Marketing Strategy Final

April 1, 2018 | Author: Ahmad Waheed | Category: Web Browser, Internet Explorer, Aol, Microsoft, Computing
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MARKETING STRATEGY – CASE THE BROWSER WARS, 1994-1998

Ahmad Waheed Fatimah-tul-Zahra Malik MadeehaShahbaz MehwishMahmood SaaraUsman Sobia Sarwar Syeda Gull ZainabGardezi ZunairaMobashirAlam

Ms. Maryam Wazirzada MBA-II, Section A March 24, 2012

Summary This particular case is talking of these web browsers from the pioneer Netscape to reasons for its downfall to Microsoft taking over the market and maintaining it share, The case highlights the strategies as adopted by different browsers it also implies marketing to the industry how Microsoft was a follower and was able to take advantage of limited resources of Netscape and had Internet Explorer take over. Microsoft being a giant company relatively with an existing significant market share leapfrogged Netscape. These browser wars had many rounds the above being just the first round. The first round included increasing features and not really fixing the bugs. The competition led to further giving logos as “best shown in internet explorer or netscape” depending on who had won over the term. However, Microsoft had its advantages it resources, market share in the desk top industry and the fact that Microsoft gave IE as free by this time the 4th generation was there of IE. During the second war came the Netscape successor and came in Firefox. Another Browser Opera was there well known for its issues. Microsoft however continued with its efforts and IE 7 with special features and updates was there in the market. Right then came Apple. There were many deals that came into being as mutual beneficiaries like the Netscape and AOL agreement discussed above.

Q1. Netscape won the first round of browser wars. What were the critical drivers of Netscape’s early success? Why didn’t others quickly copy the Netscape formula? In 1992, main change in computing industry occurred as large costly supercomputers were being swapped with more cost efficient workstations based on microprocessors. Number of network applications had developed to allow users to communicate through network including email, gopher, telnet, ftp and lynx. The major barrier for the use of these applications was incompatible interfaces. To tackle this technical barrier Mosaic emerged as a user friendly browser and allowed users to connect to the internet and share multimedia. The user response of Mosaic was remarkable. Later, Jim Clark and Marc Andreessen formed Netscape which was more of a commercial product than Mosaic. The mission of Netscape was “To be the leading provider of open software that links people and information over the internet and intranets”. Netscape announced the release of Navigator on October 13, 1994 and made it available to all non-commercial users. Netscape initial corporate policy was to make Navigator freely available for non-commercial use. But within two months Netscape reversed its policy by only allowing educational and nonprofit institutions to use version 1.0 free of cost. As consumer internet revolution arrived Netscape was able to gain the market share instantly and also made into Fortune’s July 1994 list of “25 Cool Companies”. To a large extent Netscape's initial growth can be credited to being a first-mover in the Internet browser market and therefore being able to receive the rewards produced through demand side and positive feedback experienced in this new market. Moreover, the mix of products and attractive licensing scheme allowing free non-commercial use appealed to the consumers. The company wanted to power this achievement by rapidly expanding its product line to include a full line of clients, servers, development tools, and commercial applications. The competitors perceived high potential of growth in this market and introduced a number of products to compete with Netscape. Hence, the companies got into browser wars. Nevertheless, Netscape won the first round of browser wars due to the following critical early success factors. Firstly, Netscape Navigator was the first web browser which was distributed widely. The company decided to distribute the browser free of cost but only 5% of all Netscape shipments

