While the origin of the Internet dates back to the U.S. Department of Defense-sponsored ARPANET project in the late 1960’s, a key factor in its exponential growth has been the advent of the World Wide Web (WWW). In March 1989, Tim Berners Lee, a researcher at the Center European pour la Recherché Nucleaire (CERN), outlined the concept of the WWW in an internal proposal in which he articulated the goal of making all information on a network accessible in a simple and consistent way using a concept known as Hypertext. The name "World Wide Web" was established in October 1990.

At its inception, the World Wide Web consisted of three new technologies: HyperText Markup Language (HTML), HyperText Transport Protocol (HTTP), and a Web client program. HTML is used to write web pages. It is a markup language in that text (and later graphics, video and audio) are literally marked up using control characters to inform the client program how these media should appear. HTTP is a TCP/IP protocol -- an Internet communications protocol that is used to transfer information (including HTML files) across the Web. HTTP is part of an application program that resides on a server (known as a Web server) that processes requests from a client program and responds by sending the requested documents to the client. The final component of the WWW developed at CERN was a Web client program that receives data from a server, interprets it, and displays the results. The first clients developed at CERN possessed two basic functions: navigation and browsing, which remain the core functions of browsers today. See figure 1 for an overview.

The next key breakthrough came in February 1993 when a software development group at the National Center for Supercomputing Applications (NCSA), located at the University of Illinois-Urbana Champaign, released its first web client, known as Mosaic. In keeping with a time-honored Internet tradition, NCSA distributed Mosaic for free over the Internet. This software was an intuitively easy-to-use navigational tool for "browsing" the WWW. As a result of these developments, the Internet, which had previously been an obscure public network used mainly by scientists, was transformed into the information superhighway. A linked collection of video images, graphics, audio and text, the WWW has transformed the Internet into a media-rich world of information accessible to anyone. The introduction of Mosaic, the first Windows-based web browser, is regarded as the "killer app" that started the stampede of individuals and organizations onto the Internet (Ayre & Reichard, 1995; Berghel, 1996). By mid-1994 nearly two million copies of Mosaic had been downloaded from various computers on the Internet (Elmer-DeWitt, 1994). NCSA also began licensing Mosaic in early 1994 to companies such as IBM and DEC who bundled the browser software with existing products such as operating systems. By late November of the same year, NCSA had licensed over 10 million copies of Mosaic (Computer Business Review, 1994). In assessing its significance, Andy Grove of Intel stated, "The Internet is like a 20-foot tidal wave coming, and we are in kayaks" (Schlender, 1996: 200).

Contrary to many media reports, Netscape did not pioneer the commercial market for web browsers. The genesis of commercial browser software can be traced to a small software company named Spry who in August 1994 released the very first commercial web client. One reason that Spry was first to market was that it licensed the software code for the Mosaic browser from NCSA and used this as the basis for its browser, rather than develop the code from scratch.

Although Spry was first, Netscape was not far behind. In April 1994 Marc Andreesen, a member of the NCSA Mosaic browser development team, joined Jim Clark, the founder of Silicon Graphics, to form a start-up company called Mosaic Communications (the name was later changed to Netscape Communications). The firm released a beta version of its inaugural web browser, dubbed Navigator, in October 1994 and a finished version in December. In less than 6 months after its release, the Navigator browser became the industry standard, used (according to some estimates) by more than 70% of the WWW population. In doing so, it also became the world's most popular computer software application and transformed an obscure pastime -- seeking information and running applications on the Internet -- into a routine activity for tens of millions of people. More than 10 million copies of Navigator had been downloaded from Netscape’s web site alone by the end of 1994 and 18 months after its initial release Navigator had an estimated installed base of more than 38 million users (Cusumano & Yoffie, 1999: 10). From no revenues in fiscal year 1994, Netscape generated $85.4 million in sales in 1995, 61% of this coming from sales of Navigator (see Figure 2). The remaining revenues were primarily generated from the sale of Netscape's other core products -- server software. Netscape released its first server products, named Communications Server 1.0 and Commerce Server 1.0, in December, 1995.

Netscape’s early success was not due to a lack of competition. Nine other web browsers were available by the end of 1994 and a total of 24 browsers were included in Internet World’s review of this product category in April 1995. Towards the end of 1995, CNET, a popular on-line news service covering the information technology field, reviewed 28 different web browsers. Despite this increasing competition, Netscape and its Navigator browser experienced increasing success.

