Michael J. Homer, Netscape's senior vice-president for marketing and earlier a top marketing person at Apple, was Business Week Online's Feb. 9 guest to discuss Netscape's strategy for staying ahead of the pack -- and especially ahead of Microsoft. That was the Feb. 10 Cover Story in BW, and the author of that story, Rob Hof of BW in San Francisco, was online with Mike Homer.
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OnlineHost: Welcome to Business Week Online! Tonight we talk about Netscape and its strategy for staying ahead on the Net -- and particularly, ahead of Microsoft. That was the Feb. 10 BW Cover Story, and here with us is the story's author, Rob Hof. Our special guest from Netscape is Mike Homer, senior VP for marketing and earlier a marketing whiz at Apple. Jack Dierdorff (JackBW) of BW Online is moderator.
JackBW: Good evening to all of you here on AOL. Welcome, Mike Homer of Netscape -- delighted you could join us.
VPNetscape: Hi, Jack. Hi, everyone. Nice to be here.
JackBW: Hi, Rob Hof of BW's bureau in San Francisco.
VPNetscape: Hi, Rob.
RobHof: Hello.
JackBW: Rob, will you ask Mike Homer (VPNetscape) the first question?
RobHof: Mike, what's the hardest part of trying to stay ahead of Microsoft?
VPNetscape: The hardest part is convincing people that anyone can beat Microsoft. Because Microsoft is such a successful company, when you compete with it in almost any new market, no matter how well you do, many people are skeptical that you'll win over the long term. We have better products and have been successful competing with them the past two years -- and, I believe, can continue to outrun them, but many people still are skeptical.
RobHof: If everyone's running on "Internet Time," what does Netscape have to do to maintain its lead?
VPNetscape: Everyone is not really running on Internet Time. We started our company believing that very short product cycles were critical to our success, and we structured our whole development process and our business around that. Example: Our primary software distribution mechanism is on the Net itself. Many other companies are trying to shorten development cycles, to get closer to ours -- typically, six to nine months. But most have a long way to go. Even Microsoft, with all its resources, is likely to take about a year between Internet Explorer 3.0 and 4.0. So, though many people claim to do it, few have achieved it yet.
JackBW: The audience has asked some questions about specific products. This is from TMDeLoach in Birmingham, Ala.
Question: Does Netscape have a downloadable program on the Net for Macs, like NetSpeak for PCs?
VPNetscape: Yes. Netscape Conference, which is a part of the new Communicator, will be available for the Mac in about two weeks -- on the Net. It will allow Internet telephony, collaborative navigation, data-sharing, and file-sharing.
JackBW: TAW6247 seems to want some technical support.
Question: How do I hook up Netscape Navigator Gold personal edition with AOL?
VPNetscape: Hmmm. You can can use Navigator Gold to independently create HTML pages on your desktop. However, I don't know of any way for you to publish them on AOL's proprietary service. There are several services on the Net that will host your Web pages and allow you to publish. To find them, just go to the Navigator Gold pages on the Netscape Web site.
JackBW: STP100PV in South Carolina sends us this one.
Question: How would Netscape help me online? I already have the browser from AOL.
VPNetscape: Netscape Communicator, our new product, allows you to do much more than the simple AOL browser. First, it has much more advanced HTML browsing features that let you see all of the content on the Net. This includes Web sites with Java applets and Java scripts. In addition, Communicator includes an advanced standard mail package, called Messenger, the Composer, which allows you to make up your own Web pages as easily as creating a simple mail message, and Collabra, which allows you to communicate in open discussion forums throughout the Net. To take advantage of most of the new resources on the Net, you'll need a product like Communicator, which has many more features than the simple AOL browser.
JackBW: MikeMerc in New Jersey asks you to step aside from Netscape for a moment.
Question: As a former Apple executive, what's your opinion of the situation there? Will Jobs and NeXT be able to save it? Netscape must be pulling for Apple to stick around, right?
VPNetscape: We are close partners with Apple and build our products for the Mac. We would love to see Apple be more successful. It will take some time for the new NeXT software to improve Apple's position in the marketplace. But it's a good start, and with some hard work, we think they'll get there. We have announced that we'll provide Communicator on the merged NeXT/Macintosh operating system.
JackBW: Now here's a provocative one, from Wishkah55 in Chicago.
Question: Why would I go with Netscape over Microsoft -- when NT is going to be basis of the WWW?