were delivered through the World Wide Web in 1996 rather the majority of the distribution occurred either at retail or into the growing corporate segment of the market. For instance, Netscape's business plan consist of direct sales to the Fortune 100 corporations and agreements with scores of OEM companies like Compaq, IBM, HP, Sun, and Digital. The company's expertise in traditional product distribution network should not be disregarded as an important factor of success. Secondly, success of Netscape was directly linked to the success of a number of complementary products. Navigator could not run without basic complementary products such as the operating system (Windows, Mac, or Unix), the computer (PC, Apple, or Workstation) and the network. The functionality of all of these products required the user to use Netscape browser. As a result it was difficult for any other browser company to force their product to the current users of Netscape. Thirdly, a significant innovation that Netscape initiated in 1994 was the on-the-fly display of web pages which enabled text and graphics to appear on the screen as the web page downloaded. With this feature, the average user using dial-up connection would begin reading the text on a web page within few seconds of entering the web site address even before the whole graphics had completed downloading. Prior web browsers would not display a page until downloading of the graphics and text on the web page had finished, due to which users had to wait a lot and were not able to enjoy quick browsing. Fourthly, Netscape browser offered complementary plug-in applications that can be run from within the browser window. Two examples are gopher and file transfer protocol (FTP) which previously were executed from a command line prompt (Unix) or through a graphical user interface (Windows or Mac). The multimedia plug-in applications that enable the browser to read the video, audio, animated, virtual reality and image files were introduced by Netscape. Such plug-in includes RealAudio, Shockwave, Media Player, and Voxware Toolbox. This complimentary feature of the plug-ins was more beneficial for the company when applications are designed exclusively for Navigator. For instance, if Netscape were the single browser that featured a plug-in that allowed text on a user's screen to be read aloud to the user, those attracted to that particular feature would be required to use Netscape as their browser

Fifthly, Netscape offered numerous complementary features like chat rooms, internet telephony, guestbooks, stock portfolios, content providers, date matching, java applets and on-line commerce. This would attract the users as the more they use Netscape’s browser more of the complimentary benefits they will avail. Lastly, Netscape announces its standards openly and has won many partners with its compliance to share the market and profits. Prominent Netscape technology partners include General Electric, Sun, and Informix. Netscape works with General Electric on EDI; with Sun on Java applets; and with Informix on database access through browsers. Consequently, Netscape browser has become a key intranet component for many IT mangers. All of these success factors contributed to the success of Netscape browser and it was difficult for other competitors to imitate Netscape features easily. Hence, Netscape was able to win the first round of the browser wars.

Q2. Microsoft won the second round of the browser wars. Why? Why was it difficult for Netscape to respond? Netscape was the Pioneer of browser Navigator for the World Wide Web. After its introduction it kept on introducing newer versions of Navigator to serve its customers. Microsoft was a follower who took advantage of the latest technology and Netscape’s limited resources in order to build its position in the Internet world. It made use of the latest technology in its fourth trial when IE 4.0 was introduced. This was a multifunctional suite that incorporated Internet mail, HTML editing and conferencing over the web. In addition, Microsoft was a much larger company than Netscape in terms of sales, size & market share and could pursue tactics easily that were not feasible for Netscape. Microsoft pursued a Mass Market Penetration Strategy to win the second round of browser wars as it wanted to capture and maintain a commanding share of the market. It planned to capture 30% of the web browser market as soon as possible by increasing the customers’ willingness and ability to buy. This was done by providing many of the browsers and servers for free. Internet Explorer was available on the web. In addition, Microsoft tied the distribution of Internet Explorer with Windows 95 that was shipped with almost every PC in the world. Later, AOL and KPMG shifted to Microsoft from Netscape which allowed it to take its lead in the industry. Microsoft had agreements with many Internet service providers and resellers that gave it an edge. The biggest advantage of Internet Explorer according to Michael Dell was that it was available for free that gave an incentive to customers to switch to it and thus eliminated the reason of promoting Netscape’s browser costing $66. Numerous reasons including hurdles created by Microsoft and Netscape’s internal factors made it difficult for Netscape to respond to the cut-throat competition started by Microsoft. Firstly, Netscape was a smaller firm and with time was finding it expensive to develop a code for Netscape Navigator. Although it pioneered the implementation of open technologies but lagged behind due to slow standardization and imperfect process. In addition, Netscape was unwilling and unable to commit itself to new opportunities enabled by browsers. Moreover, a features war was prevalent as Microsoft and Netscape were adding on features that didn’t comply with open web standards and they were too expensive especially for a firm like Netscape. Browsers were in

turn becoming more complex and costly.