How was Netscape able to eke out such a dominant position? Being a pioneer in this nascent field certainly helped, though it should be noted that there were a number of other web browsers available in the marketplace even in 1994, including NCSA's Mosaic, Spry, Spyglass and others. Netscape however differentiated itself by building on the basic NCSA Mosaic platform and offering features in its products that made browsing the Internet a user-friendly experience. However, there is much more to how Netscape achieved its early dominance than just being a pioneer with a high quality product.

Early on Netscape realized that it could not develop all the technologies, software components, and original content that would make the Internet an interesting and viable platform for entertainment and business, thus increasing demand for its core browser and server software products. Rather than attempt to go it alone, it developed a large number of strategic alliances and less formal partnerships with independent software vendors (ISVs), producers of original content for the web -- independent content providers (ICPs), as well as numerous organizations that would help distribute Netscape's browser and server products.

Netscape entered into many technological development arrangements that were aimed at embedding new technologies in the browser.  For example, on January 9, 1995, Netscape announced an agreement with MasterCard to develop an interface for authorizing and clearing transactions on credit and debit cards in a secure environment on the Internet. Technological development partnerships were also aimed at extending the capabilities of the browser through the availability of complementary software components developed by independent software vendors. Netscape actively encouraged innovation on its browser platform by other companies. This involved providing technical support to the manufacturers of "plug-ins" -- software programs built by third-party developers that extended the capabilities of its browser. Plug-ins were made possible by Netscape’s Client Application Interface (NCAPI). Through this initiative, Netscape created a network of developmental partners that eventually included companies such as Macromedia, Adobe and Real Networks.

Netscape’s technological development partnerships also embodied initiatives aimed at exploring the WWW’s technological potential in various areas, ranging from financial transactions to entertainment. These linkages were often highly speculative in nature. For example, Netscape was involved in a strategic partnership with @Home to define cable-based Internet services for the home. Similarly, Netscape formed Navio Communications, an independent software company in which it had a major equity position, to create a variety of consumer and non-PC products based on Internet technologies. Given the highly speculative nature of most Internet-based business opportunities, Netscape created a large number of partnerships to probe these possibilities, rather than go it alone.

Netscape also entered into a number of different relationships, including OEM agreements, value-added resellers (VAR’s), co-branding, and bundling arrangements, in order to expand the marketing and distribution of their products. As an example, Netscape engaged in tie-ins with a number of Internet service providers (ISP’s), including MCI, Netcom, Portal and UUNet, in order to gain access to a wider number of end-users. In these arrangements, the ISPs co-branded Netscape’s browser and provided it as the exclusive browser to the ISP’s customers. Netscape also developed relationships with independent content providers (ICPs) to develop exclusive or "optimized" web content for Netscape browser users. For instance, in January 1997 the Wall Street Journal announced that they would provide a special "technology alert" directly to the email addresses of Netscape Navigator users. Perhaps the most well known of these efforts was to provide incentives to ICPs to optimize their content for Netscape's Navigator and display a button on their web site that stated "This site best viewed by Netscape Navigator." 

Netscape also participated in initiatives to promote and establish technological standards. These standards act as institutionalized rules that serve to influence the evolution and adoption of technologies. From early on, Netscape was involved in identifying and nurturing the standards on which the Internet is built. These include support for such open standards as Hypertext transfer protocol (HTTP), Hypertext MarkUp Language (HTML) and Simple Mail Transport protocol (SMTP). To this end, Netscape actively participated in standard-setting efforts within the World Wide Web consortium (W3C) and the Internet Engineering Task Force (IETF), the premier forums for the advancement of Internet related technologies. Indeed, Netscape was a founding member of the W3C and was the first to submit a technology for consideration as a standard. Through its involvement in standard-setting activity, Netscape attempted to actively influence "the rules of the game" and define the direction in which Internet technology was evolving.

In building its browser software, Netscape basically reinvented the rules of product development cycle times. To stay ahead, Andreesen insisted that the company release a new version of Navigator every three months, but he ultimately compromised on six months. When speaking about Netscape’s strategic focus on speed in new product introduction, Eric Hahn, senior VP of Enterprise technology, explained, "The market obsoletes itself every few quarters. Today a product that takes two years to develop is probably irrelevant" (Markoff, 1996: D1).

