January 22, 1998 5:40 PM PST

Netscape's play: Bold or desperate?

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Netscape isn't just giving away free meals--it's giving up its secret recipe.

That's the unprecedented move the company took today when it disclosed that it would license its next-generation Internet software source code for free. Whether it will boost the company's fortunes depends on whom you ask.

Many developers were cautiously optimistic, while the financial community remained skeptical. Microsoft took the news calmly, at least in public.

Netscape, for its part, was predictably bullish. "By giving away the source code for a future version of Communicator, we can rally the entire Net community around the Communicator platform and our core businesses benefit," Netscape executive vice president Mike Homer said in a conference call today.

By giving away the next-generation Communicator source code starting in March, as well as the standard versions of Communicator and Navigator, the company hopes to boost its browser market share, drive sales of its server software, and drive traffic to its Netcenter Web site.

"It could be a disaster or it could be great, but I've never heard of anything being done this way in a commercial organization," said Tim Bray, an independent technology consultant who has worked with Netscape in the past. "They'll have to make it up as they go along."

On the positive side, the move has instantly created a buzz among developers who have long clamored for access to Netscape's underlying technology to build into their own applications. Microsoft has jumped into that area by making Internet Explorer components freely available to customize, but such customized uses of IE are Windows-only. Netscape's code will be modifiable across many platforms, a potentially powerful edge.

"If it becomes a successful maneuver, I can see Microsoft gnashing its teeth over it," said Stephan Somogyi, principal of technology consultancy Gyroscope. "Suddenly you'll have all these customized, grassroots efforts based on Navigator. Once the source code is out there, it's a genie-out-of-the-bottle scenario."

A Microsoft executive took the news in stride today, stating that Internet Explorer has gained market share on the basis of its quality, not because it's free.

"The customers have spoken," said group product manager Dave Fester. "Giving away the source code is not something our customers have asked for. They don't want to plow through it."

The financial world was not enthusiastic, with Netscape's stock barely moving despite wide anticipation of today's free-browser announcement. It closed at 18-1/8, up 1/4 from yesterday.

"It shouldn't come as a surprise when revenues are going away," said Charles Finnie, managing director at investment firm Volpe Brown Whelan. "The issue now is where revenues will come from. That's been the question for the past nine months."

One analyst went so far as to call the announcement "smoke and mirrors" to distract from the banality of the long-expected decision to make Navigator and Communicator free.

"It's clever and it's cool, but it's not the way to make a buck as a commercial company," said Ira Machefsky of the Giga Information Group. "Who's going to support it? Is it secure? It's just not going to happen. Do you think that all these companies that need to trust the security of a browser are going to trust the security of these modified browsers? It sounds cool, but the net result is going to be nil other than in the research community."

One developer liked the idea of opening the source code to public scrutiny but conceded that it wouldn't necessarily boost corporate adoption of Netscape software.

"A lot of corporate customers are reticent to use freeware because it was developed by people on the Net," said Justin Stroud, senior developer at Square Earth.

Netscape hopes to leverage the enthusiasm of the Internet developer community that has kept freeware products such as the Apache Web server and the Linux operating system stable and popular.

The plan calls for all licensees of the source code to share their modifications with the rest of the community and with Netscape, which then can cherry-pick the best innovations and roll them into new versions of its own branded browsers.

"They need to maintain their own browser at the highest level of feature functions," said Tim Sloane, director of Internet infrastructure at market research firm Aberdeen Group. "They also have to make sure they roll up the key features [from the developer community]. Apache's been doing this for a while with tremendous success on server side."

According to one online survey, Apache has more than 50 percent of the Web server market. On the other hand, no one is making money from this "freeware" approach.

"This won't directly feed [Netscape's] enterprise revenue, but as of yesterday, most enterprise customers were deeply concerned that the company might not have survived as-is," said analyst Kathy Hale of Dataquest. "They needed to change what's in the enterprise customers' minds, and today that's shareware, not layoffs."

Whatever happens, consultant Bray said, it will make for lively discussion: "Ten years from now this will be a Harvard Business School case study."

 

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