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Netscape's Work Culture

“It took Microsoft and Oracle 11 years to reach the size Netscape reached in 3 years, both in terms
of revenues and the number of employees. Which is just cosmically fast growth.”

- Marc Andreessen, Co-founder, Netscape.

“Netscape's relaxed work environment drives up productivity and creativity. Because there aren't
layers of management and policies to work through, Netscape can turn out products in a month.”

- Patrick O’Hare, Manager (Internal Human Resources Web Site), Netscape.

INTRODUCTION

On November 24, 1998, America Online[1] (AOL) announced the acquisition of Netscape
Communications (Netscape), a leading Internet browser company, for $10 billion in an all-stock
transaction. With this acquisition, AOL got control over Netscape’s three different businesses –
Netcenter portal, Netscape browser software and a B2B e-commerce software development division.

According to the terms of the deal, Netscape’s shareholders received a 0.45 share
of AOL’s common stock for each share they owned. The stock markets reacted
positively and AOL’s sharevalue rose by 5% just after the announcement. Once
shareholders and regulatory authorities approved the deal, Netscape’s CEO James
Barksdale (Barksdale)[2] was supposed to join AOL’s board.

Many analysts felt that this acquisition would help AOL get an edge over
Microsoft, the software market leader, in the Web browser market. Steve Case,
(Case) Chairman and CEO of AOL, remarked, “By acquiring Netscape, we will be
able to both broaden and deepen our relationships with business partners who
need additional level of infrastructure support, and provide more value and
convenience for the Internet consumers.”

However, a certain section of analysts doubted whether AOL’s management would accept
Netscape’s casual and independent culture. Moreover, they were worried that this deal may lead to
a reduction in Netscape’s workforce, the key strength of the company. A former Netscape employee
commented, “People at Netscape were nervous about the implications of AOL buying us.”

Allaying these fears, in an address to Netscape employees, Case said, “Maybe you joined the
company because it was a cool company. We are not changing any of that. We want to run this as
an independent culture.” In spite of assurances by AOL CEO, it was reported that people at
Netscape were asked to change the way they worked. In July 1999, Netscape employees were
asked to leave if they did not like the new management.

By late 1999, most of the key employees, who had been associated with Netscape for many years,
had left. Barksdale left to set up his own venture capital firm, taking along with him former CFO
Peter Currie. Marc Andreessen (Andreessen) stayed with AOL as Chief Technology Officer till
September 1999, when he left to start his own company, Loud cloud. Mike Homer, who ran the
Netcenter portal, left the company while he was on a sabbatical.

BACKGROUND NOTE

Netscape was co-founded by Jim Clark (Clark) and Andreessen. Clark was a Stanford University
professor turned entrepreneur[3]. Andreessen was an undergraduate from the University of Illinois,
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working with the National Center for Supercomputing Applications [4]. In 1993, with a fellow student,
Andreessen developed the code for a graphical Web browser and named it Mosaic.

In April 1994, Clark and Andreessen founded a company, which was named as
Electric Media (See Exhibit I). The name was changed to Mosaic Communications
in May 1994. In November 1994, Mosaic Communications was renamed Netscape
Communications. In December 1994, Netscape introduced Navigator, its first
commercial version of its browser[5] .

By March 1995, six million copies of Navigator were in use around the world. This
was without any advertising, and with no sales through retail outlets. Netscape
allowed users to download the software from the Internet. By mid 1995,
Navigator accounted for more than 75% of the browser market while Mosaic
share was reduced to just 5%.

In the same month, Netscape launched Navigator 1.0. During February-March 1995, Netscape
launched Navigator 1.1. This new version could be run on Windows NT[6] and Macintosh Power PC[7].
Within three months, the beta version[8] of Navigator 1.2 for Windows 95 was launched. At the same
time, Netscape announced its plans to launch the commercial version of Navigator 1.2 in the next
August 1995. By launching new versions of browsers quickly, Netscape set new productivity
standards in the web browser market.

Numerous Netscape servers were also launched within a short period of time. Netscape
Communications Server, News Server, and Commerce Server were launched within a year. In total,
within the first 15 months of its inception, Netscape rolled out 11 new products. Within a year of its
inception, Netscape made an Initial Public Offering (IPO), which was well received by the investing
public.