The rate at which new generations of the browser product were introduced was unprecedented. Between its inception in April 1994 and June 1997, Netscape introduced four major generations of its web client and numerous minor generations (see Figure 3). This represents a major product introduction every 8.25 months. In terms of time of release, while the first version of its browser shipped eight months after Netscape’s Navigator 1.0, the third generation of Microsoft's Internet Explorer was launched at the same time as Navigator 3.0, in August 1996 (see Figure 3). There has thus been a rapid shrinkage in the release time difference of the two browsers across the first three generations.

Netscape also achieved speed by reinventing a standard software industry practice. In an effort to enter the market as quickly as possible with its first edition of Navigator, Netscape released a "beta," or unfinished, version to the public on October 11, 1994. Numerous beta versions, each with incremental improvements and bug fixes, were released until Netscape released the finished commercial version of Navigator 1.0 on December 15, 1994 (see Figure 4).

Beta versions, by themselves, were not new. A beta version of a computer software program, until then, referred to an unfinished edition that was selectively released to a limited number of test sites in order to identify "bugs" (i.e., problems with the computer code) and to solicit feedback on the features, functionalities and performance of the program. The rationale behind this practice was the betas were expensive. The unfinished software had to be documented, stored on diskettes or CD-ROMs, packaged and shippped. Therefore, betas were distributed to a select few only once or twice prior to the release of the finished version. However, the web enabled Netscape to change all that.

Netscape made beta versions of Navigator 1.0 available for free to anyone who wished to download them from its web site. This pioneering practice benefited Netscape in several ways. First, the distribution of free beta versions via the WWW allowed for rapid, large-scale trial by customers and provided Netscape with an army of unpaid quality-test engineers. Netscape encouraged such quality-testing efforts by providing an on-line "bug report form" on its website and by awarding customers cash and prizes for the quality of bugs they report as part of their "Bugs Bounty" program. Giving away the product in this manner eliminated the risk of trial and encouraged adoption. Netscape's development team utilized the information generated by beta users in order to gradually refine and add new features and functions to successive beta versions, all of which were then incorporated into the finished version of Navigator. The release of such intermediate products reduced Netscape's time to market. When speaking of the success of their innovative use of betas in their product development strategy, Netscape chairman Jim Clark stated, "There's no way we could have done this any other way" (Hof, 1997).

For each successive generation of browser Netscape increased the time between initial beta release and the release of the finished version. That is, Netscape has been introducing betas earlier and earlier. Netscape introduced its first beta version of Navigator 1.0 two months prior to the release of the finished version. This lead-time increased to three months with version 2.0, four months with version 3.0 and five months for the latest generation of Navigator.

By releasing unfinished and finished generations of Navigator so rapidly, Netscape aggressively cannibalized existing generations of its browser. Figure 6 depicts such a process of product cannibalization across three generations of Netscape Navigator. Of significance is the rate at which the adoption of Navigator 3.x grew at the expense of Navigator 2.x. Netscape released the initial beta of Navigator 3.x in early April 1996. By December of the same year this generation of browser had garnered 81% of all Netscape users. In contrast, usage of Navigator 2.x declined dramatically during this same period, from a peak of 84% to 18%.

While usage of Navigator 2.x was quickly replaced by Navigator 3.x, Navigator 2.x itself had earlier supplanted Navigator 1.x even more rapidly. Netscape released the initial beta of Navigator 2.x in early September 1995, when 1.x was the only generation available. While usage of Navigator 2.x rocketed to 84% by the end of March 1996, Navigator 1.x usage fell to 16% from 100% in the same period. It appears that users were quickly abandoning the older versions of Navigator in favor of the latest generation.

Figure 7 graphically represents the growth in the adoption of Navigator 3.x, controlling for the influence of the growth of Netscape’s absolute browser market size. As this figure demonstrates, even after controlling for adoption by new users, existing users are upgrading to Navigator 3.x rapidly, resulting in the aggressive cannibalization of Navigator 2.x. The graphic also shows that, in contrast to other markets where various product generations coexist with one another such as microprocessors, the browser market is one in which a new product generation tends to wholly replace an earlier one.

