AOL May Lose Key Netscape Asset: Talent
As America Online begins to absorb Internet software pioneer Netscape Communications, it finds itself acquiring a company that has already lost many key employees to Silicon Valley competitors.
Despite AOL’s efforts to retain the best and brightest, many more defections are expected in the coming weeks--raising questions about AOL’s long-term benefit from its $10.2-billion acquisition of a company built on engineering talent.
Wednesday, AOL announced its reorganization plan, designed to cut close to 500 Netscape employees while assigning about 1,000 others to a new software venture with Sun Microsystems Inc. But insiders said the Dulles, Va.-based online giant could find itself in an uphill battle for Netscape’s key assets: its managers and engineers. Once a mecca for high-tech talent, Netscape has become a feeding ground for Silicon Valley’s staff-hungry start-ups.
“In this industry, especially in the valley, you have a problem with talent,” acknowledged Marc Andreessen, a Netscape founder who has been appointed chief technology officer of America Online.
But Andreessen insists that departures at Netscape have been less than the 25% to 30% annual turnover typical of many Silicon Valley companies and that employees will be even less likely to leave the newly merged company.
“If you want to have a big impact on the world and you want to know you will be paid in two months,” said Andreessen, “AOL is quite possibly the best place to be.”
Plenty of Andreessen’s current and former colleagues disagree.
Atri Chatterjee left Netscape in November as rumors of an AOL takeover began to emerge, becoming vice president of marketing at Responsys.com, a Santa Clara electronic-commerce company. Chatterjee said he has already hired several former Netscape colleagues and continues to get a “fair number of inquiries.”
“AOL is an astute company and they will do what is required to keep the key employees, but I don’t know if it will be enough,” said Chatterjee, adding that he and his colleagues left Netscape because they wanted to work in a start-up environment.
Former Netscape employees, or “Netscapees” as some call themselves, have started or play a significant role in at least a dozen new Bay Area and Silicon Valley companies, including Accept.com, Tellme.com, BlueMartini.com, Allbusiness.com, Geocast and MS2. Most of these operations are involved in electronic commerce, a hot market that America Online would like to dominate with Netscape’s help.
High-level employees who have left include Roberta Katz, Netscape’s former general counsel, and Mike McCue, the former director of technology. McCue, who told his Netscape colleagues he supported the AOL takeover, nevertheless chose to leave to launch Tellme.com.
Rick Yamaura, who left Netscape to go to San Mateo-based Persistence Software soon after AOL announced its plans to acquire Netscape in December, said many of his former colleagues are demoralized and waiting to be fully vested in their stock options before leaving.
Still unclear are the details of AOL’s new alliance with Sun Microsystems. As many as 1,000 Netscape employees will be placed in Netscape Enterprise Group, which will work with Sun to help companies build e-commerce systems.
The two companies will continue to pay the salaries of their respective employees. After the three years are up, the venture could be extended or taken over by either.
Former Netscape Chief Executive Jim Barksdale and AOL President Bob Pittman spoke with Netscape employees for an hour and a half Wednesday morning during an event many insiders described as upbeat. But others say the uncertainty tied to the layoffs and the restructuring could accelerate departures.
Employees who stuck around because of the extra month of salary offered by AOL now have less reason to stay. That check was sent to employees over the weekend.
“AOL might still have a certain level of core talent,” said a former Netscape employee who has recruited several Netscape engineers for a start-up. “But the real innovators are going to go on to a company where they can be innovative again. You’re going to see an exodus.”
In an online site for former Netscape employees, many talk of their plans for new careers. A common theme is the desire to find a company with the energy, informality and close personal ties that many enjoyed during Netscape’s early years.
“The esprit de corps is gone at Netscape,” said another former employee. “You can’t motivate people to develop innovative new products with golden handcuffs,” said the employee, referring to stock options given to senior programmers.
Another factor encouraging departures has been the underlying enmity toward AOL among many at Netscape since AOL signed an agreement with Netscape in March 1996 only to sign an even more significant deal with Microsoft the next day.
“We felt burned by that,” said one former Netscape employee who sees the deal as a turning point in Netscape’s history. “Our market share went down 15% and Microsoft’s went up 15%.”
Times staff writer Joseph Menn in San Francisco contributed to this report.