forbes.com
Reclaiming the Web
By Nikhil Hutheesing
NETSCAPE'S MARC ANDREESSEN, still only 27,
was an early winner and early loser in the
Internet. He discovered the dark side of success
when Microsoft, envious of his success selling
browsers, started giving them away. "A market
cap of $6 billion is like blood in the water—the
sharks come straight at you," he laughs. "We
learned a lesson: not to compete directly with
Microsoft."
Netscape enjoyed the glow of a $6 billion market
capitalization for a brief moment in 1995. The
market cap is now down to $2.4 billion.
Andreessen's paper net worth is off from a high of
$170 million to $15 million.
When Microsoft began the browser giveaways in
January, that was the end of Netscape's main
revenue stream, worth $200 million a year.
Andreessen, cofounder and chief technology
officer of the Mountain View, Calif. firm, now pins
his hopes on another line of business—one he says
was part of Netscape's game plan from the start.
He's going to sell software for electronic
commerce, capturing a sliver of the transaction
volume that, according to Forrester Research,
should climb from $8 billion in 1997 to $327 billion
in 2002.
"What we want to do," says Andreessen, "is help
every chief executive in the world who is looking
at Amazon.com and Dell and saying, 'Oh, my God,
how do I do E-commerce?' "
Note that he doesn't want to get involved in
Internet retailing himself. "Amazon.com built a
huge market cap very easily," he notes. "So easily
that anyone else can do it, too." Instead,
Andreessen wants to work in a field so
idiosyncratic that outsiders cannot quickly master
it: getting different brands of corporate software to
collaborate over the Web.
The corporate software in question is called an
enterprise resource planning system—a master
plan for running a business. It might, for instance,
assess plant capacity to see whether you can fill
an order, purchase necessary supplies, assign
labor, determine shipping dates, demand and get
payment on time, account for everything.
Yet you lose half the benefit of this tightly woven
web of software if you can't share data with your
suppliers and customers. You probably can't,
because often one enterprise resource planning
package can't converse with another. Why?
Because vendors such as SAP, Oracle, Baan and
PeopleSoft care more about winning market share
than about setting communications standards.
Netscape's solution begins with a specialized
computer called an application server. The server
manages Netscape's programs as well as any that
the companies might choose to develop
themselves. It also manages traffic, so that too
many people don't log on at once, causing a crash.
These housekeeping capabilities came a year ago,
when Netscape acquired Kiva Software for $153
million in stock.
Kiva's founder, Keng Lim, was one of the first to
centralize the functions in a server. Although this
idea is just a year old, many other companies are
hastening to copy it (see A killer app for servers).
Netscape spent the past two years developing the
applications that access the server with General
Electric. Last December, Netscape bought out
GE's investment for $50 million. Now it has
CommerceXpert, which provides transactional
software—mainly buying and selling.
The software sets up commerce channels
between big companies and their small-fry
suppliers and translates the babble of enterprise
resource planning languages into an Internet lingua
franca. It uses its knowledge of how your
corporate system tracks things to put the data in
the right format.
Another critical element is security. Netscape
handles it with a specialized device called a
directory server. It keeps tabs on passwords and
such with help from algorithms designed by
Timothy Howes while he was earning his Ph.D. at
the University of Michigan.
"The opportunity for this kind of software is just
exploding, similar to the way enterprise resource
planning applications started exploding five or six
years ago," says Andreessen.
So far Netscape has produced customized Web
commerce packages for companies in a wide
variety of industries. Clients pay up to $500,000 for
this stuff. In May, Citibank decided to use the
software to craft Internet products, such as bills,
that would fit the disparate computer systems of
its corporate customers.
John Hancock Mutual Life Insurance Co. is
installing the software so that any of its 7,000
employees can requisition supplies. Visteon
Automotive Systems, an auto components supplier
wholly owned by Ford Motor Co., uses Netscape's
software to sell parts to 57 companies. Who
stands to lose? The guys who ship data over
proprietary networks: GE Information Services,
Harbinger and IBM Global Networks. They all
charge tens of thousands of dollars to connect to
their networks, plus anywhere from 25 cents to
$1.50 per transaction.
Netscape is killing their business. In September,
IBM put its data network on the block. In May, GE
Information Services effectively transferred the
maintenance of its network to WorldCom.
Netscape took a while to hit on a good strategy. In
November 1995 it jumped into the groupware
business, acquiring Collabra Software for $185
million in stock. That failed when IBM and
Microsoft fiercely protected their groupware
products—Lotus Notes and Microsoft Exchange.
In the summer of 1997 Netscape jumped into push
technology with a product called Netcaster. Push
turned out to be a dud. Netcaster flopped.
The heaviest blow of all came in last winter's
browser war, when Andreessen had to lay off
some 400 employees.
Of course, there is no guarantee that Netscape
will be successful this time. Security glitches, such
as the recent discovery that Netscape's browser
could allow an outsider to read information on a
PC, could drive customers away.
There's enough blood in the water to attract a few
competitors. IBM provides transaction software for
the Web. Open Market, Ariba and Commerce
One offer bits and pieces of Netscape's enterprise
software system, according to Marc Usem, an
Internet analyst at Salomon Smith Barney.
"Netscape really stands alone in this space," he
says, "in part because the software scales better
than the rest, and that gives Netscape an edge."
Andreessen points to another advantage:
Netscape's good name on the Internet. Its Web
site—www.netcenter.com—is right up there with
such other portals as Yahoo!, America Online and
Excite, with nearly 20 million people visiting the
site every month. One day, suppliers and
customers may well go there to find one another.
Andreessen's efforts are already reaching the
bottom line. Sales of Netscape's enterprise
software jumped 16%, to $112 million, in the
quarter ending in July. Sales from advertising and
partnerships on Netcenter jumped 24%, to $39
million, and the company eked out net income of
$88,000.
Andreessen, once touted as the next Bill Gates,
has come down in the world since then. He has a
plausible—but far from ironclad—plan for coming
back up. |
