Technology Strategy For Internet Software:
Netscape's Web Browser Software

David Murray and
Steve Pert
December, 1995

This paper explores issues of technology management and competitive resources for businesses competing in one of the fastest growing and most rapidly evolving markets today -- graphical Internet software for accessing the World Wide Web (Web, or WWW). To understand the technology and the business today, it helps to understand the origins of the Internet, how its use has evolved over time, and the standards that make the phenomenon known as the Internet possible.


The Internet is a collection of networks (about 45,000 as of 19951) that allows data to be exchanged between connected computers. The origin of the Internet can be traced to the Department of Defense's ARPANet (ARPA stands for Advanced Researc h Project Agency) in the early 1970s. ARPANet linked military and research sites and provided a communication vehicle for researchers, government personnel, and businesses working with the Department of Defense. The communication protocol, IP (Internet Protocol), allowed computers from different computer manufacturers to communicate with each other. In the 1980s, the National Science Foundation (NSF) established NSFNet using ARPANet's communication protocols. NSFNet provided network access to five sup ercomputer centers to be used for scholarly research, primarily for public university faculty and students. To economically connect different locations, regional networks were linked to the NFSNet backbone. Subsequently, the number of networks comprisin g the Internet exploded, growing exponentially year after year, and TCP/IP has become the accepted networking protocol standard for Internet networks. 2

Perhaps the most significant development in the life of the Internet since NSFNet was the introduction of the World Wide Web by researchers at CERN (the European Laboratory for Particle Physics). The most important contribution that the Web made to Inter net technologies is the HyperText Markup Language (HTML), which allowed document authors to link parts of their document to a document at another site on the Internet. The hyperlink could then lead the user logically to related information without the user having to know where the information physically resided.

NCSA, the National Center for Supercomputing Applications, at the University of Illinois, developed and made freely available a graphical browser called Mosaic to navigate and view the Web. Mosaic could display hypertext documents along with embedded gra phics and other media types (audio, video, animation, etc.) for which supporting software was available. Mosaic also integrated many of the previous methods for navigating the Internet, such as FTP, news (NNTP), Gopher, and WAIS. Increased ease of use o f the Web and the expansion of commercial on-line services offering dial-up access to the Internet fueled an explosion in the number of Internet users.

Important Technologies

Web software integrates technologies for digital multimedia with networking and hypertext functionality supported by the HTML document standard. As such, the constituent sub-technologies provide an innovation envelope for the technological trajectory of Web software. While many of these technologies are also being driven by multimedia demands of non-networking software applications such as CD-ROM software packages, others are specifically oriented toward networking.

Hardware and software technologies that provide basic information transmission fundamentally enable the Internet and the Web to function. Many of these technologies, like ethernet or IP, are mature and widespread. Others, like Asynchronous Transfer Mode (ATM), have been developed to solve networking capacity problems that have occurred with the inevitable growth of Internet networks and have yet to gain commercial acceptance. Overall, networking communication technology is predominately past the explor ation phase of development and is progressing upwards through the exploitation portion of the technology development "S-curve." The advancement of basic communication technology does not directly constrain or promote Web software technology. Instead, i t enables or impedes the advancement of Internet software by providing or inhibiting the adequate information bandwidth growth necessary to support more sophisticated and communication-intensive network software.

Other technologies affect Web software more directly. These technologies deal primarily with digital multimedia (sound and video), HTML authoring tools, distributed programming, and data encryption for maintaining privacy on public networks. One of the benefits of the Web over earlier Internet services is its multimedia capability. Technology to interpret digital audio and video have progressed well up their S-curves. While different formats abound, a handful of common data formats dominate and are in terpreted by readily available software. As such, the format of audio and video is largely transparent to the user.

HTML publishing technology is an important technical factor for Internet software, because it "productizes" standards and new capabilities which competitors use to influence HTML specifications. HTML publishing products provide Web content providers with a WYSIWYG3 display of the document while hiding details of the HTML formatting directives. Thereby these products improve efficiency for both experienced and novice HTML authors.

A recent development in the nature of data exchange over the Web is the advent of applets written in Java, a language developed by Sun Microsystems. Java allows Web content to evolve from static documents to dynamic, interactive applications that run in a network-centric environment. The applets are interpreted by client software and so are not tied to the machine instructions of any one CPU manufacturer or to any operating system interface on the computer. Such distributed network programming languag es are still at a very early stage of the technology's S-curve. No dominant design has yet emerged for a network-centric programming environment, and the manufacturers' strategies and market positions are clearly reflected in the product features and design and marketing approaches.

