A thunderbolt in Silicon Valley

After navigating a path to Internet stardom, Netscape finds itself threatened by a familiar rival. David Bowen reports

Wired-up clients of the Royal Bank of Scotland were delighted to learn 10 days ago that they can now run their accounts through the Internet. By dialling into the World Wide Web on their computers, they are now able to move money around, check a balance or pay standing orders.

RBS is the first British bank to offer an Internet banking service and the announcement was widely noted. Less noted were the ramifications of the deal for one of the most glamorous stocks ever. To use the system, RBS says, customers have to use computers running Windows 95 and an Internet Explorer "browser" - the software that allows you to use the World Wide Web. Both are Microsoft products. Surfers with Netscape Navigator, by far the most popular browser, are excluded: they need to "download" Microsoft's Explorer (for free) and use that instead.

If this is a minor inconvenience for the customers, it is more than that for Netscape, the phenomenon that symbolises the great Internet share rush. It is also a blow for Netscape's chairman, Jim Clark, who has seen the value of his holding fall by $630m in the past year (enough to buy The Body Shop). He could probably scrape along on the $585m his shares are still worth - but how long will that last? Deutsche Morgan Grenfell and Merrill Lynch have both downgraded the stock and some analysts are daring to ask the Big Question: Could Netscape, which was born on 4 April 1994, already be past middle age?

When Netscape's prospectus was published in July 1995, shares were priced at $12. This was doubled for the float the next month and by December the stock was worth $85. That was when market capitalisation hit $6.6bn - more than British Steel's or British Aerospace's - even though its turnover for the year, $85.4m, meant the American firm was smaller than the 1,000 biggest UK companies.

Since then Netscape has grown at a hectic pace. Last week it announced turnover for the fourth quarter of 1996 of $115m - 177 per cent up on the year before. Sales for the whole year were $346m and the company managed a modest profit of $20.9m.

Anywhere but Silicon Valley this would be a mark of wild success. But there is little elation in Mountain View, California, because the company's 1,500 employees know they are on the defensive. A year ago they had the Internet world by the short and curlies - the vast majority of browsers were Navigators and Netscape was moving rapidly into the new and exciting intranet market (internal computer networks that use Internet technology). The company was attracting the best talent in Silicon Valley and was introducing upgraded software every few weeks. It epitomised the fast forward world of the Internet where a "Web year" was about three weeks. Its technological genius, 24-year-old Marc Andreessen, made it onto the front page of all the business glossies.

Then Microsoft started to move. Bill Gates, previously a sceptic, decided the Internet was the technology of the future. He saw how successful Netscape was and noted that his own attempt at getting into the online world with the (non-Internet) Microsoft Network had been disastrous. He poured resources into Internet software and gradually closed the technological gap. "I used to always hear Netscape was better," says Chris Champion of the consultancy Yankee Group. "Now, sometimes you hear Netscape is better, sometimes Explorer."

Gates was not afraid to use his clout. Microsoft made deals with a string of telecom and Internet service companies in the United States and Europe. This ensured consumers were offered Explorer as their "default browser" and meant that when these companies were installing intranets, they would include Microsoft technology.

The RBS system illustrates another kind of deal. RBS says it chose to go with Microsoft on technical grounds but the relationship is cosy: bank customers get a discount when they buy some Microsoft software.

Perhaps most powerfully, Gates' giant has been incorporating Explorer in new versions of Windows. It will be a central feature of this year's release, Windows 97.

Not surprisingly, Netscape's hold on the market has been weakened by the onslaught. Last week a "browser census" of companies, by Zona Research, showed that 70 per cent use Netscape Navigator as their main browser, against 28 per cent who use Microsoft's Internet Explorer.

This sounds healthy enough for Netscape, until you consider that in August its share was 83 per cent and Microsoft's was only 8 per cent. At that rate of change, it will be a matter of months before Explorer has overhauled Navigator. What happens then? "It's possible Netscape could be steamrollered," one New York analyst says. Mr Champion is more optimistic, but is hardly bullish. "I would think Netscape would hold on to a 30 per cent share," he says.

No analyst has yet dared to put a "sell" rating on Netscape - the effect on the hyper-valued Internet sector would be disastrous. Some remain positive about the company, believing that the market is growing so fast that it must be able to increase profits, at least in the all-important short term.

But the information technology industry is increasingly negative. "I can't see why anyone would specify Netscape now," one consultant says. Keith Mallinson of Yankee Group makes the killer comparison, predicting: "It could end up being the Apple of the Internet market." Apple once dominated the personal computer market but has seen its share squeezed relentlessly by Microsoft-driven machines. The browser market is even more dangerous, Mr Mallinson says, because there may be room for only one player. "Netscape is number one now, but if it becomes number two it could lose it completely," he suggests.

Eric Broussard, Netscape's marketing manager for Europe, remains positive, but admits that Microsoft is a huge threat. "We think about it every day," he says. The company's strategy is to build its own alliances (with IBM for example) and to move into areas where it believes Microsoft will not follow - in particular, supplying Internet software to companies that use Macintosh or other non-Windows systems.

Internet Explorer is being incorporated into new versions of Windows so it would not, Netscape hopes, make sense for Gates to bother chasing this market. But if the folk from Mountain View are too successful, won't Microsoft once again turn the steamroller towards them? "That is a valid question," Mr Broussard admits.

The problem is that Microsoft could attempt to convert the Internet from an "open" system, which works on all computers, to a semi-closed one that works best with Windows and Internet Explorer. The RBS system needs software called ActiveX, but ActiveX is a proprietary Microsoft tool, which is why Netscape cannot include it in its own browser and why RBS customers cannot use Navigator.

Netscape desperately wants Microsoft to publish ActiveX as an open standard. "If it doesn't publish, there is a danger the Internet will become proprietary," Mr Broussard says.

It would, however, be premature to write Netscape off just yet. Apple has hung on partly because of its technology but also because it has one huge advantage over Microsoft: it is not Microsoft. Hatred of Gates is a widespread condition among the techo-community: it could be enough to make sure Netscape is allowed to survive and possibly even flourish.

Start your day with The Independent, sign up for daily news emails
News
Ben Little, right, is a Labour supporter while Jonathan Rogers supports the Green Party
general election 2015
News
The 91st Hakone Ekiden Qualifier at Showa Kinen Park, Tokyo, 2014
news
Life and Style
Former helicopter pilot Major Tim Peake will become the first UK astronaut in space for over 20 years
food + drinkNothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
News
Kim Wilde began gardening in the 1990s when she moved to the countryside
peopleThe singer is leading an appeal for the charity Thrive, which uses the therapy of horticulture
Sport
Alexis Sanchez celebrates scoring a second for Arsenal against Reading
football
Life and Style
health
Voices
An easy-peel potato; Dave Hax has come up with an ingenious method in food preparation
voicesDave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
News
i100
News
Japan's population is projected to fall dramatically in the next 50 years (Wikimedia)
news
Life and Style
Buyers of secondhand cars are searching out shades last seen in cop show ‘The Sweeney’
motoringFlares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own