Focus on the Customer, not the Competitor

Volume 2 Letter 8

Netscape Corporation was founded in April, 1994 by Jim Clark and Marc Andreessen. Jim Clark had previously founded the company Silicon Graphics and Marc Andreessen had recently graduated from the University of Illinois and was the developer of Mosaic, the first mass-market browser for the World Wide Web.

Netscape Navigator 1.0 was a phenomenal success, capturing more than 60% of the market two months after its release. In 1995, Netscape reached $80 million in sales, launched an IPO and was worth over 7 billion by December, 1995.

Netscape initially focused on a unique customer segment, ‘the Sophisticated Computer User’, a segment mostly ignored by competitors. Most of the early competitors offered a complete suite of internet tools aimed at new users and sold their packages through retail outlets. In contrast, Netscape targeted sophisticated users already familiar with the internet and distributed only through the Web.

Netscape also had a creative pricing model that Marc Andreessen labeled “free, but not free.” Navigator 1.0 was officially priced at $39, but it was free for educational and nonprofit use. Additionally, anyone could download it for a free trial period of 90 days. Netscape knew that most users wouldn’t buy the software but this policy allowed Netscape to get in the door with corporations that paid $ 1,500 to $ 5,000 license fees.

By 1996, Netscape had almost 90% of the browser market but in 1997 Microsoft started to make inroads. Microsoft had released their browser, Internet Explorer (IE), in August, 1995. It was also free, was bundled with Windows 95 and could be downloaded over the Web. Additionally IE was free for both individual users and corporations.

Password About IBD | Courses | Software | Purchase | Benefits | CRather than look for unique opportunities to exploit Microsoft’s weaknesses, Netscape tried to counter Microsoft’s attack. Netscape threw their resources into head?to?head battles with Microsoft. There was “an obsession with beating Microsoft” one senior executive stated. As the two companies went after common distribution channels such as Internet service providers and on?line services Netscape lost deal after deal to the more powerful Microsoft Corporation.

Netscape did have opportunities to build their business by developing partnerships with companies that Microsoft couldn’t. One example was America Online (AOL). A strong competitor of Microsoft with millions of subscribers, AOL offered to build a customized version of Navigator for their subscribers. However Netscape pushed them away. Rather than looking for better ways to serve their customers Netscape focused on battling Microsoft. With nothing unique to offer Netscape saw its market share (and its stock price) fall. Eventually Netscape threw in the towel and was bought out by AOL – the same company that wanted to partner with them a year earlier.

When Netscape focused on better serving their customer they did very well. When they focused on trying to beat their competitor things went poorly. When up against large established competitors:
1. Focus on your customers’ needs not your competitor’s moves. (One needs to be aware of competitors’ moves but not get drawn into playing on their terms.)
2. Offer something unique and make a lot of noise about it.
3. Find situations that competitors will have a hard time matching because of their size, their inflexibility, or a situation that will put them in conflict with themselves or one of their partners.
4. Target geographical areas or customer segments where your product or service offers superior value.
5. Avoid head to head battles with giants.

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