As the Internet has gained commercial viability, commerce has demanded a robust technology for protecting private information such as charge account numbers. One approach to this problem has been to encrypt information before it is transmitted and then t o decode it after it reaches its destination. Encryption technology is still very low on the exploitation portion of the S-curve, with much development still to occur. While no single encryption technology is universally acknowledged to be superior, cur rent techniques provide reasonable security for private transactions. As more businesses desire to conduct commerce on the Internet, security technology will become more crucial to Internet software running on both client and server computers.

Another emerging technology to impact Internet software technology is groupware. Groupware applications allow people at different locations to collaborate on work by using the network connections between their computers. Because groupware requires netwo rking for its operation, the combination of groupware with the Internet is a natural evolution. Many firms are still exploring various types of groupware technology, as it is felt that the current state of groupware is somewhere at the transition point between exploration and exploitation.

Key Competitors in the Internet Software Market

Sun Microsystems

Sun sees the emergence of the Internet as an opportunity to preempt the extension of the network externalities resulting from Microsoft's controlled programming environment and dominant market share. If successful, its strategy will result in greater de mand for computers running operating systems other than Windows and using microprocessors other than those made by Intel. Sun's latest product announcement, Javascript, is a programming language intended to allow nontechnical Internet users to create net work applications from prefabricated portions of software. Other prominent companies supporting the Java/Netscape technology are AT&T, Hewlett-Packard, Apple Computer, Oracle, and Silicon Graphics. Conspicuously absent from this list, Microsoft is pushing its own solution.


Bill Gates, CEO, chairman, and founder of Microsoft, the world's largest software company, declared that the Internet is Microsoft's number one priority. Nevertheless, Microsoft is competing on unfamiliar turf where it does not enjoy the influence that h as supported its strategies in other markets. Microsoft is offering its own network software language to provide the basis for its Internet strategy. The company also has provided HTML publishing extensions to its popular word processor, an Internet bro wser to compete with Netscape, software for creating multimedia content, and Web server software for Microsoft operating systems. Unlike network applications created with Java, those created using Microsoft's network programming language will only run on Windows and only on processor platforms for which it has been compiled. This feature is consistent with Microsoft's past strategies, and attempts to extend the compatibility that has provided its source of competitive advantage in the personal computer market.


Spyglass, a public company since their IPO in June of this year, has a strategy utilizing a concept called "embedded code." 4 Spyglass' product distribution concept is like that of spell-checking code for word processors, in which one company has created a spell-checker that is then licensed to programs that incorporate spell check technology. Similarly, Spyglass licenses its Web browser code directly to other software developers such as Microsoft, who then embed the code into their own products, providing seamless integration between the base program and the browser module. Spyglass currently licenses its product to over 35 companies. 5 An end-user of the base program may never realize that the browser feature is from Spyglass . However, Spyglass' chief executive Douglas Colbeth feels his business model will prove more successful than Netscape's. This strategy reduces Spyglass' overall risk when competing in a highly uncertain environment.

The success of firms in this industry could be short-lived if another company's Web browser becomes popular. The cost to switch products is very low, as it can cost as little as $30 per user for a site license. As the content available in the Internet i s based on open systems, any browser product can display information, thus ensuring a level playing field for competitors to enter.


Netscape Communications Corporation was founded in April 1994 by Jim Clark, the founder of Silicon Graphics, and Marc Andreessen, the creator of NCSA Mosaic. 6 Netscape's stock prospectus states:

The company's goal is to make its software the de facto standard for publishing information and executing transactions on the Internet and private networks.

Netscape made a public equity offering in July 1995 which brought its total market capitalization to $1 billion. 7 In the following months, the market capitalization of the firm exploded and in December 1995, the firm's equity was worth more t han $4 billion.

Netscape's unique financial strategy is to reinvest all of its free cash flow into R&D in an attempt to claim its stake in the rapidly evolving, competitive landscape of Internet software. In 1995, Netscape announced a small profit, promptly apologized, and promised to do "better" next time.

