In one of the most captivating stories of the year, tiny Netscape Communications Corp., Mountain View, Calif., shocked the fast-moving technology sector by becoming, at least on paper, a billion-dollar company virtually overnight. After its Initial Public Offering on Aug. 9, just 17 months after the company's inception, Netscape had a first-day market capitalization over $2.2 billion. Analysts declared the stock extremely overvalued, but the price, which topped $130 per share, continues to escalate.
Netscape's capital infusion has quickly led to growth by acquisition. The purchase of Collabra Software Inc., also of Mountain View, for $108.7 million in stock will be final next month.
But it is not Wall Street's instantaneous love affair with this red-hot start-up that makes Netscape's story so compelling. Rather, it is the individuals behind the innovative software technology-designed as a cohesive system for World Wide Web browsers and servers-who have collectively defined, developed, and accelerated a potentially enormous market opportunity for data communications, via the Internet.
In the center of the spotlight stands James H. Clark -- a near legendary figure in Silicon Valley, former chairman and a founder of Silicon Graphics Inc. (SGI), and self-described "head of PR" for Netscape. Though he might modestly argue otherwise, he is the unequivocal leader of this young outfit. After launching the company in April 1994 under the name Mosaic Communications Corp., Clark agreed to change it to Netscape in November at the urging of the University of Illinois, whose National Center for Supercomputing Applications (NCSA) contended that it held the rights to "Mosaic." For the first nine months Clark ran the show himself, but within a year he had assembled what he describes as "the best management team ever for a company at this stage of its development."
First teaming with 24-year-old wunderkind, Marc Andreessen -- the visionary behind NCSA Mosaic, the revolutionary software browser that won an IW Technology of the Year award in 1994 -- Clark then hired all of Andreessen's code-writing pals from the University of Illinois. Then he successfully lured James Barksdale, former CEO of $2.3 billion McCaw Cellular Communications Inc., to take the reigns as CEO of Netscape and handpicked engineers, cryptographers, and software developers from around the world, including nearly everyone who'd ever written code for a Web server.
Tracking Clark's illustrious career is an eventful journey in itself. The native Texan dropped out of high school and joined the Navy at age 17. After finishing high school and then college, Clark landed at the University of Utah, where he was enticed by what he calls the "romantic feel" of academia. He began work on a Ph.D. in physics, but switched to computer science. By the time he finished his first teaching job at the University of Santa Cruz, however, the academic romance had fizzled. "I said, 'This stinks,'" recalls Clark, "so I quit and went into consulting for a year" -- a career he found even less satisfying than teaching.
Had anyone asked Jim Clark in the mid-1970s if he thought he would run a company worth $5 billion by 1995, he surely would have laughed. But he did know that the world of computing held more promise than the ivory towers of academia.
Clark received a job offer from Hewlett-Packard Co., but the idea of life within an established organization did not appeal to him. The only company he had ever worked for was Boeing Co., "where you were like a cog in a big machine," says Clark. "Then I had a vision about creating something new and having an impact on the world -- something that just couldn't be done from inside a company."
Vision on Hold
His vision temporarily on hold, Clark settled for a teaching appointment at Stanford University, Palo Alto, Calif., in 1979. From the beginning he said to himself, "I'm going back into this but it's not to stay. I'm going to try to create some kind of technology that gives me a springboard to get out and start a company." And that he did. Three years of "proper research" at Stanford yielded not only the idea for a geometry engine to drive three-dimensional computer graphics, but also a handful of colleagues, friends, and students willing to follow him.
Thus, in 1982 SGI was born. It wasn't quite as easy as it appeared from the outside, recalls Clark. "All start-up companies are work, but we were out preaching the gospel of 3-D graphics for a good five years before it took hold." In fact, SGI didn't really begin to engage the market with the development of a low-end workstation, he says, until 1998. In less than a decade since then SGI has more than hit stride, riding a growth curve that remains steady at 40%, increasing revenues from $40 million in 1986 to $2.2 billion in '95 -- with more than 7,000 employees worldwide.
"Jim has an impressive ability to distill opportunity out of technological change," says Marc Hannah, SGI co-founder, vice president, and chief scientist. "From the outset, Jim intended to build Silicon Graphics into a billion-dollar company. . . . Combining novel graphics architectures integrated into custom silicon with new microprocessors and an easy-to-use graphics library provided the technological seed to leverage that belief into a large and successful company."
In the early days of SGI, Clark says his role was analogous to that of Andreessen's at Netscape. "I had the vision, I had the knowledge, I taught the company 3-D graphics, I had the instinct that there was a big market in making workstations that had 3-D capability," he recalls. The Challenge at SGI was getting people to see what could be done, which he admits was fairly simple because the technology was so exciting. Reveling in the glory of 3-D graphics, Clark still speaks with the griddiness of a schoolboy who has just brought home the latest video game. "Having objects move on the screen was just cool," he says. "Everyone liked it because it was fun."
