Netscape's future in doubt

BY DAVID SPEAKMAN

When AOL Time Warner Inc. laid off 60 Mountain View-based workers Dec. 11 from its Netscape Communications Corp. unit, many believed it was the long-anticipated beginning of the end of a company that helped launch the World Wide Web.

Panicked employees called the press — including KCBS-AM radio and Biz Ink — with horror stories that AOL was cutting three-fourths of its Netscape work force and transferring the rest to the AOL campus in Dulles, Va.

But the horror didn’t play out that Wednesday morning — as only 60 of the almost 1,000 Bay Area Netscape employees were fired. Six percent, not 75 percent.

The first week of December, New York-based AOL issued a new strategy for its online unit — beef up the America Online service’s exclusive content and go for the emerging broadband Internet market.

On that news, Morgan Stanley analyst Richard Bilotti downgraded AOL to “equal weight,” or hold, from “overweight,” or buy.

In a Dec. 3 research report, Bilotti said AOL’s new “save the hill” strategy was a far cry from the “take the hill” mentality he was hoping for.

And Bilotti isn’t alone.

Matthew Davis, a spokesman for the Yankee Group said AOL’s idea to sell multimedia content has been the elusive holy grail of the broadband industry for years.

Still, AOL maintains it is “committed to the Netscape brand,” says AOL Netscape spokesman Marty Gordon.

“Netscape is a Top 10 portal and we’ve been working to build it out,” agreed Jim Whitney, AOL corporate spokesman.

Brand. Portal.

What about the thing that put the company — and the Internet for that matter — on the map, the Netscape Navigator browser?

“I think you’re confusing two things,” Gordon says, explaining the evolution of the company. “The Netscape browser is a key tool we offer that brings quite a bit of traffic to the site and its content.”

“We are committed to product development,” AOL Netscape’s Gordon says.

True, Netscape released version 7.1 of its Navigator browser last week with technology to kill pop-up advertising.

But according to Web monitor StatOne.com, the majority of the 3 percent of Internet surfers who use Netscape are still using version 4.7.

The Netscape Communicator e-mail program also still exists, but is being upstaged by a new free e-mail client called AOL Communicator, which America Online developed in Dulles as a companion to its AIM and ICQ instant messenger services.

Sources say the use of the Communicator name and cannibalization of the shrinking Netscape user base has caused a growing rift between AOL and Netscape backers.

Gordon, based out of Mountain View, spoke from Dulles where AOL executives have been meeting and reviewing each of the AOL divisions “group by group” to see how they fit into plans for a new streamlined online unit.

Part of that plan is to take content from other AOL Time Warner properties — such as CNN and Time magazine — and offer it exclusively to AOL subscribers.

But, won’t that affect Netscape, which currently offers such content free on its portal?

“Potentially,” admits Gordon, stressing AOL’s continued commitment to the Netscape brand. “But, that remains to be seen.”

Both AOL spokesmen say their company is committed to the Netscape brand, and that no other layoffs are planned.

But, one hard-learned lesson of the dot-com bust is that plans change as the business world changes.

“We have a group of excellent people in Mountain View,” Gordon says, “we still have about 1,000 working there.”

But that’s less than half the 2,500 Mountain View work force that existed when AOL bought Netscape in 1998. The work force gradually fell to current levels though layoffs, attrition and transfers.

Of course, back then Netscape wasn’t known as a Web portal — it was the maker of the market dominant Web browser and e-mail system called Netscape Communicator.

But Redmond, Wash.-based Microsoft Corp. used its Windows operating system monopoly to muscle in and take over the market with a competing browser — Internet Explorer.

In 1998, as Netscape was bleeding from losing the browser war with Microsoft and had its first round of layoffs, shareholders cheered as then-cash-rich America Online swooped in with a white knight hug and acquired Netscape for $4.2 billion.

But for some, that hug hurt.

Almost immediately AOL’s commitment to Netscape came into question within the Mountain View company’s ranks.

Jamie Zawinksi, a founder of Netscape, quit the company on the day the merger closed — April 1, 1999 — as AOL cut 850 jobs nationwide, including Netscape jobs.

Back then, during a severe Bay Area job shortage, Friedman Billings Ramsey analyst Ulrich Weil said in a report, not to “shed any crocodile tears for these people. They will be snapped up.”

What was true then, but may not be so today.

One Netscape source, who asked to remain anonymous, survived the Dec. 11 round of layoffs but has only been working there for a few weeks and had been unemployed for a year before landing the Mountain View job.

He said before closing down the Mountain View campus, AOL is most likely going to close Netscape’s San Francisco and Irvine offices.

But AOL insists Netscape and its product line do have futures with AOL — for now.