Lessons for Google in Netscape downfall

It’s been 10 years since the initial public offering (IPO) of ill-fated Internet pioneer Netscape Communications Corp., and the often-told story of its rise and fall has inspired inevitable comparisons to the industry’s current darling, Google Inc.

Like Netscape, Google had a wildly successful IPO, created a mainstream technology for optimizing Internet use and, as a result, has Microsoft Corp. gunning for them in the same way it went for Netscape’s jugular.

And though the Internet landscape today is vastly different than the one that Netscape forged a decade ago, Google could learn a thing or two about how to do battle with the software giant in the coming years by taking a look back at the browser pioneer’s defeat.

Microsoft Chief Executive Officer Steve Ballmer has made no bones about the software giant’s quest to squash Google the way it buried Jim Clark and Marc Andreessen’s baby in the 1990s. After the Netscape Navigator browser introduced millions of users to the Internet, Microsoft one-upped Netscape by integrating its Internet Explorer browser into its Windows operating system (OS), forcing the browser startup to scramble for a new business model. Eventually, America Online Inc. bought Netscape, and the Netscape browser technology now resides in the Mozilla Foundation project as the open-source Firefox browser, which, ironically enough, is making a comeback of sorts against Microsoft Internet Explorer.

“What do we want? More than anybody else has,” Ballmer said recently about Microsoft’s battle against Google in the search market. “We are going to invest: we’ll invest in R&D, we’ll invest in sales and marketing, we’ll invest in advertising, we’ll do what it takes [to win] on this front.”

It seems unlikely that Microsoft will usurp Google’s position at the top of the search space anytime soon. New data released Wednesday by Hitwise Pty. Ltd., an online market researcher, show that Google claimed 59.2 percent of searches across all major search engines in July 2005, a 14 percent increase in share versus a year ago. On the contrary, MSN Search captured only 5.5 percent of searches in the same month, lagging far behind second-place Yahoo Search, which captured 28.8 percent of searches in July.

Still, there are lessons for the Mountain View, California, search company to learn from the demise of Netscape, whose browser laid the groundwork for Google’s present success. And chief among them is that Microsoft, with its billions in the bank, deep talent pool and reputation for trampling any company that threatens its core business, is not a force to be underestimated.

“Never take Microsoft for granted,” said Joseph Laszlo, a research director at Jupiter Research. “Google is kind of a funny company in a lot of different ways, and one of them is it tries to run itself as if it’s not a typical company. But I think where Microsoft is concerned, it’s worth thinking as much like a big company as possible in order to understand why Microsoft does what it does and to effectively compete with them. [Google] should try to put itself in Microsoft’s head.”

Microsoft’s reasons for wanting to win the search engine wars are much the same as they were for winning the browser wars, according to another Jupiter analyst. Google’s search technology, like Netscape’s browser before it, threatens Microsoft’s precious Windows operating system.

“Microsoft was worried about the World Wide Web [because] you had the browser and no Windows required,” said Joe Wilcox, senior analyst for Jupiter Research. “Now we fast forward 10 years, and it’s search coming from the Internet, and it’s all about information and the extensibility of that information where Windows is not required. Microsoft is trying to deal with that problem.”

Many feel Google also is better positioned than Netscape was to defend its turf against Microsoft because of its profitability and sound business model, two things the browser pioneer never had.

But one thing that contributed to Netscape’s downfall was Microsoft’s incredibly well-oiled machine to develop its software, which makes them a staunch competitor once they commit to something for the long haul, said Haim Mendelson, professor at Stanford University’s Graduate School of Business. This is something Google should be wary of as Microsoft plans to release a more robust version of its new MSN search engine around October, he said.

“Microsoft has put together a process for developing software that is difficult to beat in the long run,” said Mendelson, who also directs Stanford’s Center for Electronic Business and Commerce. “That’s very, very powerful in the sense that you can develop the next version of your software in the way that is more effective than the competition, which is the reason you can look at things from a very long-term perspective. These development capabilities are something most people don’t fully understand, and it’s an important source of strength for Microsoft.”

One former Netscape employee who asked not to be identified also warned that Google could fall victim to what might be called the four-year brain drain. In other words, after four years, Netscape employees were fully vested in their stock options and became millionaires, which gave them little incentive to work as hard as they had to ensure the company’s initial success, he said.

He added that encouraging employees to spend time working on projects outside of the company, as Google does, also could inspire some of its most talented engineers to use the money they earned at Google to start new companies.

One thing that Google does have going for it is that even as Microsoft is battling to emerge as a leader in the search space, it’s also struggling to grow revenue by investing in new product development. Some analysts feel the company’s core products, such as Windows and Office, can’t sustain the kind of growth that made Microsoft the company it is today. As a result, Microsoft has been busy launching products in markets where it has not traditionally played, such as in the IPTV (Internet Protocol television) and game markets. Its entry into the search space is new as well, with its first MSN Search engine launching less than a year ago in November 2004.

It remains to be seen how much long-term revenue these new products will provide Microsoft. But Jupiter’s Wilcox thinks it’s likely that the company will use the trick that took down Netscape — integration with existing portfolio strongholds such as Windows and Office — to win in some of these emerging markets, particularly search.

“What it comes down to is Microsoft is betting big on integration,” Wilcox said. “They have a very strong integration strategy with respect to the business market, and I see it opening up that strategy to the consumer market through different services.”

Stanford’s Mendelson, too, said integrating search into the next version of the Windows OS, Windows Vista, will be a key way Microsoft plans to win against Google, a fact that he’s sure is not lost on the search engine company. Windows Vista is expected to ship toward the end of 2006.

“Microsoft has the advantage of integration … it’s one they can build on,” Mendelson said. “Desktop search will be a component of the next OS and it will be extended to the Internet. They’re going to find a way that is legal to integrate it into the [OS], and it’s a powerful advantage they have that Google will not have by virtue of their business model.”

Chances appear slim right now that Google will fall from grace as quickly as Netscape did. But as tales of the browser wars continue to fascinate the industry, the stories that will be told 10 years after the search engine wars still have yet to be written.

(Robert McMillan in San Francisco contributed to this report.)

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