But after more than a decade as SGI chairman, that role was no longer fun for Clark. Having ushered in two CEOs, Clark developed subtle regrets about not having more authority for determining the direction of the company. For several years he tried to get SGI to enter the market for a high-volume, low-end interactive TV platform, but began to tire of trying to push the envelope. "The envelope became a steel box," says Clark. "I know I had to get out of the box."
In frustration, he resigned in February 1994, opting to leave behind some 400,000 shares of SGI stock. A bold move, but Clark knew even then that he wanted a fresh start with a software company. Had he walked away with that kind of "baggage," it would have been difficult for SGI competitors to trust him.
The morning of his resignation, Clark sent an e-mail to Andreessen, who upon graduation had left Illinois to work for Enterprise Integration Technologies in the Silicon Valley.
After two months spent getting acquainted, meeting with potential partners, and toying with various opportunities in 3-D gaming and interactive TV, Clark offered to front the money if Andreessen could develop something. Andreessen's response, recalls Clark, was, "We could always create a Mosaic-killer." When asked what exactly that meant, Andreessen replied, "Do it right -- recruit the original team to reengineer it, make it more robust and commercially viable."
'A Little Crazy'
"It seemed a little crazy," admits Clark. "No one thought you could build a business around the Internet, but my instincts were if there were 25 million people using it, there was a business to be built." The idea was to become the "Internet software company," and two days later the pair hopped a plane to Illinois and returned with the founding employees of what would later become Netscape Communications Corp.
Clark and Andreessen essentially sidestepped traditional distribution of packaged software and followed the emerging economic model of the 'Net. The original business plan, which was never written down, was very simple:
- Building a client (browser software application), then give it away free of charge.
- Build servers (software application for network hosts) for money.
- Build a secure transaction system (using cryptography) that ties the client to the server, enabling secure communications via the Internet.
The decision to give away the browser technology, today known as the Netscape Navigator TM, proved controversial, but ultimately propelled Netscape's early success. Critics charged that no company with any hope of financial viability could give away its flagship product. "People knew then that I was certifiably nuts-starting this company, hiring a bunch of students, and now giving the software away," Clark chuckles.
But Clark and Andreessen understood that the business dynamics of the software industry uniquely complemented the new economics of the 'Net. In other words, the network becomes a primary medium for software distribution. Because the Internet had always operated loosely on the principles of a "gift economy," where software could be downloaded without charge from host servers directly to a user's desktop, costs associated with packaged-software distribution were virtually eliminated. Furthermore, the Internet provided an opportunity to capture an installed base of users in a relatively short period of time.
"Anybody who knows [the software industry] realizes that developing an installed base of users is worth its weight in gold," says Clark. "If the program has any features whatsoever, people get hooked on the way those features work."
Clark says the decision to give away the browser client was in part based on the competitive threat that Microsoft Corp. might some day decide to play in the Internet market (which it has). But Netscape got its cross-platform Navigator to market first, in December 1994, and has in effect set a standard for openness, creating versions able to run on any desktop operating system -- Windows, Macintosh, and UNIX. As a result, Netscape has been riding a wave of momentum created by capturing market share -- estimated as high as 85% -- as well as "mindshare" -- in the highly competitive browser market. That momentum, says Clark, is central to the success of Netscape. "If everyone thinks you're going to be the winner, everyone wants to join -- there's a psychology associated with it."
But it still begs the question: How will Netscape make money?
"It did worry me," laughs Clark, "because we were burning through money real fast." Then came the second phase of the business plan, involving what Clark calls "servers on steroids"back-office functionality, integrated databases, authoring tools, and the ability to conduct full-fledged, secure electronic commerce. Netscape created three systems: the merchant system, enabling transactions and billing; the publishing system, including user registration and tracking; and the community system, incorporating realtime chat, bulletin boards, conferences, and hosted sessions.
MCI Communications Corp. became the first big customer, essentially funding the development of the commerce system and smoothing the transition to the third phase, when Netscape began shipping production-released server software. The company turned cashflow positive in January of this year -- not yet profitable but generating a backlog of contracts so Clark could project future revenues. More important, the company discovered in the first quarter that corporations were the market most ready for server products.
"Here's a product that was developed for the Internet -- which you think of as a worldwide free-for-all-and they [corporations] were interested in bringing Internet technology inside." The platform-independent architecture of TCP/IP server technology gives the corporate enterprise a means for internal communication and electronic publishing, as well as a way to connect to the outside world of the Internet.
"Practically every company is taking this approach -- I can't imagine any company that isn't throwing out its proprietary network technology," says Clark. Netscape's corporate customer list is impressive -- Lockheed-Martin, Hewlett-Packard, Eli Lilly, AT&T, McDonnell-Douglas, SGI, Wells Fargo Bank, National Semiconductor, EDS, CNN, and Dow-Jones.
"Sometimes," Clark says, "I look back and say, 'Gee, I've done a lot of stuff.' 'Then again, I rarely look back."