In 1997, Netscape broadened its product portfolio by developing Internet content services. In June
1997, Netscape launched its Communicator[9] and in August rolled out Netcaster[10]. In August 1997,
Netscape also announced its plans to strengthen its presence in the browser market by forming 100
industry partnerships. In September 1997, Netscape transformed its corporate website into
Netcenter website – a site featuring news and chat group services.

During 1998, Netscape faced increasing competition from Microsoft in the browser market. Netscape
therefore entered new businesses like enterprise and e-commerce software development. By the
fourth quarter of 1998, the enterprise and e-commerce software business accounted for 75% of
Netscape’s earnings. In November 1998, Netscape was acquired by AOL, the world’s largest online
services provider.

Analysts remarked that Netscape’s ability to respond quickly to market requirements was one of the
main reasons for its success. The ability to introduce new versions of products in a very short span
of time had made the company stand apart from thousands of startup dotcom companies that were
set up during that period. Analysts said that Netscape’s culture, which promoted innovation and
experimentation, enabled it to adapt quickly to changing market conditions. They also said that the
company’s enduring principle ‘Netscape Time’ (See Exhibit II) had enabled it to make so many
product innovations very quickly.

NETSCAPE’S CULTURE

Netscape promoted a casual, flexible and independent culture. Employees were not bound by rigid
schedules and policies and were free to come and go as they pleased. They were even allowed to
work from home.

The company promoted an environment of equality – everyone was encouraged

to contribute his opinions. This was also evident in the company’s cubicle policy.
Everyone including CEO Barksdale, worked in a cubicle. Independence and hands-
off management[11] were important aspects of Netscape’s culture. There was no
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dress code at Netscape, so employees, were free to wear whatever they wanted.

Barksdale laid down only one condition, “You must come to work dressed.” The
company promoted experimentation and did not require employees to seek
anyone’s approval for trying out new ideas. For example, Patrick O’Hare [12], who
managed Netscape’s internal human resources website, was allowed to make
changes to any page on the site, without anyone’s approval.

Netscape’s management reposed a high degree of trust in its employees, which translated into
empowerment and lack of bureaucracy. Beal[13], a senior employee said, “Most organizations lose
employees because they don’t give them enough opportunities to try new things, take risks and
make mistakes. People stay here because they have space to operate.” Realizing that some
experiments do fail, Netscape did not punish employees for ideas that did not work out. However, to
maintain discipline at work, employees were made accountable for their decisions. They were also
expected to give sound justifications for their actions.

Job rotation was another important feature of Netscape’s culture. By doing so, the company helped
its employees learn about new roles and new projects in the company. For example, Tim Kaiser, a
software engineer, worked on four different projects in his first year of employment. The company
believed in letting its staff take up new jobs – whether it was a new project in the same department
or a new project in another department. Moreover, related experience was not a requirement for job
rotation. Netscape played a proactive role in identifying new positions for its employees inside the
company.

Employees were offered a wide range of training options and an annual tuition reimbursement of US
$6,000. This opportunity to expand their skills on the job was valued by all employees. The
company also helped employees learn about the functioning of other departments. There were
quarterly ‘all-hands’ meetings in which senior managers of different departments gave
presentations on their strategies. These efforts created a sense of community among employees. An
employee remarked, “They really try to keep us informed so we feel like we are involved with the
whole company.”

THE SETBACK

After the acquisition, AOL planned to integrate Netscape’s web-browser products and Netcenter
portal site with its Interactive Services Group[17]. The company created a Netscape Enterprise Group
in alliance with Sun Microsystems[18] to develop software products ranging from basic web servers
and messaging products to e-commerce applications.

However, overlapping technologies and organizational red tape slowed down the
process of integration. Within a year of the acquisition, Netscape browser’s
marketshare fell from 73% to 36%. Andreessen, who had joined AOL as chief
technology officer, resigned only after six months on the job.

His departure triggered a mass exodus of software engineering talent from

Netscape. Soon after, engineers from Netscape joined Silicon Valley start-ups like
Accept.com, Tellme Networks, Apogee Venture Group and ITIXS. Former
Netscape vice president of technology Mike McCue and product manager Angus
Davis founded Tellme Networks.

