Netscape now - but for how much longer?

Its name is synonymous with the Internet. But now, in the face of heavy losses, rapidly declining market share and staff cutbacks, Netscape Communications Corp has been forced to make the ultimate sacrifice - giving away its browser and the source code that makes it run.

Joseph Gallivan profiles Jim Barksdale, the chief executive charged with navigating the company through troubled waters.

The logo of the Netscape Navigator Web browser is a ship's steering- wheel. After its recent troubles, everyone agrees that Netscape Communications Corporation needs a firm pair of hands on the corporate wheel.

Those hands should belong to Jim Barksdale, the highly rated chief executive who made his name at the parcel delivery specialist Federal Express in the Eighties. In January 1995 Barksdale was brought in with great fanfare to head up the cocky young company in Mountain View, California, in the heart of Silicon Valley. That autumn he oversaw the most successful stock flotation in history. NSCP became a symbol of Nineties tech stock mania, quickly tripling to a high of $82.50. But on 5 January Netscape shares fell 21 per cent in one day, to close at their lowest-ever price, $18.55. Last Friday, despite the announcement that the browser would henceforth be free, and the code was being licensed to programmers, they were still struggling at $18.12.

The reason behind the latest slide - a projected loss that will be confirmed later today when the company releases results for the last quarter of 1997 - would have caused Barksdale far more pain than the $23m he lost on paper on 5 January. After all, he cashed out $100m worth of his original 7.6 per cent holding in 1996, and now takes a token $1 salary.

But whereas once Barksdale may have been in it for the adrenaline rush (having been headhunted at 51, just as he prepared for early retirement and the golf course) now he must be wondering how to save face.

Over the past year, Netscape has seen its original lead in the browser market cut by a third by Microsoft, which gradually perfected its Internet Explorer and made it ubiquitous, and free. Spying rocky seas ahead, Netscape had already changed direction at the end of 1996 and headed for the intranet arena - selling the software used to make mini World Wide Webs on corporate networks, which give employees instant access to company information and allow them to send e-mail and share applications. However, while "groupware" products such as Suite Spot and Communicator are a logical extension of the browser, Netscape has found itself even deeper in the territory of its formidable competitors - IBM (which owns Lotus Notes) and Microsoft (Back Office).

"It's as though Netscape climbed into the ring to fight Mike Tyson and Evander Holyfield at once," says Charles Finnie, managing director of analysts Volpe Brown Whelan, who has long led the cry that Netscape's stock is overvalued. Of Netscape's plan to give away the browser free, he says, "One of the revenue legs of the stool just got cut off. James is enormously respected, and he's known as a charismatic leader, but right now the jury's out on who is in charge of overall strategy there - Barksdale or the board."

The so-called Bark-Clark-Marc trio is Netscape's backbone. It consists of Barksdale and the company's two founders, Jim Clark (a venture capital guy who keeps a low profile these days) and Marc Andreessen, the wunderkind who found himself a multi-millionaire at age 23. Andreessen now heads up the new products division, passing on his ideas to technicians to see whether they'll fly. Barksdale's job is to blend this vision with his own ideas about where the company should be going.

At FedEx, Barksdale implemented the famous computerised tracking system that allowed FedEx to make up so much ground on its rival, United Parcel Service. He also implemented FXTV, an internal TV system. When he left to go to McCaw Cellular, the lobby was filled with tearful well-wishers from all levels of the company, such was his personal charm and understanding of good corporate culture.

Even after he had gone, his legacy was frequently discussed on FXTV. Tom Martin, now vice-president of corporate relations at ITT Manufacturing, remembers him fondly. "I had my four-year-old boy in the office one day, and Jim came out and wanted to meet him, and talked to him, even gave him a model of a FedEx airplane to keep. He had magnetism about him; he would always listen to you, whatever level of the company you were in."

But Southern charm and being a nice guy are not much use when you are up against the likes of Larry Ellison, Scott McNealy and Bill Gates. It will be quite a test of his powers to motivate staff who are stock-optioned up to the hilt, when they are mourning the loss of their paper wealth in the middle of a bull market.

