The early star of the dot-com boom wasn’t Amazon or Ebay, it was Netscape, a company who produced a web browser of the same name. It went boom high and it went boom fast as it rose. And when it fell, it went boom hard and loud. Its IPO on August 9, 1995 launched the dot-com bubble. In this blog post, I’ll explain why it was pretty much doomed by the time it went public.
The next Microsoft?
Initially priced at $28 per share on the day of its IPO, it soared as high as $74.75 per share. In the span of 8 hours, it went from a startup to a valuation of $3 billion. Investors concluded it could be the next Microsoft. That was because it had 80 percent of the market share for web browsers. That was similar to Microsoft’s dominance in operating systems. And without a web browser, commercialization of the Internet wasn’t going to happen.
By the end of 1995, Netscape was trading at $174 per share, putting its market cap at $9 billion.
Netscape was far from the only IPO like this. Fear of missing the next Microsoft also pushed Red Hat’s share price after its 1999 IPO.
But for Netscape, there was trouble in paradise even before the IPO.
The skeleton in Netscape’s closet
In October 1998, during the Microsoft Anti-Trust lawsuit, Netscape Chairman James Barksdale testified that Microsoft wanted to control the entire browser market for Windows-based computers and approached Netscape starting in June 1995 about that.
“Microsoft and Netscape engaged in a number of conversations, including discussions relating to technical standards issues and efforts to explore a possible cooperative arrangement between the companies,” Barksdale said. “This goal seemed reasonable enough. What I did not imagine at the time, however, was that Microsoft’s goal was to attempt to convince Netscape not to compete for the vast majority of the browser business — the business related to the Windows 95 platform — and to destroy Netscape’s business if it refused to agree not to compete.”
Essentially, Microsoft wanted Netscape to take Apple’s Macintosh, Unix workstations, IBM OS/2, and Windows 3.1, while leaving the Windows 95 market to Microsoft. The problem with that was beginning in August 1995, all new PCs were going to be shipping with Windows 95, and a significant portion of existing PC owners running Windows 3.1 were expected to buy the upgrade.
Between retail sales and copies bundled with new PCs, Windows 95 sold 40 million copies in its first 12 months, surprising no one. So Netscape didn’t want to cede that market to Microsoft.
The result was Internet Explorer went from being part of the $50 Plus Pack, which also included enhanced disk compression and a 3D pinball game, to being bundled with the operating system. And then Microsoft proceeded to produce versions of Internet Explorer for Windows 3.1, Mac OS, and even Sun Solaris and HP-UX, even though Microsoft didn’t produce any other software for those last two platforms. Not only did Microsoft make them free downloads, they even spent money on advertising to promote it.
That’s right. Microsoft was willingly losing money to drive Netscape out of business. In September 1998, IE passed Netscape in market share.
How Netscape made money
Unlike its predecessor NCSA Mosaic, Netscape’s browser was a commercial product. When people say nobody paid for Netscape and therefore it was their own fault Microsoft gave away its browser, that’s hyperbole. ISPs who distributed Netscape to subscribers paid Netscape a royalty. When colleges and universities distributed it to students, the institution usually paid Netscape a royalty. Computer stores also sold it at retail, in shrinkwrapped boxes like other software. Best Buy sold it. I saw people buy copies with my own eyes.
Maybe not enough people bought it. Maybe Netscape made it too easy to get out of paying for it. But the notion that Netscape had no means of revenue is wrong.
Arguably, Netscape at retail wasn’t cheap, but the price wasn’t prohibitive. It generally sold for around $35, which was about the same price as a video game.
Netscape also sold web server software.
Contrasting the Netscape IPO with Microsoft
One problem for Netscape was expectations. It takes some time for startups to become profitable. I’ve worked for two startups, and at this time, neither of those two companies is turning a profit, even though both of them are older now than Netscape was when it sold out.
In contrast, when Microsoft held its IPO in 1986, it ended the day with a market capitalization around three quarters of a billion dollars. Adjusting for inflation, that was a billion dollars in 1995 and $2.2 billion in 2025.
Let’s put this in perspective. Netscape sold its web browser for $35. Microsoft sold Windows for $100. Netscape sought out an IPO comparable in value to Microsoft’s, which was already aggressive. Investor hype and FOMO pushed it to three times the size, then tripled it again by the end of the year.
Keep in mind that the IPO happened after Microsoft made it clear to Netscape they intended to crush them. Netscape’s leadership, Marc Andreessen and Jim Clark, pulled off a heist.
Killing Netscape slowly
Microsoft left Netscape with no viable path to profitability. With Microsoft giving away IE, they couldn’t license Netscape to ISPs, forcing them to rely on web server software for revenue. And Microsoft was giving that away too, bundling IIS with Windows NT Server starting in 1996.
So by 1998, Netscape was looking for a buyer, and they found one in America Online, selling out for $10 billion on March 17, 1999. AOL’s share of the deal was worth about $4.2 billion. It provided a graceful exit for investors, but didn’t result in the turnaround either company hoped for. At the time, Netscape still had nearly 50 percent of the browser market, but it kept declining under AOL’s leadership. AOL initially planned to make Netscape the default browser for AOL customers, but still hadn’t made it happen a year later out of fear Microsoft would stop bundling AOL with Windows if they did.
Within a year, AOL open-sourced the code, giving rise to the Mozilla project. Firefox is the direct descendant of Netscape. Here’s my blog post from when Firefox launched in 2004. At the time, I wondered if it could be Netscape’s revenge.
For AOL, the most valuable part of Netscape ended up being its webpage. In the early days, domain names were less predictable than they are now and search engines arguably didn’t work as well, so Netscape had useful links on its webpage so first-time visitors could find something interesting online and hopefully want to go online again.
Since Netscape-dot-com was more useful than the default homepages of most other browsers, it wasn’t uncommon for people to keep using it even after they switched to Internet Explorer. It was one of the first web portals, a business model that search engines eventually put out of business, but that could be rather profitable in the early days of the web.
But I don’t think anyone thinks that web page was worth $10 billion.
If you’re not paying for it, you’re the product
Today, web browsers make money by providing telemetry that its developers can sell to advertisers. The direct profits from Chrome to Google are exactly zero dollars, but the data they collect from it is priceless. That’s why, when you visit a car dealership’s web site, you start seeing commercials for that brand of car when you’re watching TV within a day or two.
Using Firefox doesn’t put a complete end to that, but it reduces the amount of telemetry Google or Microsoft or Apple can collect from you. That’s the main reason I continue to use Firefox. I’m not sure it’s really a better browser than Chrome at this point, but it’s close enough, and puts me a little less at the mercy of a $2 trillion company.
David Farquhar is a computer security professional, entrepreneur, and author. He has written professionally about computers since 1991, so he was writing about retro computers when they were still new. He has been working in IT professionally since 1994 and has specialized in vulnerability management since 2013. He holds Security+ and CISSP certifications. Today he blogs five times a week, mostly about retro computers and retro gaming covering the time period from 1975 to 2000.
Speak-o: “graceful exist”