NETSCAPE WORK CULTURE CASE STUDY

1

PUGRO 41 Case study: 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, 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 .

2

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 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,

3

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 takes 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." Netscape offered a wide range of on-

campus services to its employees. Apart from the standard package of health and vision benefits,

Netscape also offered a 'Total Health and Productivity' plan.

The on-campus services program was introduced through an agreement with a San Francisco based

service provider, LesConcierges. 14

Under the program, employees were able to get some of their routine

work done like dry cleaning, paying bills, getting the oil changed in their automobiles, etc. They could

also consult a dentist or even have a massage. The program also helped employees to plan for holidays as

well as order gifts. Sick children of employees were also looked after at a child-care facility near the campus for US $10 a day.

Since employees worked for long hours, Netscape gave them paid vacations. Employees were given a six

week paid sabbatical 15

after the completion of four years of full-time employment. Incentives were given

to employees at all levels, not just senior employees. Employees earned bonuses on the basis of individual

or group performance. Senior executives were entitled to bonuses in the range of 1-30% of their annual

salaries.

There was also an annual company-wide bonus plan based on revenues per employee and customer

satisfaction figures. Employees also qualified for bonuses based on their manager's discretion, for specific

projects/assignments. Netscape developed innovative methods of reducing employee stress and

preventing them from shifting to rival companies. The company was one of the pioneers in introducing

the 'canines-in-the-cubicle' policy, which allowed employees to bring their dogs to work. The company

believed that this policy increased productivity by reducing stress. The company also felt that pets were

good icebreakers for shy workers, and that they forced employees to take breaks from their work. Another

element of Netscape's success was its quick recruitment process.

The company's employees strength had increased from 2 to 330 in just 15 months between April 1994 and

July 1995. The company attracted promising student's fresh out of college by offering them a lot of

incentives including beach parties, free clothes, signing-on bonuses and free computers. Once they joined,

to keep up morale, employees were offered stock options, which translated into huge profits when the

company performed well. Netscape launched an aggressive recruitment campaign: it went to some of the

most popular campuses like UC Berkley, MIT, Stanford, Cornell, Michigan, and Carnegie Mellon in the

US. Netscape's efforts to build a flexible and supportive culture seemed to have motivated employees and

made them highly productive.

According to an analyst, 16

employee retention is the key to success in the IT industry. Compared to the industry

attrition rate of 30%, Netscape's attrition rate was 20%. Netscape's management believed that more than the pay

4

check, employees were interested in meaningful work, independence, flexibility, and a desire to learn on the job.

Tim Garmager, principal of the Human Resources Strategies Group at Deloitte & Touche LLP in Chicago,

confirmed this belief: "There is less emphasis on pay today than ever. In today's job market, employers need to look

closely not only at the benefits they offer but at the culture they engender."

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. 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 20 th 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. Some employees felt that AOL was more interested in the Netscape's brand name. An ex-

Netscape executive said, "AOL always turned its nose up at technology – what Netscape was trying to do.

The opportunity AOL had was to make Netscape the technology arm of AOL.

As rich of a resource as Netscape was for technology, equally notable is at AOL the lack of that resource.

AOL had a hard time understanding how to best tap into it." They felt that AOL had just paid lip service

to Netscape's technology by naming Andreessen its Chief Technology Officer. According to Rob Enderle,

vice president of Giga Information, 19

"All Andreessen got was a corner. All they wanted was Web

presence… They got the [Netscape] name, they just had to figure out how to get rid of the people."

5

AOL's corporate philosophy was also completely different from Netscape philosophy. Yoffie explained,

"...The heart and soul of the Netscape engineers' culture was That difference made many employees feel

that they were working in the wrong place. So most of the engineers left and Netscape was transformed

from a technology to a media company. Zawinski said, "AOL is about centralization and control of

content. Everything that is good about the Internet, everything that differentiates it from television, is

about empowerment of the individual. I don't want to be a part of an effort that could result in the

elimination of all that." Would Netscape have survived on its own had AOL not bought it in 1998, when

the company was reeling under huge losses? (See Exhibit IV).

The ex-employees of Netscape did not care to answer that question. They only knew that their old

company and its culture had gone forever. An analyst remarked 20

, "Unfortunately, AOL is a good

technology company that doesn't know what to do with good technology. It's sad what they did to

Netscape."

Discussion Questions 1. Discuss the Management

practice case this in issues

2. Using the elements function of culture discuss the culture of Netscape clearly showing Role of culture in the success of a software company

industry and case the from examples

giving organizations, and

3. Discuss the role of technology in the facilitating culture change in Netscape, clearly showing . Which of the initiatives in the new company proved to be critical to the company's uninterrupted

success for over years? Give specific examples from industry