07/15/96 NETSCAPE: SITTING PRETTY--OR SITTING DUCK?

NETSCAPE: SITTING PRETTY--OR SITTING DUCK?

With Microsoft Corp. mobilized to create all sorts of Internet products and services, what's the view from Netscape Communications Corp.--the upstart whose lead in Net software helped rouse the sleeping giant? ``They're working like all get-out, trying to take the food out of the mouths of my babies,'' says James L. Barksdale, Netscape's chief executive.
Nobody has yet missed a meal around Netscape's Mountain View (Calif.) headquarters. Despite Microsoft's parade of product announcements, acquisitions, and Web initiatives, Netscape still commands nearly 90% of the Web-browser business. Analysts figure the company's sales will more than triple, to $250 million, this year.
Still, Microsoft's rise has clearly changed the atmosphere. Last summer, when it looked as if Netscape was walking away with the market, the startup's shares rocketed from an opening price of 28 to a staggering 171 (before a two-for-one split). Microsoft's shares, which had been stuck around 90, are up 40%, to 122, on the strength of Windows 95 and its increasing role in Internet software. After dropping by more than 50% in March, to around 40, Netscape's shares have climbed back to around 64, still more than 25% off their peak.
ALTERNATIVE. Whether the reversal in the stock market turns into a reversal in the software market remains to be seen. Netscape is promising all sorts of enhancements to Navigator that it says will not only keep it ahead of Microsoft but also produce a new software ``platform'' that is a clear alternative to Windows for Internet computing. A test version of Galileo, an update of Navigator that's due in September, lets users share documents, easily install add-on programs, and view more elaborate Web pages. And Netscape offers server programs tailored for specific Web businesses such as publishing and retailing. ``They're turning around new products faster than anybody has ever seen,'' says Edward Glassman, director of technology strategy for Pfizer Inc., one of the dozens of major corporations building internal ``intranets'' with Navigator technology.
The next 18 months will be decisive. By yearend, every new Windows PC will come with Microsoft's Internet Explorer browser built into the operating system. America Online Inc. will offer Explorer free to its millions of customers, and Microsoft will relaunch Microsoft Network as a Web service--and showplace for its Net content and technology.
Microsoft's greatest resource, of course, is the leverage that Windows provides. It is the dominant software for desktop computers, and the industrial-strength Windows NT version is becoming popular for corporate ``network servers''--a key battleground for the Internet software market. Dataquest Inc. figures NT sales will triple, from 8 million this year to 24.4 million in 1997. Microsoft plans to load NT with all sorts of free Net software--from a Web server program to Web-site development ``tools.'' If Microsoft can prove that it matches--or even approaches--Netscape in capabilities, as it is doing in browsers, that may be good enough to keep customers from switching to the newcomer.
Netscape, publicly, is unfazed. ``The advantages Microsoft had in the past don't apply to the era of the network,'' says Barksdale. Maybe not. But Microsoft, a global software empire with expected fiscal 1996 sales of $8.6 billion and $2 billion in aftertax profits, has one enduring edge. ``One thing to remember about Microsoft,'' says Chairman William H. Gates III. ``We don't need to make any revenue from Internet software.'' Who could forget?
By Robert D. Hof in Mountain View, Calif.o