They brought with them John Giannandrea. As chief technologist and principal engineer of the
browser group, John Giannandrea was involved with every Navigator release from the first beta of
1.0 in 1994 to the launch of 4.5 version in Oct. 1998. Ramanathan Guha, one of Netscape’s most
senior engineers, left a $4 million salary at AOL to join Epinions.com.

He was soon joined by Lou Montulli and Aleksander Totic, two of Netscape’s six founding engineers.
Other Netscape employees helped start Responsys. Some employees joined Accept.com and others
AuctionWatch. Spark PR was staffed almost entirely by former Netscape PR employees.
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Market watchers were surprised and worried about this exodus of Netscape employees. Some of
them felt that the mass exodus might have been caused by monetary considerations. Most of the
employees at Netscape had stock options. Once the acquisition was announced, the value of those
options rose significantly.

David Yoffie, a Harvard Business School professor said, “When AOL’s stock went up, the stock of
most of the creative people was worth a ... fortune.” Most of them encashed their options and left
the company. But some analysts believed that there were other serious reasons for the exodus.

Netscape employees always perceived themselves as an aggressive team of revolutionaries who

could change the world. Before resigning from AOL, Jamie Zawinski, the 20th person hired at
Nescape, said, “When we started this company, we were out to change the world. We were the ones
who actually did it.

When you see URLs on grocery bags, on billboards, on the sides of trucks, at the end of movie
credits just after the studio logos – that was us, we did that. We put the Internet in the hands of
normal people. We kick-started a new communications medium. We changed the world.” Another
ex-employee said, “We really believed in the vision and had a great feeling about our company.”
But the merger with AOL reduced them to a small part of a big company, with slow-moving culture.

EXHIBIT I
NETSCAPE – CHRONOLOGY OF EVENTS

DATE  EVENT

 Jim Clark and Marc Andreessen begin talks on forming a new

1-Mar-94
company

 The company (first named Electric Media) is founded by Clark and

Apr-94
Andreessen.

May-94  Electric Media changes its name to Mosaic Communications

 Mosaic Communications changes its name to Netscape

Nov-94
Communications

 Netscape Navigator, Netscape Commerce, and Communications

Dec-94
Servers ship.

Aug-95  Netscape's IPO is one of the hottest stock-market debuts ever.

Dec-95  Netscape and Sun Microsystems announce Java Script.

11-Mar-96  America Online agrees to include Netscape in every copy of its

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Internet-access software.

 AOL strikes a deal with Microsoft, giving Internet Explorer the

12-Mar-96
coveted spot as the service provider's browser.

May-96  Netscape announces Netscape Navigator 3.0.

Oct-96  Netscape announces its server product, SuiteSpot 3.0.

 Netscape becomes enterprise-software purveyor, rolling out

Oct-96
intranet- and Internet-server software packages.

11-Jun-97  Netscape releases Communicator

Aug-97  Netscape releases Netcaster, push-media software

 Netscape announces an initiative to retain its browser share by

forming 100 industry partnerships. Its new partners agree to
package the Navigator browser -- unbundled from the
18-Aug-97
Communicator suite -- with their products. The streamlined
Navigator 4.0 includes Netcaster, basic email, and calendar
software.

 It unveils the Netcenter Web site, transforming the corporate

3-Sep-97 Netscape.com into a site featuring news, software, and chat
groups.

22-Jan-98  It offers Communicator 5.0's source code over the Net free.

 Mozilla.org launched. A dedicated internal team and the website

23-Feb-98
guide the open source code to developers.

 Netscape releases programming source code for its Communicator

31-Mar-98
software.

 Mozilla.org posts the first version of its source code, modified by

10-Apr-98
outside developers.

 The US Justice Department and 20 state attorney generals file an

18-May-98 antitrust case accusing Microsoft of abusing its market power to
thwart competition, including Netscape

29-Jun-98  Netscape debuts Netcenter 2.0.

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 According to a study by a market researcher, Netscape cedes

28-Sep-98
browser-share lead to Microsoft's Internet Explorer.

 Netscape releases Communicator 4.5, the latest version of its

19-Oct-98 browser software. It features Smart Browsing, Roaming Access,
and RealNetworks' RealPlayer 5.0.