Netscape owns approximately 75% of the Web browser market thanks largely to its then unique marketing strategy. "When Jim Clark left Silicon Graphics to form Netscape, he looked at how he could change the rules of being a software company. Netscape aske d itself, 'Is there a way to go beyond Microsoft?' Well, they changed the rules. They put their software on the Internet for free." 8 Netscape asked users to send in a fee if they found value in the product. According to Clark, Netscape rec eived more money in the first four weeks than did Silicon Graphics in its first two and one half years. In contrast to Spyglass, Netscape distributes its browser, the Netscape Navigator, directly to end-users, and recently has been able to generate reven ue by selling its browser in retail stores for $40 per copy and in large lots to corporate customers. 9 Netscape had expanded its product line to include Web server software and proxy servers to bridge Web communications across the firewalls p rotecting companies' private networks from the public Internet. Netscape has also arranged to include to include copies of Navigator with other companies' software products. Netscape hopes that these companies will be encouraged to create their own Web presence for technical support and product distribution, and in the process create more demand for Netscape's products, both browser as well as application server. 10

In contrast to Spyglass, Netscape chose to develop its own software instead of licensing the NCSA Mosaic source code which Marc Andreessen had written. This approach is key to the company's technology strategy. Netscape continuously extends HTML featur es to integrate new security and display features and related technologies, such as Sun Microsystems' Java scripting language11, into their browser. With a 75% market share, the resulting network externality effect from the HTML extension 12 features pushes the HTML standard specification13 and helps to promote its features as the de facto industry standard. Unlike a microprocessor design, however, any competitor can then use the extensions, but by the time they do, Netsc ape will be on to something else. 14 To support this strategy, Netscape's most important resource -- with the possible exception of talented engineers -- is its dominant installed base in Web browser software. The need for a large user base l ead them to the unusual strategy of seeding the market with free software. Without this influence, it could not create the feature differentiation time lag that supports its value in users' eyes. Also key to this strategy is the ability to add features that users will value and to bring them to market rapidly. Recognizing that technological barriers are low, Netscape has embarked on an innovation treadmill in an attempt to stay one step ahead of it's competition.

In November 1995, Netscape acquired Collabra, a private software company producing groupware that competes with Lotus Notes. Netscape has incorporated groupware features from Collabra's technology into its new browser offerring, again differentiating it from other browsers on the market. In particular, this feature should be useful to corporations who buy site licenses for Netscape's software.

Collateral Assets

Netscape, however, does not have the substantial collateral assets as do many larger companies interested in the Internet. Microsoft is the largest software company in the world and has tremendous marketing capabilities, name recognition, and influence o ver OEMs and other traditional distribution channels. To the extent that distribution over the Internet cannot fully offset tradition channels, these factors become important. For example, novice users who are part of the expanding home market for PCs w ill more likely use the Web browser that is pre-installed on their PC with Windows 95 instead of calling up Netscape's Web page, downloading a new browser, and installing it on their computer. Microsoft also has distributed some software free on the Inte rnet to get people using the software and has included its own extensions of HTML into its Web browser (using licensed code from Spyglass).

Sun also has many assets that support its initiatives on the Internet. While the motivations for its Internet strategy may be somewhat different from Netscape's, it has formed an alliance with Netscape to promote Java and Netscape software as de facto st andards for the Internet. Silicon Graphics also has much influence and reputation in the 3-dimensional graphics world and, while marketing Netscape's software with its workstations and servers, is promoting its own markup language to supplant or extent H TML for 3-dimensional representation.

Learning Economies

While Netscape does not have the substantial assets of its larger, more diversified competitors, it does have the advantage of the learning economies derived from its human capital and the knowledge that comes from distributing and improving upon successf ul versions. Netscape employes the people who originally wrote the Mosaic browser. Spyglass, on the other hand, chose to license the software from the University of Illinois and to become a supplier. As a result, Netscape's innovative capabilities in a dvancing Web technology is currently unmatched in the industry.

Sources of Technological Change

There are a number of sources of technological change for Netscape. Much of the change comes both from industry suppliers and from customer demands, with Netscape integrating the changes into their marketing/distribution concept.

In a sense, technological change comes from outside the firm. Netscape relies on integrating newly available technology into their browser and server products. This includes the integration of Java, HTML extensions, document readers (such as Adobe Acrobat), and more into Navigator. A major source of change has recently come from Sun Microsystems through an alliance allowing Sun's Java to be included in Navigator. Additionally, Netscape's purchase of Collabra is another example of an external source of technology. Future possibilities for Netscape to go outside for new technology include Silicon Graphics for 3-D graphics capability and to Terisa Systems for secure commerce standards. 15

This year, Netscape has released several new browser versions. The company also currently makes it a practice to release a series of beta versions prior to final version release. All releases are then made available for end-users to download over the In ternet, currently for free. This allows Netscape to test the market, both for quality as well as for reception of the new features.

