I was revisiting the story of the Netscape IPO when I realized that most people know how Netscape’s story began but not how it ended. The IPO in August 1995 is legendary – a company with barely any revenue going public and doubling in price on its first day, igniting the dot-com boom. But the rest of the story, the part where Microsoft systematically dismantled Netscape’s dominance, triggered the largest antitrust case in tech history, and inadvertently created the open-source movement that powers the modern web, is equally important and far less discussed.

This is the story of a war that one company lost and everyone else won.

Netscape’s 90 Percent Kingdom

In 1995, Netscape Navigator owned the web browser market. Estimates vary, but most sources put Netscape’s market share at roughly 90 percent at its peak. The company’s browser was the primary way most people accessed the World Wide Web. Netscape charged $49 for the retail version and made its money through enterprise server software and licensing deals.

The web was still new. Most Americans had never used it. But those who had almost certainly used Netscape Navigator to do it. Marc Andreessen, who had co-created the Mosaic browser at the University of Illinois before co-founding Netscape, was on the cover of magazines. He was 24 years old and barefoot in his Time magazine photo. The future seemed to belong entirely to Netscape.

The NASDAQ composite index chart during the dot-com bubble. Netscape's 1995 IPO is widely credited as the event that started the gold rush. Image via Wikimedia Commons.

Microsoft’s Response: Bundle and Destroy

Bill Gates saw the threat immediately. In a now-famous internal memo dated May 26, 1995, titled “The Internet Tidal Wave,” Gates wrote that the internet was the most important development since the IBM PC and that Microsoft needed to respond aggressively. The response came in the form of Internet Explorer.

Microsoft’s strategy was devastatingly simple: give the browser away for free and bundle it with Windows. Since Windows ran on roughly 90 percent of the world’s personal computers, this meant that every new PC buyer would get Internet Explorer pre-installed at no additional cost. Why would anyone pay $49 for Netscape Navigator when Internet Explorer came free with their computer?

Netscape tried to compete on features, on speed, on innovation. But Microsoft had an advantage that no amount of engineering could overcome: distribution. Every copy of Windows 95, and later Windows 98, shipped with Internet Explorer integrated into the operating system. Computer manufacturers who wanted to ship Windows (and they all did) were required to include IE.

The market share numbers tell the story. Netscape’s share fell from roughly 90 percent in 1995 to roughly 60 percent by 1998, then continued its decline. By 2002, Internet Explorer had captured over 95 percent of the browser market. Netscape’s share eventually fell below 1 percent.

The Antitrust Case That Changed Tech Law

Netscape did not go quietly. The company filed complaints with the U.S. Department of Justice, which launched a massive antitrust investigation into Microsoft. The case, United States v. Microsoft Corp., went to trial in 1998 and became the most significant antitrust proceeding in the technology industry’s history.

The government’s argument was that Microsoft had used its Windows monopoly to illegally crush competition in the browser market. The evidence included internal Microsoft emails in which executives discussed strategies to “cut off Netscape’s air supply.” Judge Thomas Penfield Jackson ruled in 2000 that Microsoft had violated the Sherman Antitrust Act and initially ordered the company to be broken into two separate entities.

The breakup order was later overturned on appeal, and Microsoft settled with the DOJ in 2001. The company was not broken up, but it was required to share its programming interfaces with third-party companies. More importantly, the case changed how the entire tech industry thought about competition, bundling, and platform power. The legal frameworks established during United States v. Microsoft continue to influence antitrust enforcement in tech today.

Steve Jobs unveiling the MacBook Air -- Apple, which nearly died in the late 1990s, benefited indirectly from the antitrust constraints placed on Microsoft after the browser wars. Photo via Wikimedia Commons, CC BY 2.0.

The Open-Source Phoenix

Here is where the story takes its most interesting turn. In January 1998, facing inevitable defeat in the browser market, Netscape made a decision that seemed desperate at the time but proved visionary: they open-sourced the Navigator browser code under the Mozilla project.

The idea was radical. A company was giving away the source code of its flagship product. Critics called it a white flag. But the open-source release planted a seed that would take years to sprout. A small team of developers continued working on the Mozilla codebase, rewriting much of it from scratch. In 2004, six years after Netscape open-sourced its code, the Mozilla Foundation released Firefox 1.0.

Firefox was fast, secure, and free. It challenged Internet Explorer’s dominance at a time when Microsoft had become complacent. IE had barely been updated since winning the browser war. Security vulnerabilities were rampant. Firefox offered tabbed browsing, popup blocking, and extension support. Within two years, Firefox had captured roughly 25 percent of the browser market.

Firefox’s success proved that open source could produce consumer software that competed with (and in many ways surpassed) proprietary alternatives. It paved the way for Google Chrome, which launched in 2008 and now dominates the browser market. Chrome itself is built on Chromium, an open-source project. The DNA of Netscape Navigator lives on in the architecture of the modern web.

What Netscape’s Defeat Actually Accomplished

I find this story compelling because the conventional narrative – Netscape lost, Microsoft won – misses the bigger picture entirely. Netscape’s defeat triggered an antitrust case that constrained Microsoft’s power and created space for Google, Apple, and other competitors to grow. Netscape’s open-source release created the foundation for Firefox, which shattered IE’s monopoly and established open-source browsers as the industry standard.

The dot-com crash killed thousands of companies, but Netscape’s influence survived the crash entirely. The browser wars established principles – that bundling can be anticompetitive, that open source can defeat proprietary software, that market dominance is never permanent – that continue to shape how we regulate and build technology.

Netscape lost the battle for the browser. But the web as we know it today – open, standards-based, and built on publicly available code – is the world Netscape fought for. Marc Andreessen went on to co-found Andreessen Horowitz, one of the most influential venture capital firms in history. The defeat launched his second act.

Sometimes losing is just building by other means.

Sources

  • Jim Clark with Owen Edwards, Netscape Time: The Making of the Billion-Dollar Start-Up That Took on Microsoft (St. Martin’s Press, 1999).
  • Michael Lewis, The New New Thing: A Silicon Valley Story (W.W. Norton, 2000).
  • United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001), court documents.
  • Bill Gates, “The Internet Tidal Wave,” internal Microsoft memo, May 26, 1995 (published in DOJ antitrust proceedings).
  • Mitchell Baker, “The Mozilla Story,” mozilla.org, various blog posts, 2003-2005.
  • StatCounter and W3Counter browser market share data, 1995-2010.
  • “How Firefox Challenged Internet Explorer’s Dominance,” Wired, November 2004.