Netscape is down, but don't count it out

Microsoft's Internet rival will bounce back when it starts distributing its popular browser for free

By Richard Morochove

Netscape Communications is feeling woozy from the effects of the latest round in its browser battle with Microsoft, but don't count the champ out yet.

It could come roaring back with its new plans to boost the slipping market share of its flagship Web browser. Meanwhile, Microsoft is playing legal rope-a-dope by obeying the letter but not the spirit of a court order.

First, the bad news. Netscape announced it would lose up to $89 million US in the final quarter of 1997. Employees will be laid off and facilities closed.

But the picture isn't quite as bleak as it initially appears. About 80 per cent of the losses are due to merger and restructuring expenses, which should not recur. (There are no plans for layoffs of the company's 35 Canadian employees.)

A more ominous sign is the disappointing worldwide sales of Netscape Navigator and Communicator.

The prime reason for this sales slump is intensified competition from Microsoft's Internet Explorer. Unlike Netscape, Microsoft distributes its browser free to all users. The latest version of Explorer (4.0) was officially released last quarter.

Netscape is now considering a plan to give away its browser for free, in order to stem the loss of market share to Microsoft. This long-overdue move could spark new interest in Navigator.

This won't matter as much as it would have a year ago. Browser sales now account for just 13 per cent of the company's revenues. A large chunk of the company's sales come from server products. Netscape also expects to earn more consulting revenue by expanding its professional-services group from 250 people to 650 worldwide.

Netscape hopes to boost market share by approaching more hardware makers to license Navigator and Communicator and pre-load them on new PCs.

To help existing PC owners make the switch, the company offers what it calls a Customer Choice program on its website. When you click on the Customer Choice link, an automated procedure removes Internet Explorer from Windows 95 and installs Navigator as the default browser.

Netscape also stands to benefit from last month's court-ordered decoupling of Internet Explorer from Windows 95, but Microsoft isn't making things easy. In the wake of the legal ruling, Microsoft is offering computer makers three alternatives they may pre-load on PCs:

the current Windows 95 bundled with Explorer;

an unbundled version of Windows 95 that doesn't work;

the original August, 1995, release of Windows 95, which doesn't
include support for Intel's popular Pentium MMX chips or larger
hard drives.

The unbundled version of Windows 95 removes over 200 program files, which disables not only Explorer, but also Windows 95. Microsoft says it is merely following the court ruling, which defines Internet Explorer as the files distributed in the program box sold by retailers. However, many of these files update Windows 95 and have nothing to do with Explorer.

All that's really needed to remove Internet Explorer is the deletion of two files: the program and a shortcut. Yet Microsoft refuses to allow computer-makers to delete only those two files.

A computer-maker has only one rational option: maintain the status quo and pre-load the version of Windows 95 that's bundled with Internet Explorer.

Microsoft's move appears calculated to make Judge Thomas Penfield Jackson's order look inane. The U.S. Department of Justice says Microsoft should be held in civil contempt of court. The legal shenanigans continue, with the next hearing set for Tuesday.

Meanwhile, Microsoft's acquisition of Hotmail late in '97 extends the Internet battle to a new front, Web-based e-mail.

Hotmail has about nine million subscribers, which makes it one of the world's largest e-mail providers, second only to America Online. The free service is supported by advertising.

Microsoft Network (MSN) will fold Hotmail into its offerings. This will allow MSN subscribers to check their e-mail using only a Web browser.

Why would MSN subscribers access their e-mail using a browser, when they can read it more quickly by dialling up the service and using a standard e-mail program? If MSN pulls the plug on its money-losing dial-up Internet service-provider business, as I predicted in an earlier column, Hotmail lets it continue to offer e-mail services to its members.

Richard Morochove, F.C.A., is a Toronto computer consultant.
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