However, much change originates within Netscape. The company frequently develops new HTML extensions to add functionality and additional multimedia capability to Web documents. As new extensions are devised they will be included in Netscape Navigator an d will be demanded by users. This may be a synergistic process, whereby users suggest (demand) new functionality. Netscape, in response, develops and includes the new extensions in its next release. Essentially, the process can become a combination of a push and a pull system.

In contrast, Spyglass' integrations take time to reach the market, as they first must add new applications to their browser, the browser must be distributed to licensees, and then the developers must incorporate the browser into their products. However, Spyglass' large base of licensees guarantees strong product proliferation, while Netscape must rely on direct sales and distribution to individual end-users and corporations which utilize Netscape servers.


In analyzing the key engineering and economic signposts defining the trajectory of Internet Web technology, we examined several factors including incorporation of Internet applications into Web browsers, growth of Web traffic across the Internet, and demo graphics of Web users.

Internet Applications in Browsers

Historically, Internet applications required Unix as the base operating system. A knowledge of Unix commands was necessary to access and use the Internet. 16 Unix commands are often arcane, are little understood or used by non-technical perso ns, and often require that complex command line switches be used in conjunction with the command. As a result, the difficulty in use caused the Internet to remain entrenched in university and research circles for many years. 17

The advent of multimedia-oriented Web browsers has increasingly brought the power of Internet applications to non-Unix environments. Although early-generation browsers provided only basic text and graphic retrieval, recent browser offerings have appeare d with enhanced features such as access to Internet e-mail, newsgroups, FTP, document editing, encryption, etc. Previously users would have to work in a Unix environment or in a standalone shell program18 to take advantage of these features. Modern software allows access to similar features through a point-and-click interface.

Therefore, an engineering signpost which illustrates the level of technology in Web browsers is the number of Internet applications integrated into products. Table 1 illustrates the degree of services integrated into Internet tools.

Table 1 - Integrated Tools
Time periodDegree of Integration
Pre-Web (early 1990s)Individual command line apps (e.g. telnet)
Early graphic browser (e.g. Mosaic 1993)Integration of Unix apps into a browser
Today (e.g. Netscape version 1.22)Increased ease of use and functional integration
Near future (Netscape version 2.0)Progressive support for streaming of simultaneous video/audio, other data formats, e-mail, enhanced security, distributed executables, groupware integration, etc.

The success of Netscape's future browser technology is constrained by the features available for inclusion. The ability to develop complementary assets and to strategically learn from businesses not historically associated with Internet technology will b e criticial to Netscape's future success. These capabilities can be obtained through a combination of alliances, joint ventures, and acquisitions. Joint marketing agreements may be a key to future Internet strategy. Agreements between providers of diff erent processes or industries, such as cable broadcasting and Internet transmission, may form the basis for merging what are now separate markets into new-generation Web products, or even an entirely new medium. Overall, managing intercompany relationshi ps not only is occurring now in each new Netscape browser, but will be even more important to future success.

Web Traffic Across Internet

Another signpost indicating the level of technology use is the growth in the amount of data moving through the Web. The rate of increase in data transfer is one indicator of society's use of the Web. Figures from Matthew Gray of MIT19, illust rated in Table 2, show the huge growth in Web data traffic.

Table 2 - Data moving over the World Wide Web
Time periodAmount of data
Volume in 1992 (one year)500 megabytes
January - March 1993 (3 months)5 gigabytes
May 1, 1994 (one day)10 gigabytes
6 hours of one day in mid-September, 1994 (6 hours)13 gigabytes

With this rate of growth, the ability for the Internet software industry to successfully introduce new data-intensive capabilities is limited by the growth in the network capacity and by the economics of enhancing the network's infrastructure. The Internet is headed for a condition where the ability of the technology to serve additional users is impaired by bandwidth. Technologies that can support greater data bandwidths will become important in the future. The ability for the Web to process greater ba ndwidth is a limiting factor. The ability of Web software to process more data, or utilize other future technologies that reduce the hardware burden, may provide advantages when the Web begins pushing bandwidth limitations. The inclusion of these capacities into browser technology may be a key competitive factor in the industry.

Demographics of Users

One signpost that signals the level and pace of development of Internet technology is that of ease of use. For Internet technology to fulfill Netscape's vision of widespread use for information retrieval and commerce, the gap between the technical profic iency of the general population and that required to navigate and use the Web must be closed.