22-Nov-98  AOL is involved in negotiations for buying Netscape in an all-s

EXHIBIT II
NETSCAPE TIME

Netscape Time was Netscape’s most enduring principle. It

was about the speed, at which the employees worked and
delivered new products. It concerned the mind-set of
employees than the business model of the company.
Netscape Time had six core principles:

The first principle was ‘fast enough never is.’ Ever since its
inception, Netscape maintained a lightening speed in
whatever it did. Analysts felt that the company could move
quickly because it knew what it wanted. It hired
programmers from the best schools and from companies
like Oracle, Silicon Graphics etc. The company wanted them
to get used to Netscape’s code-writing culture.

‘The paranoid predator’ was the second principle. Netscape

knew that even a predator could become a prey. The
company’s management believed that their role was to
instill urgency at all levels. They always potrayed Netscape
as a startup which had to compete with industry giants like
Microsoft and Oracle.

The third principle was ‘all work, all the time.’ Netscape’s
employees seemed to be habituated to non-stop work. For
example, to launch the company’s first product, employees
worked round-the-clock for eight months. Even at 1 am,
there were employees to give ideas, talk code, or discuss a
problem. Jim Sha, General Manager, worked for 11 hours a
day at the office, went home for dinner and then came back
to office and worked till late night.

‘Just enough management’ was the fourth principle.

Netscape seemed to consciously undermanage. Neither
Clark nor Andreessen played major roles in the
management. Andreessen said, “If you over manage
software, the result is paralysis.”

Another principle of Netscape Time was doing things ‘four

times faster.’ Netscape described Netscape Time as “turning
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out new product releases four times faster than the

competition.” In less than nine months, Netscape launched
three versions of its browser as well as servers.

The last and most important aspect of Netscape Time was

‘Web squared.’ Netscape placed Web at the heart of its
operations. Andreessen believed that “worse is better,” and
released usable software quickly, without waiting for
perfection. He believed in using the Web to access the
source of perfection. The company did not use any retail
outlets or resellers. Interested users could download an
‘evaluation copy’ from the Internet. A fully supported
version of the software was later sent to interested users.
This helped increase the company’s interaction with the
customers. Their feedback was utilized to design the next
version.

EXHIBIT III
BENEFITS FOR NETSCAPE EMPLOYEES

Medical Benefits
The plan options include the United HealthCare Choice Plan, Choice Plus,
Exclusive Provider Option (EPO), Point-of-Service (POS), Preferred Provider
Option (PPO) and Kaiser HMO (available in California).

Dental Benefits
The Dental Plan pays 100% of covered expenses for preventative care such as
periodic cleanings with no deductible. After an annual US $100 deductible, the
plan will pay 80% of covered expenses for basic restorative care, 50% for major
care and 50% for orthodontia.

Flexible Spending Accounts

Spending accounts can offer significant tax savings. Employees can deposit up
to $5,000 of pre-tax pay into a Health Care FSA and up to $5,000 of pre-tax
pay in a Dependent Care FSA. They receive reimbursements when they incur
eligible expenses.

Vision Care
The vision plan provides reimbursement for services such as annual exams,
frames and lenses. Employees out-of-pocket cost can be as low as US $20 if
you use a participating provider. There is also coverage for contact lenses.

Life Insurance
Netscape provides employees with basic life insurance as well as accidental
death and dismemberment insurance at no cost to the employee. Each
employee is covered at two times annual salary up to a maximum of $500,000.
Employees can also buy additional employee and dependent life insurance at
discounted rates.

Income Protection
Income protection includes disability, sick leave and workers compensation. If
an employee becomes disabled and is unable to work, he will be covered by a
salary continuation plan covering you at 70%-100% of your pay for up to 180
days. After 180 days of total disability, the employee may be eligible for
benefits under Netscape's Long Term Disability Plan.
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Disability Benefits
The Long Term Disability Plan assures of a continuing income in the event of an
employee is unable to work due to a covered accident or illness. The plan pays
up to 60% of pre-disability salary, reduced by any benefits to receive from
sources such as Social Security or Workers Compensation.

Business Travel Accident Insurance

Netscape provides an additional three times your annual earnings in accidental
death benefits up to $900,0000 to employees while traveling on company
business (excluding every day travel to and from work).

Vacation
Full-time employees earn up to ten days of vacation during their first year of
service, increasing to fifteen days after three years of service, and twenty days
after six years of service. (Part-time employees accrue one-half that of a full-
time employee).