VPNetscape: It is highly unlikely that NT will take over the WWW. Although NT is successful, there are literally millions of Unix servers installed on the Net. In addition, Web standards are defined primarily through the evolution of HTML. Netscape products -- clients and servers -- provide much more functionality using open standards than Microsoft products do. Netscape products work equally well on both Unix and NT.
JackBW: Cptoatmeal in Spartanburg, S.C., asks the next one.
Question: Is it true that Netscape is free to students?
VPNetscape: Yes, Netscape has always been free to students, faculty, and staff of educational institutions, and to charitable, nonprofit organizations.
JackBW: DMichida in San Francisco asks about Netscape and intranets.
Question: What about intranet?
VPNetscape: The fastest growth in the network software industry in '96 was in clients and servers for corporate intranets. Although there are millions of users on the Internet at large, most of Netscape's shipping products are sold for use on corporate intranets. During the course of '96, Netscape delivered over 1 million servers, and the majority were used on intranets. Corporate customers have found they can save large amounts of money by publishing information to their employees using intranets. And because of this, they've deployed them in large numbers. One last thing: This year ('97) we expect that these intranets will expand to include not only Web browsing, but also open E-mail and groupware.
RobHof: Mike, isn't Netscape's corporate focus likely to lose it popular mindshare on the Net?
VPNetscape: Rob, we don't think so, for two reasons: One, we still download our software openly on the Net at large, and have more than 50 million users. This number spans education, home users, and businesses. Two, the software that we are selling to corporations for use on intranets will often create systems that are closed to the public at first, but will begin to open up, so that companies can provide this information to their customers, partners, and suppliers. Because of this, we think that corporate systems will be linked openly to consumers on the Net, and that a single set of software standards will prevail.
JackBW: MBurlingha in New York beams this question to us.
Question: Mike, Netscape's bombing in the Japanese corporate market. What are your plans to crack that nut?
VPNetscape: Netscape opened Netscape KK in Japan in March, 1995. At that time, we established partnerships with large companies that distribute our software and integrate it into the systems of large Japanese corporations. These are companies such as NTT and Toshiba. They have much experience selling into the Japanese corporate market. Our business in Japan grew very successfully through '96, and that growth came primarily from the corporate market. We'll continue to leverage big partnerships like this to continue to sell into Japan.
JackBW: Novall in Connecticut is looking ahead.
Question: When will I be able to throw away my PC and do all of my computing and data storage online?
VPNetscape: If you're working from home, that will probably be a long time off. The reason is that high-bandwidth connections to the home will not be broadly available for two to three more years. We are working with companies like @Home to bring high-bandwidth connectivity to the home market, and these services are available in a few locations. However, making them available throughout the country, even in major cities only, will take some time.
JackBW: Next, this comes from Philathome.
Question: Despite consumer attention focused on the "free" browsers, the real battle is on the server side. Is competing with MS any different in this market?
VPNetscape: The battle is on the client and the server in the business market, although, of course, in that market the server plays a very important role. In the corporate market, we don't compete with Windows, but instead with Microsoft Exchange, a product much newer than Windows, which barely has a postiion in the corporate market. Because of this, it is a good place for us to compete with Microsoft. There are many things we do besides just providing better products that are necessary to win in this market. Generally speaking, they include providing high levels of service and support to corporate business customers. We rely on companies such as HP, IBM, Sun, and others to provide 24-hour worldwide service for our products. With partners like those, we compete very effectively with Microsoft.
JackBW: BNuns takes us back to the intranet market.
Question: Some say the intranet will be a $12 billion market in five years. How much of that pie do you think Netscape can capture?
VPNetscape: Our goal is to capture approximately 30% to 50% of that market. We believe this is achievable because it is a new market and our products are ahead there today. In addition, we have a starting base of more than 50 million users that we can use as a Trojan horse to bring Communicator E-mail and all of the server products that are complementary to it into this market.
JackBW: I predict Almintas' question will produce a lively response.
Question: Do you think that Netscape is becoming less a market leader but more a follower, because major companies cut into Netscape's niches and dictate the pace?
VPNetscape: No. Of course, we believe that we are the technology and market leader despite the fact that Microsoft is copying many of the features of our products. We continually introduce innovations well ahead of them. The best example of this is Communicator, where we have moved far beyond a browser and are providing Web-based E-mail, groupware, and calendaring functions, in addition to new browser functions. We have more than 700 engineers who are fully focused on Internet technologies and have been from day one of Netscape. This expertise will allow us to stay ahead.
JackBW: TEACHGRD3 in Pennsylvania is next.
Question: In your opinion, what is the outlook for new WWW-related businesses (i.e., Web site designers)?