Underlying Netscape’s obsession with speed was its belief that any new functionality that it introduced in its products could be easily imitated by other firms. This belief stemmed from an understanding that the WWW was based on the use of open technological standards such as HTML (Hypertext Markup Language) and HTTP (Hypertext Transfer Protocol). While such standards allowed for the rapid growth of the technological system by creating stable expectations for end-users, they also invited widespread use by competing firms. The "open" nature of the technological platform made it incumbent on Netscape to innovate rapidly and flood the market with new products on a continual basis. Reflecting upon the dynamics of this market, Netscape co-founder Mark Andreesen explained, "Proprietary technologies don't work on the Net, so we plan to stay ahead by innovating faster than our competitors, not locking users into standards we alone own" ("A new electronic messiah," 1995). Echoing this strategic focus, Netscape CEO James Clark told Business Week in March 1996 that his company needed to maintain a six-month lead over competitors in the release of new generations of its browser software "to stay safely ahead of the pack" (Hof & Cortese, 1996: 84). Peter Currie, Netscape’s CFO, simply stated, "We'll sacrifice almost anything for speed" (Hof, 1997).

Netscape's strategy worked wonders during the first two years of its inception. From no revenues in fiscal year 1994, Netscape generated $85.4 million in sales in 1995, 61% of this coming from sales of Navigator. It also had gained a commanding share of the web browser market. However, the battle for the Web was just beginning.

Even as thousands of computer users began downloading Netscape's browser and exploring the WWW, Microsoft was preoccupied with other matters. For over two years Microsoft had been touting the release of its next generation Windows operating system -- Windows95. This product represented the single largest and most expensive development project in Microsoft's history. Related to this project, Microsoft had been developing a proprietary dial-up computer network for consumers that was code-named Marvel (and would later become known as the Microsoft Network, or MSN for short). MSN, which would be integrated into Windows95, was part of CEO Bill Gates's foray into what he believed to be the coming of the information superhighway -- the converging of television, cable, entertainment and computing. Indeed, around the same time Gates had invested in cable TV heavyweights TCI and ComCast. What Gates did not realize was that the information superhighway had already arrived -- in the form of the Internet. Gates and Microsoft were also having to contend with an intense investigation by the US Department of Justice of alleged anticompetitive practices, as well as a civil lawsuit filed by Stac Electronics accusing Microsoft of stealing Stac's data compression technology. Possibly symptomatic of all of these concerns, the Internet was not at all mentioned in the first edition of The Road Ahead, Bill Gates's book describing his vision of the future.

Although late to the game, Microsoft did make an initial attempt to respond to Netscape. In December 1994, it paid Spyglass $ 2 million for a single snapshot of the Mosaic code that it would use to build a browser for Windows 95 and Windows NT. Internet Explorer 1.0 (IE 1.0) was launched on August 17, 1995, a week before the debut of Windows 95 and eight months after Netscape's release of Navigator 1.0.

The introduction of IE 1.0 represented a rudimentary response by Microsoft. Versions of Internet Explorer for Windows 3.1 and Macintosh were still not available, and Microsoft watched helplessly as Netscape continued to grab a larger share of the browser market. Evidence that Gates and Microsoft finally realized the significance of the Internet and web browser was revealed in May of 1995 when Gates distributed his "Tidal Wave" memo to MS employees in which he likened the Internet to a tidal wave that could drown Microsoft if it did not respond quickly and appropriately. And it was on December 7, 1995 that Bill Gates made his famous "Pearl Harbor" speech, in which he outlined the comprehensive overhauling of Microsoft's strategy, which was now to be squarely focused on the Internet. Gates had, by now, recognized that the browser's potential value was less as a product in and of itself than as a vehicle -- a "platform," in industry parlance -- for high-dollar business applications software.

By early 1996 it became clear that Microsoft saw Netscape and its use of Sun’s Java language as a threat to the Windows franchise. In February 1996, Microsoft group vice president Paul Maritz distributed a confidential strategic analysis of the web browser market. One of the slides contained within this document made the following points: "[Web] pages become applications. Netscape/Java is using the browser to create a ‘virtual operating system’" and "Windows will become devalued, eventually replaceable?" (Lash, 1997). Understandably, the first item listed under the "product strategy" section of this report read, "Catch Netscape 2.0, neutralize Java" (Lash, 1997). The time had come for Microsoft to act.