In addition, Netscape’s development costs and

development team multiplied that further worsened the situation for Netscape. Microsoft’s numerous predatory practices to kill competition were other contributing factors making it difficult for Netscape to respond. Microsoft had an operating system monopoly and took advantage of its customer’s dependence on existing products to force new products upon them. In addition to the free browser, it gave other things for free to encourage customers to use it. Thus, in a way Microsoft was paying people to use its browser. Netscape could not offer its browser for free as that was its major earning. Moreover, Microsoft forced OEM’s that they could not uninstall Internet Explorer and install Navigator instead even when customers demanded; otherwise they could lose their Window licenses. Furthermore, they bought competitors or their technologies. Microsoft licensed Mosaic web browser from Spyglass and turned it into IE; even DOS was not their own. All these things were done to move Netscape out of business. Netscape couldn’t improve its position even when Microsoft was charged by the US Department of Justice for its unfair tactics. In retaliation, Microsoft had to offer Windows 95 & 98 without Internet Explorer and OEM’s started promoting both browsers equally but Netscape’s continuing losses led to cutbacks in development and layoffs. Furthermore, when Netscape introduced Netcenter with the concept of “Smart Browsing” it was still not able to defend its falling market share. Owing to all these factors, Netscape was acquired by AOL in 1998 for an estimated $4.28 billion in stock. The acquisition required Netscape’s two groups: Netcenter portal and enterprise software offerings to operate separately. Today, the open source version of Netscape’s browser is Mozilla Firfox. In current times Firefox has gained a market share of 15% and now Microsoft has to focus on technical innovation as web based applications have reduced Microsoft’s Monopoly power. Subsequently, 2003 onwards Microsoft’s share has further eroded due to the emergence of web browsers like Google Chrome, Safari and Firefox.

Q3. What should Steve Case and AOL do with Netscape’s browser going forward? What would you tell Bill Gates to do in browser wars? Steve Case – AOL & Netscape Keeping in mind that the future has already past we will be critically evaluating the strategies implemented by the AOL and will discuss what they should have actually done instead of the moved they had already taken. Considering the case of AOL, so it was one of the first companies to really get people online. Moreover throughout its history, it has been involved with a number of high profile acquisitions, perhaps the largest of which was the acquisition of the Netscape Communications Corporation in March 1999 of $4.2 billion. The deal between Netscape and AOL is a stock-for-stock, pooling-of-interests transaction and will give Netscape shareholders 0.45 shares of AOL common stock for each share they hold. Netscape was known to many as the thought leader in web browsing, and had developed a number of complementary pieces of software that allowed for a rich suite of internet tools. Although Netscape's annual revenue reached $534 million in 1997, the company reported a surprising $88 million loss. Also due to the acquisition the market was concerned of the fact that the browser market already is highly concentrated and they had high concerns about the growing dominance of AOL and Microsoft on the Web and in ecommerce. At the time of the acquisition, if we look at the market share of the Netscape so it was on a declining trend and by this time Netscape's share of the browser market had fallen to 41%, compared to Microsoft's 44% market share. However when we critically analyze the factors behind this takeover that why AOL acquired such a firm when they were incurring losses so the main reasons come out to be: AOL acquired Netscape for reasons other than its browser as Barry Schuler, AOL’s President of Interactive Services, testified that “Netscape’s browser business wasn't something that we were really focused on. The browser market share played a very small role in our overall evaluation.” (Schuler Dep., 5/5/98). AOL instead purchased Netscape because of Netscape’s portal, server and e-commerce products. Steve Case testified that Netscape’s value to AOL was that AOL was “largely missing in action in the portal space” and that, “in evaluating the various alternatives building it ourselves, acquiring something, we concluded that Netcenter was the best option, particularly given the price.” Hence AOL valued the browser, only as a means of feeding traffic to Netscape’s portal site, not for its potential to