Some people think that Barksdale may have mistaken the peculiar nature of the software industry. "Our concern is that if he cuts the workforce to save money he'll lose valuable time," says Kris Tuttle, an analyst at Soundview Financial Group. "It could prove fatal if Netscape loses momentum, because it can never be regained.

"I don't think he's really wowed them at Netscape," Tuttle continues. "At FedEx you're up against the Post Office. With Oracle or Microsoft it's the most relentless people on the planet. And they'll do anything to win."

As for the level playing-field that the US Justice Department is trying to institute with its case against Microsoft, Finnie thinks it is unwise for Barksdale to hope that it will help Netscape. "Two years from now the DOJ case will hardly be remembered. It's nothing but a couple of burrs under Microsoft's saddle. Gates's strategy has always been to start late and eat the competition alive.

"Netscape should focus. It's become a yard sale of different businesses - browsers, servers, extranets... they even called themselves `a consumer company' at one point."

Barksdale is not without a vision for Netscape. It just happens to be a techno version of the one that has worked for him in the past: a well- connected company is a happy company. As a spokesperson put it, his vision is to "link business internally, link business to business, and link businesses to consumers".

This means creating and selling the next generation of client and server software, code-named Mercury and Apollo.

Mercury will be the replacement for Communicator, and Apollo will replace the enterprise server Suite Spot. The idea is to come up with open standards for private networks so that businesses can talk to each other, and commerce can be conducted online. As part of the plan, Netscape recently acquired Kiva, and repurchased the other half of a joint deal with EDI, called Actra. Both are industrial strength e-commerce products, which shows that Netscape is - yet again - about to go up against the giants in the field, IBM in particular. Can it work?

"James Barksdale does well dealing with corporate clients," says Mary McCaffrey, an analyst at Bankers Trust. "He always understands the customer's side. The company should focus on commerce and forget the distraction of the browser wars."

According to Esther Dyson, an Internet pioneer, and author of the recent Release 2.0: "Barksdale has to take the company into new areas and rally the troops as they advance. He comes across as a country-boy salesman, but he's really sharp underneath. I think the shift towards service-intensive corporate business is the right one."

While Netscape is filling the holes in its own product line with acquisitions, talk has already begun about who might buy Netscape itself.

"I think if the stock gets into single digits the company will be worth buying," says Finnie, grimly. "Until then it's still overvalued. Its troubles are far from over."

The logical suitor is Larry Ellison's Oracle. "Both companies have had problems but for different reasons," says Tuttle. "I think the best thing would be if Oracle, Netscape and Sun spun off their expertise into a new company, The Network Computer Company.

"That would be a real challenge to Microsoft and Intel."

David Beirne, of Ramsey Beirne Associates, is the celebrated headhunter who brought Barksdale to Netscape. "Jim is probably one of the top five chief executives on the planet; he's like a Lou Gerstner at IBM or a Jack Welch at GE. If you judge the success of Netscape to date, other than the most recent hiccup, you see it's the fastest-growing company in history.

"He's simply a phenomenal leader of people. If anyone has the management skills to lead the Netscape forward, it's Jim. I'd pick him again." As for a potential buyout, Beirne says, "My assumption is he's building the company for a long-term, independent future. Jim thinks about more than just the quarter-to-quarter stuff. Remember, there was a day in the early Nineties when everyone thought it was all over for Microsoft. But a great leader fosters an environment where great people can continue to be creative."

Perhaps most worrying for Barksdale is the way his company is coming to be seen from the trenches - from the developers who write for his browsers and servers every day. Jesse Erlbaum, IT director at Vanguard Media in New York, describes himself as typically anti-Microsoft, but finds himself let down by Netscape.

"This is the company that practically invented the Web, and in two years they've gone from being the darling child to being irrelevant. Considering that `proprietary standards' was Netscape's biggest indictment of Microsoft's products, I consider this a major business slippage - one which makes me think maybe Microsoft isn't so bad."

As a programmer, he has no words of comfort for the chief executive. "Netscape seems to have fractured into a million projects. More than anything with a big software project, if something goes wrong you have to blame management. If you let programmers run the show, it's like letting the lunatics run the asylum."