One way to assess the degree to which Internet technology is moving away from purely a technical audience and to more usage by the general population is to observe demographic trends of Internet users. Professors Sunil Gupta and Rabikar Chatterjee at the University of Michigan Business School and Jim Pitkow at Georgia Tech University, as part of the HERMES project20, have performed periodic surveys to gather data on Web users. The diffusion of Internet usage can be seen in several areas.

First, one can observe the shift in the occupations of Internet users. For example, the latest HERMES survey indicates a shift to a larger proportion of managers using the Internet (up to 12% from 7% in the previous survey). Additionally, of those Inter net users in computer-related jobs, 30% are managers and 40% hold professional or staff positions -- not engineers. The latest survey also saw a four year aging of the Internet population, and more respondents are married and have children.

One can also assess Internet availability by examining the means of access to the Internet. The study also shows a shift from university access to on-line service connections. In the fall of 1994, more than half of the respondents indicated gaining acce ss to the Internet through educational institutions. In the Spring of 1995, only 27% indicated gaining access through educational institutions. This implies a shift to more home usage. Another trend is in the education level of Internet users. Table 3 shows the shift away from post-graduate education levels.

Table 3- Shift in Internet User Education21
Education LevelFall 1994 Spring 1995 % Increase
Grammar / High School 6833%
Some College 192216%
College 34353%

Clearly, Internet usage is moving more into the general population. But it has a long way to go to achieve the visions of widespread useage and readily available commerce across a proportional level of the world.

The challenges of managing a firm in a technology which is evolving as quickly as that of the World Wide Web are varied. Managers must not discount unconventional ideas and must allow for the development of new concepts. In a rapidly changing industry s uch as Internet software, focusing too narrowly on today's currently successful product at the expense of innovation could easily result in obsolescence. We feel that Netscape's current growth can not be guaranteed to continue without continually looking toward the next currently unforseen technology trend. Netscape must have a willingness to apply the same innovative thinking that has propelled its recent growth to the inevitible challenges as the market becomes more competitive. We think Netscape's i nnovation shown thus far and the growth opportunities currently available will result in Netscape's continued success and profitability into the future.
  1. Marketing on the Internet, Jill Ellsworth and Matthew Ellsworth, John Wiley & Sons, New York (1995)
  2. While networks using other protocols are attached to the Internet through gateways, most generally acknowledge that TCP/IP is the primary networking protocol of the Internet.
  3. "What you see is what you get"
  4. Chicago Tribune, July 30, 1995
  5. Open Computing, November 30, 1995
  6. Netscape Communication's Home Page (
  7. (Total shares outstanding following IPO of 5 million shares is 38.96 million) X ($28 per share IPO price) = $1.091 billion market capitalization
  8. Sales and Marketing Management, September, 1995
  9. Business Week, December 4, 1995
  10. The Washington Post, July 23, 1995
  11. Java will, in the future, allow software developers to write one version of their program which will then run on a variety of computers, regardless of operating system. This strategy, if widely accepted, will weaken Microsoft and its strong dominance of the PC operating system/software market.
  12. Extensions are "codes" used in Web HTML documents to instruct the browser how a particular piece of information should be displayed. Early browser extensions merely provided basic text formatting instructions. New advanced extensions provide more complex instructions for creating columns, displaying text, aligning graphics, providing fill-in forms, etc. Users quickly move to take advantage of these new extensions.
  13. The HTML standard is maintained by the World Wide Web Consortium.
  14. Business Week, December 4, 1995
  15. Open Computing, November 30, 1995
  16. This, along with the fact that Internet access was for many years predominately available only to universities and large research institutions, contributed to the long predominance of Internet access being essentially used only by heavy, high-tech systems users.
  17. Professor Sunil Gupta's HERMES project illustrates that in April 1994, 91.5% of all people using the Web accessed it with Unix. Just 1 year later, only 22% of Web users used Unix to access.
  18. The University of Michigan Information Technology Division offers one such program, usually called "The Connectivity Kit," which offers a windows-based Internet interface.
  19. Marketing on the Internet, by Jill Ellsworth and Matthew Ellsworth, John Wiley & Sons, New York (1995)
  20. Further information on HERMES can be found on the Internet at
  21. GVU Center's 2nd and 3rd WWW User Survey (HERMES)
Additional Bibliography

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