Negotiating Lessons From the Browser Wars

In 1996, the browser wars became headline news. The conflict involved three of the most important companies of the early Internet era: Netscape, Microsoft and America Online. At stake was AOL’s choice of a browser for its online service, either Netscape’s Navigator or Microsoft’s Internet Explorer. Microsoft’s apparent victory in this battle has inspired important books on antitrust, legal and business strategy issues, but the war seems endless. As recently as January 2002, AOL and Netscape filed suit yet again against Microsoft.1 For all the analysis that this triangular struggle has generated, one area has gone mostly unnoticed: the negotiation among the players. All negotiations can be examined in terms of a core of common elements — parties, interests, no-deal options, the possibilities for creating and claiming value, perceptions and psychological dynamics — but a select few shed special light on the process itself.2 The negotiation over Web browsers offers one such case. Drawing only on the copious public record, I will provide thumbnail sketches of the players and a brief description of the dramatic process dynamics — characterized by the Wall Street Journal as akin to TV’s “Melrose Place, where no bed goes unslept and no back unstabbed.” Then I will draw a series of broader negotiation lessons suggested by these process dynamics.

The Background

By the beginning of 1996, Netscape Communications was on a roll. Founded in April 1994 with a management team led by Jim Clark (former chairman of Silicon Graphics), Marc Andreessen (the programmer behind Mosaic, an early Web browser), and Jim Barksdale (former CEO of McCaw Cellular), Netscape owned the dominant Web browser on the market. The Navigator browser had been released in 1994, and by January 1996 consumers and businesses had downloaded 10 million to 12 million copies. Netscape’s product was technically superior and far easier to use than that of competitors, and as a result Navigator enjoyed a daunting 70% to 85% share of the browser market. The company was also booming financially. Shares of its stock had climbed from $28 per share at the opening of its IPO in August 1995 to $174 that December, which translated to a $3.6 billion market cap on revenues of $346 million. In order to validate that high price, investors were putting pressure on management to rapidly increase earnings.

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References

1. See J. Heilemann, “Pride Before the Fall: The Trials of Bill Gates and the End of the Microsoft Era” (New York, HarperCollins, 2001). More extensive analysis is in K. Auletta, “World War 3.0: Microsoft and Its Enemies” (New York: Random House, 2001). On the latest lawsuit, see “Netscape Sues Microsoft,” CNN/Money online, January 22, 2002: http://money.cnn.com/2002/01/22/technology/netscape/. For business strategy implications, see M. Cusumano and D. Yoffie, “Competing on Internet Time: Lessons From Netscape and Its Battle with Microsoft” (New York: Free Press, 1998).

2. For example, see J. Sebenius, “Six Habits of Merely Effective Negotiators,” Harvard Business Review (April 2001): 87–95. More complete approaches can be found in many sources, including D. Lax and J. Sebenius, “The Manager as Negotiator: Bargaining for Cooperation and Competitive Gain” (New York: Free Press, 1986); and J. Sebenius, “Dealmaking Essentials: Creating and Claiming Value for the Long Term,” item no. 2-800-443 (Boston: Harvard Business School Publishing, 2000). More technical treatment is contained in H. Raiffa, “The Art and Science of Negotiation” (Cambridge, Massachusetts: Harvard University Press, 1982).

3. K. Swisher, “aol.com: How Steve Case Beat Bill Gates, Nailed the Netheads, and Made Millions in the War for the Web” (New York: Times Business, 1998), 135.

4. G. Rivlin, “AOL’s Rough Riders,” The Standard, October 20, 2000: http://www.thestandard.com/article/display/0.1151.19461.00.htm.

5. Swisher, “aol.com,” 136.

6. C. Ferguson, “High St@kes, No Prisoners” (New York: Times Business, 2001): 288.

7. See, for example, M. Neale and M. Bazerman, “Cognition and Rationality in Negotiation” (New York: Free Press, 1991); M. Bazerman and M. Neale, “Negotiating Rationally” (New York: Free Press, 1991).

8. Cusumano and Yoffie, “Competing on Internet Time,” 83.

9. See R. Robinson, “Errors in Social Judgment: Implications for Negotiation and Conflict Resolution. Part I: Biased Assimilation of Information,” item no. 9-897-103 (Boston: Harvard Business School Publishing, 1997).

10. See R. Robinson, “Errors in Social Judgment: Implications for Negotiation and Conflict Resolution. Part II: Partisan Perceptions,” item no. 9-897-104 (Boston: Harvard Business School Publishing, 1997).

11. Ibid.

12. Ibid, 137.

13. Swisher, “aol.com,” 114.

14. Cusumano and Yoffie, “Competing on Internet Time,” 87.

15. Ferguson, “High St@kes,” 289.

16. See A. Brandenburger and B. Nalebuff, “Coopetition” (New York: Currency Doubleday, 1996). For development of these ideas in a negotiation context, see D. Lax and J. Sebenius, “The Manager as Negotiator.”

17. There is no direct evidence that AOL would have granted such an exclusive deal if asked, but the strong preference of AOL for a Navigator deal cited above (from Colburn and Villanueva), combined with AOL’s antipathy toward Microsoft, suggest that an exclusive could easily have been in the cards, especially if Netscape had been more forthcoming both financially and with respect to AOL’s “partnership” proposal.

18. Cusumano and Yoffie, “Competing on Internet Time,” 116.

19. Ibid., 117–118.

20. D. Toft, IDG News Service, Boston Bureau, August 9, 1999: http://www.idg.net/idgns/1999/08/09/NetscapeBrowserMarketShare DropsTo.shtml. Such market share figures are notoriously tricky but the qualitative point is beyond argument.

21. See especially Cusumano and Yoffie as well as Ferguson for more complete assessments of Netscape’s strategic and operational errors.

Acknowledgments

I would like to thank David Metcalfe for his extensive research assistance on the two Harvard Business School cases on which this article is heavily based, “Double Dealmaking in the Browser Wars (A) and (B),” case numbers 800-050 and 800-051, 1999, available from www.hbsp.hbs.edu. Unless otherwise noted, Metcalfe’s research in these two extensively footnoted cases is the source of all facts and quotations in this article.