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home pageThis paper explores issues of technology management and competitive resources for businesses competing in one of the fastest growing and most rapidly evolving markets today -- graphical Internet software for accessing the World Wide Web (Web, or WWW). To understand the technology and the business today, it helps to understand the origins of the Internet, how its use has evolved over time, and the standards that make the phenomenon known as the Internet possible.
Perhaps the most significant development in the life of the Internet since NSFNet was the introduction of the World Wide Web by researchers at CERN (the European Laboratory for Particle Physics). The most important contribution that the Web made to Inter net technologies is the HyperText Markup Language (HTML), which allowed document authors to link parts of their document to a document at another site on the Internet. The hyperlink could then lead the user logically to related information without the user having to know where the information physically resided.
NCSA, the National Center for Supercomputing Applications, at the University of Illinois, developed and made freely available a graphical browser called Mosaic to navigate and view the Web. Mosaic could display hypertext documents along with embedded gra phics and other media types (audio, video, animation, etc.) for which supporting software was available. Mosaic also integrated many of the previous methods for navigating the Internet, such as FTP, news (NNTP), Gopher, and WAIS. Increased ease of use o f the Web and the expansion of commercial on-line services offering dial-up access to the Internet fueled an explosion in the number of Internet users.
Hardware and software technologies that provide basic information transmission fundamentally enable the Internet and the Web to function. Many of these technologies, like ethernet or IP, are mature and widespread. Others, like Asynchronous Transfer Mode (ATM), have been developed to solve networking capacity problems that have occurred with the inevitable growth of Internet networks and have yet to gain commercial acceptance. Overall, networking communication technology is predominately past the explor ation phase of development and is progressing upwards through the exploitation portion of the technology development "S-curve." The advancement of basic communication technology does not directly constrain or promote Web software technology. Instead, i t enables or impedes the advancement of Internet software by providing or inhibiting the adequate information bandwidth growth necessary to support more sophisticated and communication-intensive network software.
Other technologies affect Web software more directly. These technologies deal primarily with digital multimedia (sound and video), HTML authoring tools, distributed programming, and data encryption for maintaining privacy on public networks. One of the benefits of the Web over earlier Internet services is its multimedia capability. Technology to interpret digital audio and video have progressed well up their S-curves. While different formats abound, a handful of common data formats dominate and are in terpreted by readily available software. As such, the format of audio and video is largely transparent to the user.
HTML publishing technology is an important technical factor for Internet software, because it "productizes" standards and new capabilities which competitors use to influence HTML specifications. HTML publishing products provide Web content providers with a WYSIWYG3 display of the document while hiding details of the HTML formatting directives. Thereby these products improve efficiency for both experienced and novice HTML authors.
A recent development in the nature of data exchange over the Web is the advent of applets written in Java, a language developed by Sun Microsystems. Java allows Web content to evolve from static documents to dynamic, interactive applications that run in a network-centric environment. The applets are interpreted by client software and so are not tied to the machine instructions of any one CPU manufacturer or to any operating system interface on the computer. Such distributed network programming languag es are still at a very early stage of the technology's S-curve. No dominant design has yet emerged for a network-centric programming environment, and the manufacturers' strategies and market positions are clearly reflected in the product features and design and marketing approaches.
As the Internet has gained commercial viability, commerce has demanded a robust technology for protecting private information such as charge account numbers. One approach to this problem has been to encrypt information before it is transmitted and then t o decode it after it reaches its destination. Encryption technology is still very low on the exploitation portion of the S-curve, with much development still to occur. While no single encryption technology is universally acknowledged to be superior, cur rent techniques provide reasonable security for private transactions. As more businesses desire to conduct commerce on the Internet, security technology will become more crucial to Internet software running on both client and server computers.
Another emerging technology to impact Internet software technology is groupware. Groupware applications allow people at different locations to collaborate on work by using the network connections between their computers. Because groupware requires netwo rking for its operation, the combination of groupware with the Internet is a natural evolution. Many firms are still exploring various types of groupware technology, as it is felt that the current state of groupware is somewhere at the transition point between exploration and exploitation.
The success of firms in this industry could be short-lived if another company's Web browser becomes popular. The cost to switch products is very low, as it can cost as little as $30 per user for a site license. As the content available in the Internet i s based on open systems, any browser product can display information, thus ensuring a level playing field for competitors to enter.
The company's goal is to make its software the de facto standard for publishing information and executing transactions on the Internet and private networks.
