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.
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.