1. -0- Competing on Internet time [Extra EVR] Competing on Internet time Lessons from NETSCAPE and its battle with MICROSOFT Suh, Il-Seok December 13, 2005

2. -1- Competing on Internet time Contents Introduction Competing on Internet time Netscape Communications Corporation What is Judo Strategy? Netscape’s Judo Strategy Netscape’s Problems Microsoft Corporation Microsoft’s Response Netscape’s Battle with Microsoft Result of Browser Wars Lesson Learned

3. -2- Competing on Internet time Introduction

4. -3- Competing on Internet time Introduction (cont.) Internet –“Network of networks” “Competing on Internet time” means –Competitive advantage can be won and lost overnight

5. -4- Competing on Internet time Netscape Communications Corporation Background –Founded by Jim Clark and Mark Andreessen –Netscape took advantage of emerging growth opportunities in and around the Internet Web browser - Netscape Navigator –Netscape was a latecomer to the market –Netscape forfeited the first-mover advantage to Spry and many of its competitors –To overcome the problem, Judo strategy was used

6. -5- Competing on Internet time What is Judo Strategy? Judo Strategy –Emphasizes the use of movement and flexibility to avoid unwinnable confrontations –Emphasizes the use of leverage to undermine competitors’ strengths by turning their historical advantages against them –Avoids head-to-head struggles with larger, potentially superior firms –By giving way to superior force, a firm in a relatively weak position can enhance its survivability

7. -6- Competing on Internet time Netscape’s Judo Strategy Netscape moved the battle to unoccupied ground –Netscape defined its initial product differently from its commercial competitors –Conventional companies provided a full panoply of Internet services Ex) Browser, E-mail, Dial-up telephone access –Netscape decided to offer a simple stand-alone browse, which was initially available only over the Net

8. -7- Competing on Internet time Netscape’s Judo Strategy (cont.) Netscape used creative pricing policy –Netscape browsers were free for anyone to download on a 90- day trial biases –Netscape browsers were free for students and educational institutions –Netscape browsers were $39 for other customers  In effect, the browser would be free.  It was inevitable strategy to build volumes.

9. -8- Competing on Internet time Netscape’s Judo Strategy (cont.) Netscape distributed software through special channel –Conventional companies distributed PC software through two channels: a computer OEM channel and retail channel –Netscape opened up a new world: the Web –Netscape used the Internet as its primary distribution channel

10. -9- Competing on Internet time Netscape’s success factors Vision –A vision that emerging high-powered, global networks would change how people worked, played, and interacted with the world at large –Netscape created a compelling vision of products, technologies, and markets –Managers and employees believed the browser had the potential to become a universal interface that would tie the networks of the future together

11. -10- Competing on Internet time Netscape’s success factors (cont.) People –Netscape hired experienced managers and software developers who had previously worked at major companies in computer software Organization –Netscape built the internal resources for a big company, while organizing like a small one –Netscape built relationships with partners to compensate for limited internal resources

12. -11- Competing on Internet time Netscape’s problems Growth of company –Since the size of the company had grown bigger and bigger, it was hard to manage the organization and sustain judo strategy Arrogance after success –By the summer of 1995, Netscape was the big, dominant player on the World Wide Web –After early success in the web browser market, Netscape’s managers conceited themselves –Netscape often attacked Microsoft during 1995 and 1996

13. -12- Competing on Internet time Microsoft Corporation Mistake of Bill Gates –Bill Gates didn’t fully understand the importance of the Internet, and he was slow to recover Powerful Weapon of Microsoft –Windows Operating System –Control the critical device drivers, APIs, or application programming interfaces Internet Explorer

14. -13- Competing on Internet time Microsoft’s Strategies “Embrace and extend” approach –Microsoft announced that it would embrace and extend everything Netscape had done Judo strategy –Microsoft followed the judo strategy that Netscape had done Customer attraction –Microsoft offered to put an AOL icon on the Window 95 desktop

15. -14- Competing on Internet time Netscape’s Battle with Microsoft Release of new platform –Netscape released Netscape ONE, which was positioned as an alternative to Microsoft’s Windows Head-to-head war –By late 1997, sumo strategy had replaced judo strategy as the guiding principle behind the browser wars Change of pricing policy –Netscape bundled its products

16. -15- Competing on Internet time Result of Browser Wars Release of new platform  Netscape ONE was a powerful idea in general, but it failed Head-to-head war  Netscape was beyond the Microsoft’s power Change of pricing policy  Bundling did not solve pricing pressures  Microsoft won the wars.

17. -16- Competing on Internet time Lesson Learned Competing on Internet time requires –Quick movement Speed is the most critical thing in the Internet world –Flexibility Companies become flexible in strategy, structure, and operations –Leverage vis-à-vis competitors Managers should find enduring sources of leverage either by locking in customers or exploit opponents’ weaknesses that they can’t respond

18. -17- Competing on Internet time Q & A