Netscape made a public equity offering in July 1995 which brought its total market capitalization to $1 billion. 7 In the following months, the market capitalization of the firm exploded and in December 1995, the firm's equity was worth more t han $4 billion.
Netscape's unique financial strategy is to reinvest all of its free cash flow into R&D in an attempt to claim its stake in the rapidly evolving, competitive landscape of Internet software. In 1995, Netscape announced a small profit, promptly apologized, and promised to do "better" next time.
Netscape owns approximately 75% of the Web browser market thanks largely to its then unique marketing strategy. "When Jim Clark left Silicon Graphics to form Netscape, he looked at how he could change the rules of being a software company. Netscape aske d itself, 'Is there a way to go beyond Microsoft?' Well, they changed the rules. They put their software on the Internet for free." 8 Netscape asked users to send in a fee if they found value in the product. According to Clark, Netscape rec eived more money in the first four weeks than did Silicon Graphics in its first two and one half years. In contrast to Spyglass, Netscape distributes its browser, the Netscape Navigator, directly to end-users, and recently has been able to generate reven ue by selling its browser in retail stores for $40 per copy and in large lots to corporate customers. 9 Netscape had expanded its product line to include Web server software and proxy servers to bridge Web communications across the firewalls p rotecting companies' private networks from the public Internet. Netscape has also arranged to include to include copies of Navigator with other companies' software products. Netscape hopes that these companies will be encouraged to create their own Web presence for technical support and product distribution, and in the process create more demand for Netscape's products, both browser as well as application server. 10
In contrast to Spyglass, Netscape chose to develop its own software instead of licensing the NCSA Mosaic source code which Marc Andreessen had written. This approach is key to the company's technology strategy. Netscape continuously extends HTML featur es to integrate new security and display features and related technologies, such as Sun Microsystems' Java scripting language11, into their browser. With a 75% market share, the resulting network externality effect from the HTML extension 12 features pushes the HTML standard specification13 and helps to promote its features as the de facto industry standard. Unlike a microprocessor design, however, any competitor can then use the extensions, but by the time they do, Netsc ape will be on to something else. 14 To support this strategy, Netscape's most important resource -- with the possible exception of talented engineers -- is its dominant installed base in Web browser software. The need for a large user base l ead them to the unusual strategy of seeding the market with free software. Without this influence, it could not create the feature differentiation time lag that supports its value in users' eyes. Also key to this strategy is the ability to add features that users will value and to bring them to market rapidly. Recognizing that technological barriers are low, Netscape has embarked on an innovation treadmill in an attempt to stay one step ahead of it's competition.
In November 1995, Netscape acquired Collabra, a private software company producing groupware that competes with Lotus Notes. Netscape has incorporated groupware features from Collabra's technology into its new browser offerring, again differentiating it from other browsers on the market. In particular, this feature should be useful to corporations who buy site licenses for Netscape's software.
Sun also has many assets that support its initiatives on the Internet. While the motivations for its Internet strategy may be somewhat different from Netscape's, it has formed an alliance with Netscape to promote Java and Netscape software as de facto st andards for the Internet. Silicon Graphics also has much influence and reputation in the 3-dimensional graphics world and, while marketing Netscape's software with its workstations and servers, is promoting its own markup language to supplant or extent H TML for 3-dimensional representation.
In a sense, technological change comes from outside the firm. Netscape relies on integrating newly available technology into their browser and server products. This includes the integration of Java, HTML extensions, document readers (such as Adobe Acrobat), and more into Navigator. A major source of change has recently come from Sun Microsystems through an alliance allowing Sun's Java to be included in Navigator. Additionally, Netscape's purchase of Collabra is another example of an external source of technology. Future possibilities for Netscape to go outside for new technology include Silicon Graphics for 3-D graphics capability and to Terisa Systems for secure commerce standards. 15
This year, Netscape has released several new browser versions. The company also currently makes it a practice to release a series of beta versions prior to final version release. All releases are then made available for end-users to download over the In ternet, currently for free. This allows Netscape to test the market, both for quality as well as for reception of the new features.
However, much change originates within Netscape. The company frequently develops new HTML extensions to add functionality and additional multimedia capability to Web documents. As new extensions are devised they will be included in Netscape Navigator an d will be demanded by users. This may be a synergistic process, whereby users suggest (demand) new functionality. Netscape, in response, develops and includes the new extensions in its next release. Essentially, the process can become a combination of a push and a pull system.