develop into an alternative platform. Relative to what it would have cost to acquire other firms with significant Internet portals, AOL was able to acquire Netscape cheaply. However at the time of the acquisition, the Netscape team had begun working on converting their flagship product - the Netscape Communicator web suite - into open source software, under a new name: Mozilla. AOL played a significant role in the launch of the Netscape 6 browser, the first Mozilla-based, Netscape-branded browser that was released in 2000 and continued to solely fund the development and marketing efforts of Netscape-branded browsers. AOL was a major source of support for the Mozilla Foundation (Netscape created the Mozilla Organization in February 23, 1998, to co-ordinate the development of the Mozilla Application Suite) and the company continued to develop versions of the Netscape browser based on the work of the foundation. Given the fact that the Netscape was in a declining stage AOL tried to used maintenance strategy for it because they were already aware of the fact that their browser share will decline in future but they were trying to maintain its share in the short term by introducing various extension new versions of the browser because if we look at the environmental attractiveness of this declining market so they were quite inhospitable for the Netscape as they had erratic decline in share as its share was 8% in 2002 and it decreased to 0.2% in November 2006. Moreover there was high uncertainty in the pattern of decline; along with the issue of price instability as the premiums were not attainable due to the fact that Microsoft was giving it for free. As we look at the rivalry determinants so there were minimal/ no switching costs for the customer making it more difficult for Netscape to sustain. While internal groups within AOL have invested a great deal of time and energy in attempting to revive Netscape Navigator, these efforts have not been successful in gaining market share and the relative business condition was unattractive and it had a relatively weak position so AOL signaled it as the right time to stop investing more in it and to end the development for its various brands which led to the AOL divesting itself of the Netscape division. Bill Gates – Browser Wars As mentioned previously, the future of 1990’s browser wars has unfolded where Netscape suffered the fatal blow eventually. Bill Gates’ name is synonymous to success and market leadership. Few decades ago, when there was an evident monopoly of Microsoft over PC market,

Bill Gates was considered everywhere with even more reverence in the business arena. Trouble brewed for Microsoft during the browser wars when the Department of Justice charged that the company has violated the terms of the fair trade by abusing their monopoly and distorting the market. In a settlement of a lawsuit in 1994, Microsoft consented not to tie other Microsoft products to the sale of Windows but remained free to integrate additional features into the operating system. In the years that followed, Microsoft insisted that Internet Explorer (which first appeared in the Plus! Pack sold separately from Windows 95) was not a product but a feature which it was allowed to add to Windows, although the US Department of Justice did not agree with this definition. Amidst the chaos, Internet Explorer gained momentum in the browser market. Primarily, it was due to Bill Gates’ adamancy to integrate browser as a feature of the Windows OS (despite the ongoing lawsuit). Department of Justice also highlighted that the marketing and development costs of Internet Explorer was reflected in the overall price of the Windows OS, so it was not “free” after all. Hence, their claims were merely distorting the market for other browsers. Leading the lawsuit against Microsoft was AOL – with their vendetta to erode the supremacy of Microsoft in general. The executives from Microsoft were outraged at the initial verdict of splitting Microsoft into two divisions – Operating System & Software Development. However, the an appeal against the court order was granted and Microsoft ended up reaching a settlement whereby it required Microsoft to share its application programming interfaces with third-party companies and appoint a panel of three people who will have full access to Microsoft's systems, records, and source code for five years in order to ensure compliance. Staying firm on his monopolistic notions, Bill Gates lost a battle, but won the war. In the settlement of the private antitrust lawsuit against Microsoft by AOL, the latter was offered $750 million. The case was brought "to restore competition lost in the operating system market and in the Web browser market because of Microsoft's illegal conduct". But amongst the many bonuses for Redmond in the settlement, AOL committed to renewing its royalty-free license to incorporate Internet Explorer into its own software for seven years.

