-1-Competing on Internet time

[Extra EVR]

Competing on Internet time

Lessons from NETSCAPE and its battle with MICROSOFT

Suh, Il-Seok

December 13, 2005

-2-Competing on Internet time

Contents

• Introduction• Competing on Internet time• Netscape Communications Corporation• What is Judo Strategy?• Netscape’s Judo Strategy• Netscape’s Problems• Microsoft Corporation• Microsoft’s Response• Netscape’s Battle with Microsoft• Result of Browser Wars• Lesson Learned

-3-Competing on Internet time

Introduction

-4-Competing on Internet time

Introduction (cont.)

• Internet

– “Network of networks”

• “Competing on Internet time” means

– Competitive advantage can be won and lost overnight

-5-Competing on Internet time

Netscape Communications Corporation

• Background

– Founded by Jim Clark and Mark Andreessen

– Netscape took advantage of emerging growth opportunities in and around the Internet

• Web browser - Netscape Navigator

– Netscape was a latecomer to the market

– Netscape forfeited the first-mover advantage to Spry and many of its competitors

– To overcome the problem, Judo strategy was used

-6-Competing on Internet time

What is Judo Strategy?

• Judo Strategy

– Emphasizes the use of movement and flexibility to avoid unwinnable confrontations

– Emphasizes the use of leverage to undermine competitors’ strengths by turning their historical advantages against them

– Avoids head-to-head struggles with larger, potentially superior firms

– By giving way to superior force, a firm in a relatively weak position can enhance its survivability

-7-Competing on Internet time

Netscape’s Judo Strategy

• Netscape moved the battle to unoccupied ground

– Netscape defined its initial product differently from its commercial competitors

– Conventional companies provided a full panoply of Internet services

• Ex) Browser, E-mail, Dial-up telephone access

– Netscape decided to offer a simple stand-alone browse, which was initially available only over the Net

-8-Competing on Internet time

Netscape’s Judo Strategy (cont.)

• Netscape used creative pricing policy

– Netscape browsers were free for anyone to download on a 90-day trial biases

– Netscape browsers were free for students and educational institutions

– Netscape browsers were $39 for other customers

In effect, the browser would be free. It was inevitable strategy to build volumes.

-9-Competing on Internet time

Netscape’s Judo Strategy (cont.)

• Netscape distributed software through special channel

– Conventional companies distributed PC software through two channels: a computer OEM channel and retail channel

– Netscape opened up a new world: the Web

– Netscape used the Internet as its primary distribution channel

-10-Competing on Internet time

Netscape’s success factors

• Vision

– A vision that emerging high-powered, global networks would change how people worked, played, and interacted with the world at large

– Netscape created a compelling vision of products, technologies, and markets

– Managers and employees believed the browser had the potential to become a universal interface that would tie the networks of the future together

-11-Competing on Internet time

Netscape’s success factors (cont.)

• People

– Netscape hired experienced managers and software developers who had previously worked at major companies in computer software

• Organization

– Netscape built the internal resources for a big company, while organizing like a small one

– Netscape built relationships with partners to compensate for limited internal resources

-12-Competing on Internet time

Netscape’s problems

• Growth of company

– Since the size of the company had grown bigger and bigger, it was hard to manage the organization and sustain judo strategy

• Arrogance after success

– By the summer of 1995, Netscape was the big, dominant player on the World Wide Web

– After early success in the web browser market, Netscape’s managers conceited themselves

– Netscape often attacked Microsoft during 1995 and 1996

-13-Competing on Internet time

Microsoft Corporation

• Mistake of Bill Gates

– Bill Gates didn’t fully understand the importance of the Internet, and he was slow to recover

• Powerful Weapon of Microsoft

– Windows Operating System

– Control the critical device drivers, APIs, or application programming interfaces

• Internet Explorer

-14-Competing on Internet time

Microsoft’s Strategies

• “Embrace and extend” approach

– Microsoft announced that it would embrace and extend everything Netscape had done

• Judo strategy

– Microsoft followed the judo strategy that Netscape had done

• Customer attraction

– Microsoft offered to put an AOL icon on the Window 95 desktop

-15-Competing on Internet time

Netscape’s Battle with Microsoft

• Release of new platform

– Netscape released Netscape ONE, which was positioned as an alternative to Microsoft’s Windows

• Head-to-head war

– By late 1997, sumo strategy had replaced judo strategy as the guiding principle behind the browser wars

• Change of pricing policy

– Netscape bundled its products

-16-Competing on Internet time

Result of Browser Wars

• Release of new platform

Netscape ONE was a powerful idea in general, but it failed

• Head-to-head war

Netscape was beyond the Microsoft’s power

• Change of pricing policy

Bundling did not solve pricing pressures

Microsoft won the wars.

-17-Competing on Internet time

Lesson Learned

• Competing on Internet time requires

– Quick movement• Speed is the most critical thing in the Internet world

– Flexibility• Companies become flexible in strategy, structure, and operations

– Leverage vis-à-vis competitors• Managers should find enduring sources of leverage either by

locking in customers or exploit opponents’ weaknesses that they can’t respond

-18-Competing on Internet time

Q & A