In contrast, Spyglass' integrations take time to reach the market, as they first must add new applications to their browser, the browser must be distributed to licensees, and then the developers must incorporate the browser into their products. However, Spyglass' large base of licensees guarantees strong product proliferation, while Netscape must rely on direct sales and distribution to individual end-users and corporations which utilize Netscape servers.
The advent of multimedia-oriented Web browsers has increasingly brought the power of Internet applications to non-Unix environments. Although early-generation browsers provided only basic text and graphic retrieval, recent browser offerings have appeare d with enhanced features such as access to Internet e-mail, newsgroups, FTP, document editing, encryption, etc. Previously users would have to work in a Unix environment or in a standalone shell program18 to take advantage of these features. Modern software allows access to similar features through a point-and-click interface.
Therefore, an engineering signpost which illustrates the level of
technology in Web browsers is the number of Internet applications
integrated into products. Table 1 illustrates the degree of services
integrated into Internet tools.
| Time period | Degree of Integration |
|---|---|
| Pre-Web (early 1990s) | Individual command line apps (e.g. telnet) |
| Early graphic browser (e.g. Mosaic 1993) | Integration of Unix apps into a browser |
| Today (e.g. Netscape version 1.22) | Increased ease of use and functional integration |
| Near future (Netscape version 2.0) | Progressive support for streaming of simultaneous video/audio, other data formats, e-mail, enhanced security, distributed executables, groupware integration, etc. |
The success of Netscape's future browser technology is constrained by the features available for inclusion. The ability to develop complementary assets and to strategically learn from businesses not historically associated with Internet technology will b e criticial to Netscape's future success. These capabilities can be obtained through a combination of alliances, joint ventures, and acquisitions. Joint marketing agreements may be a key to future Internet strategy. Agreements between providers of diff erent processes or industries, such as cable broadcasting and Internet transmission, may form the basis for merging what are now separate markets into new-generation Web products, or even an entirely new medium. Overall, managing intercompany relationshi ps not only is occurring now in each new Netscape browser, but will be even more important to future success.
| Time period | Amount of data |
|---|---|
| Volume in 1992 (one year) | 500 megabytes |
| January - March 1993 (3 months) | 5 gigabytes |
| May 1, 1994 (one day) | 10 gigabytes |
| 6 hours of one day in mid-September, 1994 (6 hours) | 13 gigabytes |
With this rate of growth, the ability for the Internet software industry to successfully introduce new data-intensive capabilities is limited by the growth in the network capacity and by the economics of enhancing the network's infrastructure. The Internet is headed for a condition where the ability of the technology to serve additional users is impaired by bandwidth. Technologies that can support greater data bandwidths will become important in the future. The ability for the Web to process greater ba ndwidth is a limiting factor. The ability of Web software to process more data, or utilize other future technologies that reduce the hardware burden, may provide advantages when the Web begins pushing bandwidth limitations. The inclusion of these capacities into browser technology may be a key competitive factor in the industry.
One way to assess the degree to which Internet technology is moving away from purely a technical audience and to more usage by the general population is to observe demographic trends of Internet users. Professors Sunil Gupta and Rabikar Chatterjee at the University of Michigan Business School and Jim Pitkow at Georgia Tech University, as part of the HERMES project20, have performed periodic surveys to gather data on Web users. The diffusion of Internet usage can be seen in several areas.
First, one can observe the shift in the occupations of Internet users. For example, the latest HERMES survey indicates a shift to a larger proportion of managers using the Internet (up to 12% from 7% in the previous survey). Additionally, of those Inter net users in computer-related jobs, 30% are managers and 40% hold professional or staff positions -- not engineers. The latest survey also saw a four year aging of the Internet population, and more respondents are married and have children.
One can also assess Internet availability by examining the means of access to the Internet. The study also shows a shift from university access to on-line service connections. In the fall of 1994, more than half of the respondents indicated gaining acce ss to the Internet through educational institutions. In the Spring of 1995, only 27% indicated gaining access through educational institutions. This implies a shift to more home usage. Another trend is in the education level of Internet users. Table 3 shows the shift away from post-graduate education levels.
| Education Level | Fall 1994 | Spring 1995 | % Increase |
|---|---|---|---|
| Grammar / High School | 6 | 8 | 33% |
| Some College | 19 | 22 | 16% |
| College | 34 | 35 | 3% |
| Masters | 23 | 20 | (13%) |
| Ph.D. | 13 | 7 | (31%) |
Clearly, Internet usage is moving more into the general population. But it has a long way to go to achieve the visions of widespread useage and readily available commerce across a proportional level of the world.
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