Bill Gates did not pioneer into the browser arena, but capitalized on the mistakes or shortcomings on Netscape. Moreover, Microsoft played well through its developed brand image and distribution channels. It raced ahead to become a prospector from an analyzer position at the beginning of the browser wars. However, the share of Internet Explorer has declined from over 90% to 34.2% as of October 2011. Now the product is in maturity stage and the competition is brewing. The previous barriers to entry and bargaining power of Microsoft on the whole are decreasing as companies like Apple and Google are making their mark in the computer and webrelated industry.

Q4: Keep in mind that the future is already the past for the browser wars; I would like you to consider what will happen from here (2012) onwards with respect to the browser. How will Google move and protect its domain? How many browsers will survive in the market in the next 5 or so years? Ever since the first market-share battles between different versions of Mosaic and the later wars between Internet Explorer and Netscape Navigator, the web browserwars have long been a topic for tech analyst interest. They represent which company has managed to convince web users that its portal is the best way to access the Internet, and the design/functionality elements represented by ascendant and declining browsers are a good indicator of present and future tech trends. As of December 2011, Internet Explorer has the lead when it comes to market share and is used by about 39% of all Internet users. Google Chrome has just gained second place with 27% of market share, while Mozilla Firefox, previously the most popular “underdog” or alternative web browser is in third place, with about 25%.StatCounter has reported that Chrome was the world's number-one browser for a day (Sunday, March 18, 2012), in a story that will doubtless cause rows among web designers and browser makers. According to StatCounter, Chrome "topped the polls in India, Russia and Brazil, all of which contributed to it becoming the number one browser for that day on a global basis". The recent surge of interest in mobile browsers allows underdog developers to gain significant market share.Within the next 2-3 years, Chrome is slated to overtake Internet Explorer to become the dominant web browser.This could demonstrate a shift in focus away from the desktop-based computing model represented by Microsoft and toward a cloud computing model, for which Google, with its state of the art energy efficient data centers, is far more suited to dominate the market. Of course, these long-term trends are entirely at the mercy of short-term actions. If Google’s next version of Chrome is riddled with bugs, or if Microsoft produces a killer app in its next release of Internet Explorer, trends could shift in a different direction. It’s important to stay on top of the little things when tracking the browser wars if you want to get the best sense for where they are and where they might go.

An interesting development is that Google recently has confirmed that it plans to join Mozilla in developing a next-generation browser optimized for the Metro style of Windows 8. It’s an important validation of the Windows 8 platform from the developers of two of the most widely used Windows apps around.First it was Mozilla. Now Google has tipped its plans to produce a version of its flagship Chrome browser built specifically for the Windows 8 platform. The overall effects of these developments on the market for browsers are questionable. It cannot be said whether or not; these companies will be able to develop good programs through these collaborations. Another major point in Chrome’s favor is that the latest lines of Android phones and tablets have been released with the Chrome internet browser. The buzz on the street is that mobile computing is the latest frontier in the browser wars, with more and more people catching on to the fact that a phone could also be a tool for looking up information on the web. Chrome use has long been the preference for home users, evidenced by the fact that Chrome is the most commonly used browser on weekends. However, much of the recent gain in Chrome users has to do with the adoption of the Google browser by businesses. Google announced a special run of Chrome for Business in early 2011, and administrators have rapidly embraced it. Of single-issue browsers, Chrome 15 is the most commonly used between Mondays through Friday, though between all the Chrome browsers and all the IE browsers, Microsoft’s is still in the lead. With Google Chrome, Mozilla Firefox, and Safari, there will less and less room for error. Speaking from an economical standpoint, each firm will push their product farther in order to gain more users. There will always be competition between firms and this is good for the consumer. The key battlefields will be access to innovative new technologies, browser performance, security and privacy, and the ability to browse from multiple, diverse devices.

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