In order to establish a presence for its browser platform, Microsoft realized that it too would have to rely significantly on external partners. For starters, Microsoft became involved in setting Internet-related standards. It announced in October 1996 that it was handing over the evolution of ActiveX technologies to the Open Group, thus placing its web application-creation standard in the public domain.

In terms of marketing and distribution relationships, Microsoft struck deals with various Internet service providers (ISP’s) to make it the preferred browsing software for ISP customers. Indeed the arrangement with Prodigy on October 8, 1996 completed a clean sweep of deals with the largest ISP’s including AOL, CompuServe, AT&T Worldnet, Netcom and MCI, which, one-by-one abandoned Netscape's Navigator in favor of Microsoft. Scott Winkler of the Gartner Group stated, "Microsoft is buying the business. They've got the big pelts on their belts now" (Zuckerman, 1996: D1). Additionally, like Netscape, Microsoft also established exclusive deals with content providers to encourage users to adopt Internet Explorer. For example, on August 13, 1996, Microsoft announced that seven firms, including ESPN and MTV, would offer free content to IE users.

Finally, Microsoft also established numerous technological development initiatives with other firms. Through partnerships with Visa International, American Express and a large number of banks, Microsoft took steps towards gaining a foothold in the emerging world of electronic commerce by developing security authentication technology. In this fashion, Microsoft also relied on various kinds of linkages in order to establish a presence for its Internet Explorer platform.

There were differences, however, in the web of linkages that Microsoft and Netscape created for themselves. This is largely a reflection of both the prior history and the technical philosophy of the two companies. As a start-up company with limited resources, Netscape had to rely more heavily on external partners in order to establish its presence. Its network includes some of the computer industry's most influential players: IBM, Sun Microsystems, Oracle, Hewlett Packard and Apple. This group of alliance partners has often been referred to as the "Everyone but Microsoft" crowd. Reflecting on the countervailing power that Netscape possessed because of its size and role, Henry Nothhaft of Concentric Networks stated, "Netscape has become the magnet of lots of other strong companies against Microsoft" (Hof, Rebello & Cortese, 1996: 35). Commenting on Netscape’s strategy, Ann Winblad, partner in the venture capital firm Hummer Winblad, offered, "Its like the board game Risk. You cannot win alone. You've got to persuade someone else who's playing to be your partner" (James, 1996: 98).

Netscape was also strongly influenced  by the prior experiences of its founding members. Historically, the Internet has encouraged diversity in usage of computing platforms, i.e., there has been a strong focus on getting computers running on different operating systems to interoperate with one another. Many members of Netscape's original software development group shared this multi-platform philosophy as a result of their involvement in the development of the original NCSA Mosaic browser. The Navigator browser reflected this vision in terms of the wide variety of platforms it operated on, including various versions of UNIX, Macintosh, and Windows 95 and NT. In essence, Netscape subscribed to a network-centric view of computing in which users are able to utilize the resources of the larger network of which they are part (Wallace, 1997). This view, in turn encouraged a highly decentralized organizational form. The large number of linkages that Netscape was involved in partly reflected its network-centric philosophy.

Microsoft, on the other hand, entered the browser marketplace with a commanding position in the personal computer software business. Given its already established installed base, it focused on integrating Internet-based applications with its existing Windows platform. John Rymer, VP of Giga Information Group, commented, "Essentially, what Microsoft is doing is making the browser a fundamental part of the operating system -- burying the functionality of the browser into Windows 95, and eventually, Windows NT" (Zuckerman, 1996: D1). This Windows-centric approach was also reflected in the number of linkages it formed. Microsoft was involved in substantially fewer interorganizational arrangements than Netscape, although the distribution of the type of linkages it formed was nearly identical to that of Netscape. Rather than build linkages with other firms, Microsoft often bought up firms that possessed competencies that it did not. Its dominant presence in the software industry was also reflected in the more centralized web of linkages that it created.

In addition to weaving a different web of linkages to build its own technological platform, Microsoft also had to contend with the rapid rate of product development taking place in this market. There was much ground to cover before it could catch up with Netscape.

