Netscape Communications Turn
Essay Preview: Netscape Communications Turn
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August 8, 1995 had taken an unexpected turn for Netscape Communications Corporations board of directors. Earlier that morning, the day before the companys scheduled initial public offering (IPO), Netscapes lead underwriters proposed to the board a 100% increase in the original offering price from $14 to $28 per share.
Netscape Communications Corporation was founded in April 1994. The companys most popular product, Netscape Navigator, was the leading client software program that allowed individual personal computer (PC) users to exchange information and conduct commerce on the Internet.
Netscape generated service revenues, which were attributable to fees from consulting, maintenance, and support services.
The company expected to continue to operate at a loss for the foreseeable future. At the end of the second quarter of 1995, Netscapes principal sources of liquidity were $8.9million in cash and the $16.6million in short term investments. The company expected total capital expenditures for 1995 of approximately $12 million.
The demand for Netscapes products had evolved out of the development of the Internet in the late 1960s. According to International Data Corporation (IDC), in mid-1995 there were approximately 57 million Internet users. Of those 57 million users, IDC estimated that approximately 8 million were accessing information on the World Wide Web.
The Web consisted of a network of Web servers that posted information in a common format described by the Hypertext Markup Language (“HTML”). Internet users were able to access information on the Web by implementing the appropriate Hypertext Transfer Protocol (“HTTP”).
At the University of Illinois at Urbana-Champaign, a group of computer science students working at the National Center for Supercomputing Applications (NCSA) developed the graphical software program that gave rise to the notion of “surfing.” Named NCSA Mosaic, the software program enabled nontechnical users to access and retrieve information on the Web.
In April 1993, the founders of Mosaic, under the leadership of then senior Marc Andreessen, began distributing the software for free to anyone who had the technical means to fetch it electronically. The superb results of these strategy-two million Mosaic users within one year-made for more than cocktail conversation among high-tech gurus in Californias Silicon Valley.
Later on Andreessen and SiliconValley formed the launching pad for Mosaic Communications, which was shortly renamed Netscape Communications Corporation. In addition to dropping the Mosaic name, Netscape paid Spyglass (the company that had engaged in an exclusive licensing arrangement with the University of Illinois) a one-time $2.4 million fee for the rights to certain Mosaic code. Netscape made its entrance into the highly dynamic Internet market.
To set a new standard, Netscape had to create a program that would destroy Mosaic, which in 1994 wielded 60% of the Web browser market. Having set the industry standard, Netscape was poised to make money by selling server software to companies that wanted marketing access to potential consumers.
Netscape was the indisputable leader of its kind. Netscape faced potential competition from new entrants in the Web browser, server and service markets, PC and UNIX software vendors, and on-line service providers. Spyglass, Inc. was Netscapes