Paid Holidays
Netscape observes nine scheduled company-designated holidays and up to two
employee-designated personal holidays per year.

401(k) Retirement Savings Plan

The 401(k) Retirement Savings Plan provides employees an opportunity to save
for retirement on a tax-deferred basis. With payroll deductions, employees can
direct up to 15% of their pretax earnings (8% for employees earning $80,000 in
2000) into the savings plan. The Plan offers 16 investment alternatives through
Fidelity Investments and includes loan, rollover, and hardship options.
Employees have on-line access to their accounts.

EXHIBIT III
BENEFITS FOR NETSCAPE EMPLOYEES contd...

Employee Stock Purchase Plan (ESPP)

The Employee Stock Purchase Plan provides employees with the opportunity to
purchase shares of AOL common stock at discounted prices through payroll
deductions. Subject to IRS guidelines, you may invest up to 15% of your
compensation through after-tax payroll deductions. Employees may only enroll
in the Plan twice a year, on specified offering period dates.

Tuition Assistance Program

Netscape is committed to the short and long-term professional development of
its employees. As part of this commitment, Netscape offers a Tuition Assistance
Program to aid those employees who are pursuing job-related degrees or
participating in professional development courses.

Hyatt Legal
Netscape offers a group legal program through Hyatt Legal Plan on a voluntary
basis through payroll deduction. This plan gives you and your dependents easy
access to professional legal representation at an affordable price.

Employee Services
Life@Work Programs
Netscape has developed a variety of programs to assist employees with a
broad-range of work-life issues. The health and welfare of our employees is of
tremendous importance to us. The program has been designed to assist
employees in balancing some of the responsibilities of everyday life.

Employee Assistance Program (EAP)

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A team of professional master level counselors and experienced registered

nurses are available 24 hours a day at a toll-free number. The EAP can help you
and your family with medical, work, family, financial, legal, and personal issues
that can impact your life and health.

Concierge Service
LesConcierges puts a team of service professionals at your fingertips to meet
any need that will make your life easier. The LesConcierges team can save you
time and energy through services to support your work and home
responsibilities.

Onsite Services
Services onsite such as a florist, massages, dental care, photo processing, dry
cleaning, oil changes and more!

ClubNet
Programs that help you maximize your health and fitness through a variety of
programs ranging from fitness workout and recreational sports to exhilarating
outings. Sports and recreational activities that include basketball, volleyball, in-
line skating, golf, soccer, softball, rock climbing and much, much more!
Activities vary by location. (Fitness centers are also available at some Netscape
site locations).

Child & Elder Care Referral Service

Assists employees with finding dependent care resources with information from
LifeCare.com.

Credit Unions and Banking

Select from a variety of different employer-sponsored credit unions for low rates
on loans and CDs. Some Netscape locations have onsite ATMs for employee
banking convenience.
Source: www.netscape.com

EXHIBIT IV
NETSCAPE CONSOLIDATED STATEMENT OF OPERATIONS
 1998 (Oct
(in US$ thousands)  1994  1995  1996  1997
31)
Revenues

Product  3337  77489  291183  383950  261457

Service  801  7898  55111  149901  186352

Total
 4138  85387  346294  533851  447809
Cost of Revenues:

Cost of Pdt Rev  186  9177  36943  50232  27313

Cost of Ser Rev  247  2530  13124  31557  90717

Total
 433  11707  50067  81789  118030
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Gross Profit  3705  73680  296227  452062  329779

Operating Expenses

R&D  4146  26841  83863  129928  123238

Sales & Mktg.  7750  43679  154545  272110  213004

Gen & Admn  3389  11336  30981  50356  42715

Property rights agmt and

 2487  500  250  --  --
related charges

Purchased in-process R&D  --  --  --  103087  --

Mergers related charges  --  2033  6100  5848  --

Restructuring charges  --  --  --  23000  12000

Goodwill Amortization  --  --  --  --  5088

Total
 17772  84389  275739  584329  396045

Operating Income (Loss)  -14067 -10709 20488  -132267 -66266

Interest Income  251  4898  --  --  6873

Interest Expense  -14  -304  --  --  --

Net Income (Loss)  -13830 -6613  19517  -115496 -51417