While it was a relatively late entrant into the browser marketplace, Microsoft proved to be a quick learner. Initially, given Netscape's overwhelming market dominance, Microsoft had little choice but to clone many features of the Navigator platform. Beginning with IE 2.0 Microsoft also imitated Netscape’s beta strategy by releasing numerous beta versions well in advance of the release of the final versions. With the release of IE 3.0, however, Microsoft had created a browser that not only achieved parity with Navigator in terms of its functionalities but also provided more than its own share of original technologies.

The entry of Microsoft into this market put additional pressures on the two firms to further accelerate their product development cycles. To illustrate this point, consider that Netscape released a total of 25 beta and finished versions of Navigator between the entry of Microsoft and the finished release of Communicator 4.0 in June 1997 (see Figure 3). This represents a release of some sort every 3.7 weeks. Indeed, the terms "Net Speed" and "Internet Time" have been coined to describe this rapidly evolving market.

Like Netscape, Microsoft also employed a strategy of product cannibalism in the web browser market. Figure 8 portrays this form of product transience across three generations of Internet Explorer. The figure shows that the second and third generations of Internet Explorer exhibit a pattern of growth and decline similar to that of the same generations of Netscape Navigator. The initial beta of IE 2.x was released in September 1995. By February of the following year this generation had attracted 90% of all Microsoft browser users; an average monthly increase of 15%. Inversely, usage of IE 1.x had declined to 10% in the same period; an average monthly decrease of 15% since the release of IE 2.x. The comparable growth and decline rate for the same generations of Netscape Navigator was only 13.2%.

Subsequent to its rise in popularity, IE 2.x was replaced even more rapidly by IE 3.x. From its introduction in beta form in April 1996, usage of IE 3.x rose to account for 90% of all Microsoft browser users by October of the same year; representing an average monthly increase of 16.2%. During this same period, usage of IE 2.x fell from 83% to 7%; an average monthly decrease of 15%. By comparison, relative growth and decline rates for Navigator 3.x and 2.x were 8.3% and 7.2%, respectively.

As figure 8 demonstrate, product cannibalism across the first three generations of Microsoft’s browser is more pronounced than that exhibited by the same versions of Netscape’s browser. We attribute this intense transience to Microsoft’s strategy of giving away its browser and to product quality competition from Netscape. By providing its browser for free to all customers, Microsoft greatly reduced any disincentive, such as a sunk cost effect, for quickly upgrading to the latest generation. In contrast, Netscape only provided its browser for free to a subset of customers, charging between $39 and $79 for commercial and retail editions. Second, Microsoft entered the browser market nine months after Netscape and had to quickly develop generations of IE that soon matched or exceeded the functional capabilities of Navigator. These steeper jumps in quality, in turn, led to greater numbers of users switching to the latest version of Internet Explorer. Moreover, they ensured that Microsoft would not be locked out of controlling the potentially lucrative portal to cyberspace.

The battle of the browsers continued to unfold. Many analysts believed that the true significance of this battle was about establishing the software infrastructure (i.e., the "bricks and mortar") for commercializing the Internet and thereby defining a new model of computing. As Bill Gates proclaimed, "The computer industry has now entered the second PC revolution -- this one to be fought over the Internet" (Wallace, 1997).

Netscape released its fourth generation browser in June 1997 and Microsoft followed a few months later with the release of Internet Explorer 4.0 in September. In each successive generation of browser, both Netscape and Microsoft have significantly enhanced the functionalities of their respective browsers. In doing so, both companies have begun to transform the browser into a full-fledged application platform, or, in industry parlance, into "Internet-enabled groupware."

In pursuit of building such platforms, both firms have adopted a component software strategy whereby the browser is actually an integrated suite of various applications. These applications, or "components," represent the browser’s major functionalities. Indeed, much had been written in the computer press about the increasing role of the browser as a "component container" and application platform (Kay, 1997). The increasing modularity of this technological system has been referred to as the "componentizing" of the browser (Smith, 1996). Such componentizing provides for the mass customization of each company’s browser by enabling users to mix and match components and plug-ins to suit their specific needs (Pine, 1993). Additionally, the programming languages used to develop each browser are "object oriented" languages. A key feature of such software languages is their ability to use modules of prewritten code that can then be used as components in larger programs.

