Startups of Early 21'st century that terrified even microsoft

Nineteen ninety-five was the inaugural year of the 21st century, a clear starting point for contemporary life. It was, proclaimed an exuberant newspaper columnist at the time, “the year the Web started changing lives.”

It was the year when the Internet and the World Wide Web moved from the obscure realm of technophiles and academic researchers to become a household word, the year when the Web went from vague and distant curiosity to a phenomenon that would change the way people work, shop, learn, communicate, and interact.

Excerpted from 1995: The Year the Future Began

By 1995, a majority of Americans were using computers at home, at work, or at school, the Times Mirror Center for the People & the Press reported. The organization figured that 18 million American homes in 1995 had computers equipped with modems, an increase of 64 percent from 1994. The popularity of the computer and the prevalence of modems helped ignite dramatic growth in internet use in the years following 1995.

The Startup That Launched Millions of Internet Users

In 1995, no entity better represented the panache and wealth-making potential associated with the Internet than Netscape Communications Corporation, a startup in California’s Silicon Valley that made a graphical Web browser called Netscape Navigator. Netscape was an immediate success, if not in turning a profit then in attracting the goodwill of millions of new Web users. Netscape’s defining and most colorful figure was its cofounder, Marc Andreessen, a programmer with an agile mind who talked fast, persuasively, and seemingly nonstop. Andreessen turned 24 years old in 1995; he was less than two years out of college and had not shed all the trappings and eccentricities of undergraduate life. He worked late and got up late. His taste in clothes, it was said, ran to “frat-party ready.”

Andreessen seemed an unlikely character to be identified as “the über-super-wunder whiz kid of cyberspace,” as Newsweek called him at the end of 1995. After growing up in New Lisbon, a town in rural Wisconsin, he enrolled at the University of Illinois at Urbana-Champaign and studied computer science. Andreessen found part-time work at the university’s National Center for Supercomputing Applications. There, he and a few fellow programmers developed Mosaic, the predecessor-browser to Netscape Navigator. Mosaic was launched in 1993 and quickly won followers for granting relatively easy, point-and-click access to the previously hard-to-access World Wide Web.

Twenty-four-year-old Netscape cofounder Marc Andreessen in 1995.  Louie Psihoyos/Corbis

After graduating and moving to California, in 1994 Andreessen met James H. Clark, a founder of Silicon Graphics who was looking for the next big thing, and they soon decided to set up a company that would outdo Mosaic. Andreessen and Clark recruited several of Andreessen’s former undergraduate colleagues and brought them to California as core programmers at Mosaic Communications Corporation, the predecessor to Netscape Communications. After fighting an intellectual property lawsuit from the University of Illinois, Clark and Andreessen reluctantly changed the company name: Mosaic Communications became Netscape Communications, and they renamed the browser Netscape Navigator.

Netscape was capable of impressive innovation. Pre-release “beta” versions of its Navigator 2.0 browser came out in October and December 1995 and were hailed as something of a technological feat. Navigator 2.0 was faster and more powerful than its predecessor, which had claimed about 70 percent of the browser market. Among other advances, Navigator 2.0 incorporated plug-in architecture, allowing programmers to develop applications on the browser. Netscape 2.0 also supported the Java applets that made Web-browsing a more lively and animated experience.

In the summer and fall of 1995, Netscape was on a roll. They were the best of times for the swaggering startup. The company’s workforce had grown to 500 employees, a five-fold increase since the beginning of the year. Revenues were climbing, topping $40 million in the year’s fourth quarter, which was almost double sales in the previous three-month period. (Netscape’s sales came mostly from corporate licensing of its high-profile browser and from a diverse line of Internet servers and server software.) During those heady weeks, Netscape was touted as “the Microsoft of the Internet” and seemed to delight in poking at the software giant and its chairman, Bill Gates.

Silicon Valley’s Big Blood Feud

Gates had been slow to recognize the potential of the Internet and the Web. He mistakenly thought the Internet was just a precursor to some sort of elaborate, multidimensional information superhighway. But as Netscape’s browser demonstrated, the Web was becoming the information superhighway. And the browser’s potential as a platform for software applications represented an undeniable threat to Microsoft’s Windows operating system. Andreessen—who sometimes during the mid–1990s was called the “next Bill Gates”—supposedly boasted that Netscape would reduce Windows to a mundane set of poorly debugged device drivers.

The smoldering hostility between the companies turned acute on June 21, 1995, at a four-hour meeting at Netscape’s headquarters. In the run-up to the meeting, Netscape and Microsoft had tentatively explored a strategic relationship. But according to detailed notes that Andreessen took at the meeting, Microsoft’s representatives came on strong and proposed that the companies carve up the browser market—with Netscape Navigator confined to the older, less lucrative versions of Windows.

Andreessen, who could be disarmingly candid, likened the conduct of Microsoft’s team to “a visit by Don Corleone” of The Godfather films. “I expected to find a bloody computer monitor in my bed the next day.” Microsoft disputed Andreessen’s account, saying its representatives had made no attempt to intimidate Netscape. In any case, the meeting ended without agreement, and Netscape moved forward with plans for its most audacious act of all: a public offering of its shares. Netscape was not quite 16 months old and had not come close to turning a profit.

