Netscape Pulls Out Stops With Browser Offer

Trying to stop a dangerous slide in market share, Netscape Communications Corp. on Thursday went back to giving away its popular Internet browser software.

Then, in a more daring step, the company said it would even give away the source code for its browser, making it possible for legions of software developers to tinker with the product and perhaps even develop alternate versions of it.

The moves are part of a desperate attempt by Netscape to stave off Microsoft Corp., which has gained market share rapidly by giving away its Internet Explorer product, and linking it to the company’s best-selling Windows operating system.

With the changes, Netscape becomes entirely dependent on sales of business and server software that helps employees share work over computer networks, and advertising revenue from the company’s Web site.

The news, combined with a setback suffered Thursday by Microsoft in its antitrust case with the federal government, delivered a modest boost to Netscape’s stock price. The stock rose 25 cents to $18.13 on Nasdaq.

Netscape, based in Mountain View, is at a crucial juncture in its short history. It is the fastest-growing software company the industry has ever seen, but recently announced 400 layoffs and warned of a fourth-quarter loss amid declining sales.

Its browser, which once commanded more than 75% of the market, has slipped to 58%, according to Dataquest. Microsoft now has 40%, double its share a year ago. Continued losses in the browser market, analysts said, could have put Netscape on a course of irreversible decline.

“They were backed into a corner and had to make the browser free,” said Kathryn Hale, an analyst at Dataquest in San Jose. “Rather than surrendering on Microsoft’s terms, they came up with something that is literally an attack on another front.”

Netscape is giving away not just its Navigator browser, but also the accompanying suite of products called Communicator, which includes e-mail software and other communications tools. Doing so could hurt sales in the short term. Sales of the browser by itself accounted for $17 million in the fourth quarter.

But Jim Barksdale, chief executive of Netscape, said stand-alone sales of the browser account for just 13% of overall sales today, compared with 45% a year ago. He said the browser, which is used by 68 million people, is far more valuable as “seed corn” for its core businesses.

Netscape is also in the midst of intense negotiations to get computer makers to ship machines with Navigator pre-installed. Microsoft had previously sewn up exclusive deals with many companies by making its browser free, and, according to federal investigators, threatening to withhold its Windows operating system.

“Microsoft has been shoving Internet Explorer down their throats,” said Mike Homer, executive vice president of sales at Netscape. “Now I think you’re going to see everybody providing both.”

Giving away the source code--the underlying blueprint of the program--could prove to be the bolder stroke. Netscape is hoping other programmers will create new features and add-ons for the browser, enhancing its appeal to users. The policy is also designed to make it easier for software and Internet companies to optimize their products and sites for Navigator.

Microsoft countered by saying its browser can also be optimized, not by tinkering with source code, but by creating add-ons and other features that hook into the browser through software “controls.”

“Customers haven’t asked for source code,” said Dave Fester, group manager of the Internet Explorer team at Microsoft. “They’re extremely happy with our solution.”

But Homer said Microsoft is hemmed in by its defense against U.S. Department of Justice claims that the company illegally bundles its browser and Windows operating system.

Giving away source code for just the browser would undermine Microsoft’s arguments that the two products are inseparable. Giving away source code for Internet Explorer and Windows would be akin to giving away its crown jewels.

“Microsoft is in a jam,” Homer said.

But so is Netscape, analysts said. These latest moves may or may not stop the bleeding in the browser wars, but Netscape still faces the daunting task of trying to elbow into a business--selling group ware and server software--that is dominated by two titans: Microsoft and IBM Corp.

Asked whether Thursday’s developments solve Netscape’s problems, Danny Rimer, an analyst at Hambrecht & Quist, replied: “Help, yes. Solve, no.”

* SHOWDOWN AVERTED

Microsoft agrees to license Windows 95 without its Web browser. A1