The modularity of both the browsers and their underlying code is a sharp break from conventional monolithic programs and programming techniques, and promises to lead to even faster innovation in the already hectic Internet software market. The terrain of the contest is thus moving to the creation of more complex software for the Intranet market. According to Jim Barksdale, CEO of Netscape, the real war is being fought over the $10 billion he expects corporations to spend on Intranet software by the year 2000. And Marc Andreesen, co-founder and senior VP for technology adds, "The big war in 1997 is going to be over groupware and e-mail." (Lohr, 1996: D2).

The building of a more complex technological platform that can support business critical applications has required both Netscape and Microsoft to rely on relationships with external partners who bring distinct and complementary sets of skills to the table. A recent example of this is reflected in the rush by both companies to provide "push" technology in their latest browser versions. Netscape joined forces with Marimba while Microsoft has an arrangement with Pointcast to provide such technology in their browsers. Likewise, both companies have tie-ups with a number of banks, financial institutions and security authentication companies in their attempt to create and expand the market for electronic commerce on the WWW. As both companies continue to beef up their browsers and convert them into full-line Internet application suites, their reliance on external linkages continues to grow.

These linkages, in turn, impact the technological platform that is being built by the two firms. The components that comprise the latest versions of both Navigator and Internet Explorer are a direct consequence of the interorganizational linkages that Netscape and Microsoft created in the past. For example, the inclusion of the Collabra component in Navigator 4.0 (that provides the group collaboration function to this platform) can be clearly attributed to Netscape's acquisition of Collabra Software in September 1995.

Recently, several significant events have occurred that may have a tremendous impact on the future success of both these firms. First, on October 20, 1997, the U.S. Department of Justice (DOJ) filed a petition seeking to hold Microsoft in civil contempt for violating the consent decree that Microsoft had signed with the DOJ in 1995. Second, on January 22, 1998, Netscape announced that it would freely license the source code of its browser software to any vendor. On the same day, Netscape also announced that it would make available its browser free of charge to its customers. Although each of these events is worthy of a detailed analysis, we will only provide a broad discussion of how these issues may be important in the browser wars.

In its petition, the DOJ alleged that Microsoft was attempting to extend its monopoly of the operating systems market to the market for Internet browsers. Microsoft, the DOJ stated, was violating an earlier consent decree by requiring computer manufacturers to install Internet Explorer if they installed Windows95. The DOJ’s case was based on two premises: (1) the web browser was a distinctly different product from the operating system, and (2) computer manufacturers had no way of installing Windows without the Internet Explorer, effectively forcing them to distribute this second product.

After initial reluctance to unbundle the browser from the operating system, Microsoft relented and agreed to provide OEMs with a functional version of its Windows operating system without Internet Explorer. What is yet to be decided is Microsoft’s right to integrate Internet Explorer into the next version of their Windows operating system. Microsoft is arguing that the ability to enhance the features of the operating system is a fundamental facet of innovation in this industry, whereas the DOJ is arguing that such "bundling" tactics are anti-competitive. Microsoft argues that the consent decree explicitly recognized Microsoft’s right to add new capabilities to its Windows operating system and to create "integrated" products.

Even as the Justice department was attempting to limit Microsoft’s monopoly control, Netscape felt that the only way to compete with Microsoft was to adopt an "open-systems" strategy. On January 22, 1998, Netscape took the technology world by surprise with an announcement that it would make both its browser and the browser source code freely available to anyone. Providing the browser free to users was an attempt by Netscape to match Microsoft’s free give-away of browsers. With the loss of significant browser revenue, Netscape’s Andreesen stated that his company planned to generate revenues from enterprise software and from its Web site business (Brandt, 1998).

The source code give away, Netscape suggested, would ensure that others in the field could innovate on an open platform. However, this was a tremendous departure from the standard strategy in commercial software of aggressively shielding what is often considered a software company’s most valuable property – its source code. Rather than develop various isolating mechanisms to protect the value of its browser source code, Netscape opted to place it in the public domain. Netscape also announced a process of how the best of the distributed initiatives would be incorporated into the ever evolving architecture that it hoped to control because of its position at the hub of the network. Specifically, Netscape’s source code deal required anyone who modified the browser to send changes back to Netscape for possible inclusion into an official release. In this way, Netscape was hoping to foster distributed innovation among its network members. Andreesen summed up their source code strategy this way: "Microsoft has a ton more developers and programmers. Source code is the only way we could tap the energy of all the people who wanted us to modify it or port to other computers or create new features" (Caruso, 1998).

.