How Jim Barksdale learned to stop worrying and love the monopoly.
On a cold winter morning, I find myself in a rented hall in Sunnyvale, California, sitting among a few hundred of the newest enlistees in the Great Cyberspace Wars. I'm a few miles away from the headquarters of the beleaguered Netscape Communications Corporation, sitting with a crop of new Netscape employees. We're waiting for Jim Barksdale, Netscape's wily general and chief executive officer, to address the newbies with his standard welcome-to-the greatest-company-on-Earth speech. As part of that rap, Barksdale usually leads the troops in the Netscape finger cheer. It goes like this: He holds up the index finger on one hand and with the other hand forms a peace sign, then joins the two to create an N. Then he makes an E with three fingers, then a T. "Let's hear it for Netscape!"
Usually the new employees love it, I guess. But this isn't an ordinary orientation. Barksdale is giving the Netscape finger cheer at a time when Microsoft is threatening Netscape with extinction and the federal government is threatening Microsoft with US$1 million a day in fines for being such a bully. Maybe, I think, the troops have more pressing concerns: Like, will their new company still exist before they vest in their 401(k) plan? They've probably heard, as I have, that Barksdale is scrambling to find a partner - or buyer - for Netscape. The new hires will want reassurance, right?
Hell, I want reassurance. For a year I've been working with my wife, Michelle Slatalla, on a book about Netscape. The company is up against the wall. Even the US Justice Department's decision in October to make Netscape "Exhibit A" in its case against Microsoft seems to us to be too little, too late. But maybe something else can save the company: something they call good old-fashioned business sense. If so, we'll have a fine final chapter for our book.
Barksdale is the key. I know from interviews with him that the CEO of Netscape has more than his share of business acumen. And certainly he should, since the man spent 30-plus years climbing the corporate ladders at some of America's biggest (IBM) and smartest (Federal Express) and fastest-growing (McCaw Cellular) companies. Each of his former employers was either a monopolist, or battling one. But can Barksdale capitalize on what he has learned at the feet of masterful entrepreneurial strategists fast enough to save his own company? Does he have a plan, and can he implement it fast enough to outrun Bill Gates?
I arrived here believing the answer was yes.
Michelle disagreed. She thought I was naïve. She knew me as a soft touch for an idealistic underdog. Over the past months, we'd met many people we liked at the company - but she believed Netscape was finished. Roadkill. Kaput. The best Barksdale could hope for was to sell out to Sun ... or Oracle ... or AOL ... or whoever. "You cannot tweak the nose of the Giant and expect to live" was her reasoning. She ticked off the many key indicators that pointed to the company's impending demise. There was a long list: Netscape's share of the browser market, which once topped 85 percent, was steadily slipping and now stood at something less than two-thirds. She reminded me that half the visitors to the Web site where I work, Time Inc.'s Pathfinder, used Microsoft's Internet Explorer. And browsers aside, she said, Netscape had pinned its hopes on grabbing a piece of the ever expanding enterprise market - what they call intranets - but so far wasn't selling enough software to big corporate customers to make the nut. No wonder Netscape's stock was in the toilet.
"Oh yeah?" I countered. "What does Wall Street know?" Yet I knew what she said was true. "Anyway, they have a secret weapon," I said smugly.
"What?"
"Barksdale. He has a plan."
I'd come to believe that Bark, as he is known, was way shrewder than anyone suspected, that he had long ago figured out a sophisticated and multilayered plan to sneak Netscape past Microsoft and into the end zone. His company's apparently dismal fourth-quarter 1997 earnings report notwithstanding, I thought it possible that Bark's company could be profitable by the end of 1998 - just as he has maintained all along. Of course, he could sell out, but if he did I believe he'd be missing an opportunity to control Netscape's destiny - and maybe the destiny of the Net.