VPNetscape: I think the outlook for Web site designers is tremendous. Because many businesses are providing Web sites on the Internet and intranets, there is far more demand for Web site design expertise than there is expertise available today. In addition, good Web site designers have a mix of talents that are hard to find -- programming disciplines such as Java and Java script mixed with creative skills and the ability to use electronic design tools. Because of this, the outlook for good Web site designers will be excellent for years to come.
JackBW: Maccabaeus in Oklahoma asks the next one.
Question: How do products like Communicator and Office 97 serve the home consumer, who doesn't have 24-hour dedicated Internet access? Or are they mainly aimed at the business market?
VPNetscape: Although new products like Communicator are good for the business market, just about all their functions are useful for home users. Example: Communicator includes Web-based E-mail that can be used with any Internet service provider. This enables the home user to take advantage of innovative new services like Inbox Direct, available on the Netscape Web site. Inbox Direct provides more than 50 Internet-based services, such as the Wall Street Journal and New York Times, delivered right into your in box. It's like having magazines come to your mailbox at home, rather than going to the newssstand to find them. There are many other features of Communicator that will create innovative services on the Net that home users will want to take advantage of.
JackBW: A follow-up to the question about Japan, from Almintas.
Question: What is Netscape's international strategy? Any differences from that of Microsoft and other competitors? Is there a lot of emphasis on international markets?
VPNetscape: There is great emphasis on international markets at Netscape. Because our business is on the Net, it reaches into many more parts of the globe, instantly, than any normal startup could. Though we are growing rapidly as a company overall -- we quadrupled in revenues in '96 -- our international markets are growing at a greater rate. International revenues are now 34% of our business, and have been increasing by 2 to 3 percentage points every quarter for the past six quarters. We expect this to continue, because our strategy is primarily based on partnering with successful companies in each marekt around the world. This lets our business grow very quickly in those countries, in contrast with companies such as Microsoft that have traditionally built international businesses on their own.
JackBW: MGood10359 in North Carolina has a basic strategy question for a fast startup company.
Question: How do you convince people that you will be around for the long term?
VPNetscape: We convince people that we'll be around for the long term by producing successful results quarter after quarter. As time goes on and we continue to be successful, our credibility grows very quickly. In addition, we are very solid financially -- we have more than $150 million in cash and are profitable. Our management team consists of many very experienced business people, including Jim Barksdale, our CEO, who managed FedEx's tremendous growth throughout the 1980s and McCaw's growth from 1990 through 1995. At the end of the day, companies will invest in our technology if it is better than our competitors', costs less to implement, and is based on open standards.
JackBW: BNuns is back with this question.
Question: Mike, how are you growing your sales force to meet the competition from Microsoft, and can you keep up with R&D with your current revenue stream?
VPNetscape: Our sales force has been growing very aggressively, and we now have more than 700 people in field operations around the world. This is up from approximately 150 at the start of '96. We operate in 19 countries, and most of the people we have hired are experienced industry veterans from companies such as Lotus, Oracle, and Microsoft. Our R&D investments are also extremely high and average more than 22% of our revenues, whereas most software companies typically spend less than 15%. We have more than 700 engineers now working exclusively on Internet software, up from approximately 200 at the start of '96.
RobHof: Why has Netscape's stock dropped so much in the past couple of months? Are you doing anything to reassure investors?
VPNetscape: I can't explain the ups and downs of the market in general, and we believe that our stock price will be maximized over the long term if we build great products and a successful and profitable business. Our stock price has been volatile since our public offering in August, 1995, because we are a new company that is very high-growth-oriented. Investors view us as a good long-term bet but also as risky. We work as hard as we can to communicate our plans to investors so they'll understand our business, feel comfortable that we are managing it well, and therefore feel comfortable in investing in our stock. Even at today's prices, our company is valued at more than $3.5 billion, which is a sign that investors believe we have a great future.
JackBW: That's it for tonight. Thanks so much for being with us, Mike Homer, Netscape's top marketing executive, to discuss Netscape's strategy.
VPNetscape: Thanks, Jack and Rob. It was fun to be here.
JackBW: Thanks for your help, Rob.
RobHof: Thanks, nice to be here.
VPNetscape: Let me know the next time you'd like me to do it. Any opportunity to talk to customers is a good one.
JackBW: Transcripts of this and all BW Online conferences and chats are available soon after the event. Look under Talk & Conferences on the BW Online main screen. Thanks again, and goodnight to all!
Copyright 1997 by The McGraw-Hill Companies, Inc. All rights reserved.