IT HAD TAKEN GENERAL DYNAMICS 43 YEARS TO BE WORTH $2.7 BILLION IN THE STOCK MARKET. IT TOOK NETSCAPE ABOUT A MINUTE.

The IPO, underwritten by Morgan Stanley and Hambrecht & Quist, included 5 million shares of Netscape, priced at $28 per share. The shares went up for sale August 9 on the Nasdaq exchange. The stock opened at $71 per share. It climbed as high as $74.75 a share before settling at day’s end to $58.25.

It was a smashing debut by any measure—“the best opening day for a stock in Wall Street history for an issue of its size,” the New York Times said. The IPO demonstrated that the Web could be a place to make fortunes fast. Clark’s stake in Netscape was worth more than half a billion dollars; Andreessen’s was worth more than $58 million. The Wall Street Journal observed that it had taken General Dynamics 43 years to become a corporation worth $2.7 billion in the stock market. It had taken Netscape “about a minute.” The IPO, as Robert H. Reid wrote in Architects of the Web, “put the Internet indelibly on the map with millions of people who hadn’t been there yet.”

Fifteen days after Netscape’s IPO, Microsoft unveiled its much-anticipated Windows 95 operating system, which coincided with the release of Internet Explorer 1.0, Microsoft’s Web browser. Explorer 1.0 was a meager product that, ironically, was based on a licensed version of the Mosaic code that Andreessen had developed at Illinois. Then, on December 7, came the emergence of a mortal threat to Netscape: Gates spelled out for journalists and industry analysts a strategy to insert and expand Microsoft’s presence online. Gates declared that Microsoft was “hard-core about the Internet.” Among other moves, Microsoft’s browser would be improved, made faster, and offered online for free.

The Bubble Bursts

The “browser war”—the blood feud between Netscape and Microsoft—was underway. Two days before Gates’ announcement, Netscape’s per-share price had touched $171. It would never again reach that high. Netscape mania had crested as markets sensed the unfolding browser war could become a lopsided fight that Microsoft would win.

Even so, Netscape entered the browser war with a huge advantage in market share. Its dominance unnerved Microsoft. “Netscape is already entrenched in our markets all over the world,” a senior Microsoft executive, Brad Chase, wrote in a confidential internal memorandum in April 1996. “The situation today is scary,” Chase stated. “We have not taken the lead over Netscape in any market yet.” But in time, that equation would change dramatically. As Gates had promised, the Microsoft browser was improved. Internet Explorer 3.0, introduced in 1996, was seen as at least the technological equal to Netscape’s latest version, Navigator 3.0.

THE NETSCAPE SAGA—FROM SPECTACULAR RISE TO DECLINE AND HUMILIATING ABSORPTION BY AOL—SPANNED FEWER THAN FIVE YEARS.

What’s more, computer users, especially new users, had little incentive to download and install Navigator on the Windows platform: Internet Explorer was already there, and technically it was just as good. Moreover, Microsoft had muscled its way into the commercial online market, and the largest service providers—including America Online, CompuServe, and AT&T Worldnet—replaced Netscape Navigator with Internet Explorer as their preferred browsing software. According to an America Online internal email, Gates asked an AOL executive in January 1996, “How much do we need to pay you to screw Netscape?” by designating Internet Explorer as AOL’s featured browser.

In the months that followed, Netscape Navigator steadily lost market share to Internet Explorer. The company lost $88 million in the fourth quarter of 1997, and its shares shed more than 20 percent of their value, sliding to less than $20. By August 1998, Internet Explorer eclipsed Navigator as the most popular Web browser.

Netscape’s celebrated run as the flamboyant startup of Silicon Valley reached a bitter end in November 1998, when America Online acquired the company in a stock deal valued at $4.2 billion. It was the first major merger of Internet companies, and it reduced the once-cocksure Netscape to a forlorn and mostly forgotten outpost of AOL. (In a final indignity years after the “browser war,” Microsoft in 2012 acquired from AOL the patents underlying the Netscape browser.)

Microsoft and the “browser war” were the major but not the exclusive reasons for Netscape’s inglorious descent. Netscape never converted its many browser users into paying customers. It never quite knew what to do with its much-visited homepage. The Netscape saga—from spectacular rise to near-hegemony to decline and humiliating absorption by AOL—spanned fewer than five years. In its run, Netscape helped define “Internet time,” an idiom of the late 1990s that meant everything moved more swiftly online. The compressed arc of Netscape’s meteoric trajectory was itself emblematic of Internet time.

More significantly, the rise of Netscape signaled the centrality of the Web in the digital age. Novelist Charles Yu described it this way: “I entered college in 1993 and graduated in 1997. Halfway through, the Internet became a thing. Netscape said: ‘Here you go, here’s a door to a brand-new place in the existence of the universe. We just started letting people in. Go ahead, it’s fun. It’ll keep getting bigger for the rest of your life.’” Like no other single event of the early digital age, Netscape’s IPO in 1995 brought the Web into popular consciousness.