Confused messages about the strategic roles of its Netscape Applications (formerly Kiva), Actra, and SuiteSpot servers lines, and the threat that Microsoft will corner the Internet/intranet server market with Windows NT 5.0; and,

-- Other shelved initiatives, including a "Javagator" Java browser for NCs, and an all-Java version of Communicator, an HTML Java-rendering engine code-named Gemini.

Each of these factors has had grim repercussions. Poor financials reduce stock prices, which makes Netscape's job of attracting talented staff more difficult. The financial uncertainty also makes IT managers' task of defending Netscape purchases harder.

Also, the specter of NT 5.0, which will include an HTTP engine, a Web development environment, caching, and enterprise directory services at no extra charge, makes some IT managers wonder why -- if they can get all those things in the operating system -- do they need to go to Netscape for them?

Issues such as these are behind the fact that 52%of IT decision-makers surveyed at 120 companies said that they would not even consider Netscape as a strategic Internet/intranet server provider during the next year, said John Dunkle, president of Workgroup Strategic Services, the Portsmouth, New Hampshire, consulting company that ran the survey.

That spells bad news for Netscape unless it can reverse the trend or find a white knight.

"Unless they get purchased by an IBM, Sun, or Oracle, they're history. That's my gut feeling," says Craig Lowenthal, vice president of IT at Reliance National Insurance, a Netscape browser and server customer, in New York.

Lowenthal said if a rescuer doesn't materialise, he expects Netscape products to remain on the market, but, like WordPerfect, to become marginalised.

Industry veterans attribute Netscape's problems not only to Microsoft's attacks, but also to a false sense of security, and perhaps hubris, that came from its triumphant 1995 stock offering and a reputation exaggerated by the digerati and its own executives.

"[Netscape officials] caused more damage through their arrogance and attitude and their challenging of Microsoft -- how absurd," says Murray Maloney, technical director at Internet-commerce start-up CN Group, in Palo Alto, California.

Others say Netscape grew so fast it didn't have time to build a service infrastructure needed to support its shift from browsers to enterprise server software, begun more than one year ago.

So far, Netscape's response has been defensive. In February, the company changed its fiscal year and will not report earnings until the third week of May, rather than in April. Last week, company officials privately suspended plans for the June developers' conference as they strategised. And this week, Netscape released free browser source code and reversed plans to ship Communicator 5.0 beta products.

The company hopes that the free source code will spur a war of freeware developers against the army of Microsoft developers. It's a war that does not have an obvious revenue stream, however. And before bestowing source code, Netscape must remove the previously licensed third-party technologies that add value to Communicator. In the meantime, some users fear that the freeware approach will result in a splintered browser.

In Netscape's defense, John Paul, senior vice president of Netscape's server product division, said that Microsoft doesn't have the same operating system monopoly on servers that it does on desktops, so it can't muscle into the market as easily. Also, Netcape offers unique products such as the Actra Internet-commerce and Kiva application servers. And unlike NT 5.0, Netscape's directory, commerce, and application servers are available now and operate on Unix and NT 4.x in addition to planned Windows NT 5.0 support.

"I think it will be a very successful enterprise software company in two years. ... It's a US$20 billion market for building products into, and we're a very well-known brand," Paul said.

Although Netscape is aiding the Justice Department's investigation of Microsoft, the company is not counting on government help to succeed, Paul added.

But Netscape's server strategy may be ahead of IT buyers' plans. The Cutter Consortium found in a recent survey that 45% of companies have not explored the cost/benefits of Internet platforms.

Before Netscape can make hay in the enterprise and ISP Internet/intranet server market, it must deliver favorable quarterly numbers; partner with a popular OEM, such as Compaq; improve its sales, service, and support infrastructure; and clearly spell out which of its numerous server products are truly strategic, according to users and analysts.

Currently, Netscape's confused server marketing causes many IT managers to use Netscape Enterprise Server as an HTTP engine and let the other elements of the technically strong SuiteSpot family gather dust, noted David Leveen, a principle at Cognitive Communications, an intranet company in New York.

"That removes any advantage of integration between Netscape's clients and servers," Leveen says.

Yet despite Netscape's problems, and the company's Herculean task of articulating and executing a new game plan, most experts aren't yet writing its obituary.

"The revenue picture is pretty weak at this time, but I don't draw the conclusion that they're terminal," says Mary McCaffrey, an analyst at BT Alex Brown, in New York.

Among Netscape's strengths are a talented staff, its solid technology, and a decent corporate customer base. Also, the company is making easy money off of its Web site, which earned $93 million in 1997.

Ironically, the company that pioneered Internet standards is now having trouble capitalizing on it. Netscape may never regain its former luster, but by acting quickly, it may yet salvage a role as a strategic IT partner. But the clock is ticking loudly.

Netscape will not be making money off of its browser anymore, but corporate users still want a stable Web desktop. Will Netscape provide one? It isn't likely, based on changes since June.

-- THEN: In June 1997, Netscape announced "Mercury" (Communicator 5.0), which was due early in 1998. Features included a client-side object store, a universal inbox, replication, roaming support, and fax and voice mail integration.

-- NOW: This week, officials declined to comment on Communicator 5.0 features, due date, or even level of resources devoted to it. Rather, they say Netscape will publish source code March 31. Then, unknown features of Communicator 5.0 will emerge from public entities, for delivery in an undetermined timeframe.

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