In part one we briefly talked about the development of the internet and, particularly, how Netscape became synonymous with the web, bringing millions of people online. With its excellent performance, earliness to market, publicity and availability of funding from inception, Netscape Navigator quickly became everyone’s first choice browser. At its peak it enjoyed over 90% market share. But, as we pointed at the end of part one, there was one lurking nightmare and it was about to come true not long after it’s IPO.
“Once the Whitewater people, the senators—once they heard you could delete files; man, they had to have it. They had to have it, and they put it right through!”
--Jay Leno -
The quote above was a joke by Jay Leno, one of the most revered TV hosts and comedians, at Windows 95 launch in 1995. Jay was joking about how [even] legislators were excited about and eager to approve windows 95 once they heard that—for the first time—windows 95 had a trash/bin recycle system. You could delete things (you didn’t want people to find) from your computer!
Windows 95 launch was special for Microsoft, and it is also one of the most significant launches in history of technology. Like Netscape Navigator on internet, the new operating system was designed with regular people in mind. Earlier computers and operating systems were not intuitive, they required training even for basic functions. Therefore, Windows 95 focused on user-friendly interface for the average user, with key new features such as start button, taskbar and “plug-and-play”*. And this revolution in computers perfectly coincided with the booming of the internet. With an easy-to-use computer and browser, average people could now surf the internet.
Unbeknownst to anyone, Windows 95 launch came with another surprise offer to users. Not long before the launch, Microsoft realised that the internet was growing rapidly and soon they might become obsolete if they didn’t make a move. Before then, you would be right to say that Bill Gates didn’t even think that an average computer user would ever have much use for the internet. However, seeing Netscape’s early success, the explosive public interest, and the $30 million acquisition of BookLink by Microsoft’s competitor in online services, AOL, Bill Gates made a quick turn in strategy. Around 1994-1995 Microsoft rolled up its sleeves and rampantly worked on its browser, Internet Explorer, which would be allocated about $1.5 billion in research and development. The biggest caveat, however, was time. They feared that if they waited long, Netscape would completely dominate the market and become difficult to beat, and they also wanted to launch the browser as an add-on to windows 95. To accelerate things, Microsoft ended up making a commercial deal with Spyglas to use Mosaic’s code for Internet Explorer. As you would guess, the initial product was nowhere close to Netscape Navigator in functionality. It was like a Frankenstein, patched together just to show the world that they were in the game. But it worked—despite lawsuits and trademark infringement claim from different companies that followed.
Microsoft continued to iterate and improve on its Explorer immediately after. The browser quickly grew its market share from nothing in 1995 to 20% in 1996 and about 90% by 2001.
There are two main advantages that helped Microsoft achieve this:
1. Dominance in operating systems: Microsoft controlled about 70%-90% of computer operating systems, meaning most computers in use had its operating system and they could easily pre-install their Internet Explorer browser. They even threatened to cancel the windows 95 licenses with some computer manufacturers like Compaq if they refused to have Internet Explorer icon on the Windows desktop when Netscape tried to negotiate deals with them.
2. Size and muscles mattered: Microsoft was a 20-year-old company with over $5.9 billion in revenue in 1995, compared to a less-than-two-year-old Netscape with about $20.8 million in revenue the same year. Although Netscape was experiencing explosive growth, it was limited in cashflow and how much cash it could burn. Additionally, Netscape generated most of the revenue from browser sales to corporations. Therefore, when Microsoft made Internet explorer free, that was a massive hit to the young company which could not justify its charges. Microsoft’s size and power also enabled it to make big strategic (maybe ruthless) moves with big players like AOL, CompuServe, AT&T and NETCOM--blocking Netscape from striking any major deal.
This chocked the young company and its ability to continue growing at the same rate. Netscape tried to expand its product offering and iterated business models in commerce servers for corporate customers, but lost its vision and the team their minds in the process while Explorer kept eating their market share. On 24th November 1998, AOL announced it would acquire the company for $4.2 billion. And as everyone feared, neither cultural integration nor product enhancement worked for the merged company. Netscape’s downward trend continued until its defunct in 2003.
While the whole browser war going on, though, many companies across different industries were emerging. Internet was disrupting every business from media and marketing to commerce. The internet had become the binding element of different technologies, people, places, and businesses. And fuelling this was the availability of capital from other successful founders and venture capital firms flowing in to anything dot com, ultimately leading to the dot com bubble. Let’s navigate this evolution in part 3.
*Plug and Play (PnP) Plug and Play (PnP) is the part of Windows that enables a computer system to adapt to hardware changes with minimal configuration or intervention by the user.
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