Why did I so desperately want to believe in Barksdale? The truth is, it had nothing really to do with Netscape per se. In fact, I think Barksdale and Netscape have been trying to eat their cake and have it too. They have been trying to beat Microsoft in the browser wars on the one hand and claiming peace and harmony and their desire to be business partners on the other. (And all the while, Netscape's lawyers are slipping reams of documents to the Feds to help build the antitrust case.) No, Michelle was right. I am a sucker for superior but apparently doomed technology. I loved Betamax, damn it, and I never got over the fact that I had to toss out my old Betamax tapes and adopt a crappier video format after VHS became ascendant. And maybe it's also because I own four Macs but can't find a single new, decent non-Windows CD-ROM for my kids to run on them. Another reason: I hate the QWERTY keyboard. Despite 20 years spent typing for about four hours a day, I never have been able to master the thinmg. See?
QWERTY sucks, VHS is inferior, and Windows is an annoying kludge. But they all conquered their markets ... and who suffered because of it? In every case, the consumer. Me.
Now, with Microsoft ramming its browser down our throats, we consumers stand to lose another piece of our already diminished free choice. The piece that rewards creativity and entrepreneurial innovation. The piece that encourages a half-dozen college students sitting in a basement in Illinois to work round the clock for weeks to hack out a world-altering program. And don't forget the piece about apple pie, and Mom, and peace on Earth!
Barksdale does that to you. He makes you want to believe. I'm sitting here in Sunnyvale, listening to this guy's talk. His delivery is flat as the Mississippi and affectless, his lips hardly moving beneath the sharp point of his nose. He's generating a certain nervous energy in the audience. Which is exactly what he wants. Like a Pentacostal preacher or a standup comedian, he's a master at claiming that tension and making the crowd his. He picks up the rhythm of his speech and starts to throw his punch lines with the precision of a pro. He tells the one about the boss at Sun Microsystems - his immediate predecessor as leader of the Resistance: "Scott McNealy is a good friend ..." Pause. Two beats. "But I know that if I don't eat my breakfast, he will."
Long ago, in the days of his Southern youth, Barksdale mastered the salesman's art, that uncanny sense of timing and delivery that clinches a deal. The ability to sway his listeners has served him well ever since he was a teenager selling suits to his friends in Ed Helms's clothing store in his hometown of Jackson, Mississippi. It also got him his first real job, back in 1965, fresh out of college and interviewing with his older brother Jack's boss at IBM. "I don't know if I can have two Barksdales working for me," the IBM district sales manager said. "Well, then, fire Jack," Bark shot back - and started work soon after.
"He's a good communicator, one of the best, in fact," says Peter Willmott, who brought Barksdale to Federal Express.
I listen now while Bark inculcates the new recruits with the nascent zeitgeist of his nearly 4-year-old company. "Let's talk about what a business is, what a business does ... and why we're here," he says. "What do you think our purpose is? Making money? Selling products?" Nooo. Nothing so crass as that. The purpose of this business, he goes on, is no more about making money than the purpose of life is to breathe.
Are they ready for this? He speaks the words with deadly deliberation, blue eyes as unblinking as a crow's: "Our purpose is to create and keep customers." (Think of Ross Perot saying, "It's as simple as that.")
He's charming them! And he's even charming the uncharmable me. The guy who cut his eyeteeth as an IBM salesman in the 1960s, who maneuvered himself into a fast-track management job in the 1970s by selling FedEx on a ready-made data-processing division, is selling again. And I'm buying it! He hasn't even said word one about Microsoft or the possibility of layoffs, and yet we're ready to follow him to face the unknown, while singing the company song.
And then, a couple of minutes into the Q&A period, a brave soul raises her hand and utters the fearsome name: What about Microsoft?
I pull myself up, put pen to pad, ready to catch every word of wisdom. Here comes the vision, the strategies, the secret plan.
"Everybody hates a monopoly unless they've got one," Barksdale starts smoothly. But then, he sidesteps the real question and dons a comforting, pedagogic tone, and says that what the government is doing is exactly right - protecting the free-market interests of a capitalist society. He doesn't mention that Netscape is aiding and abetting the government. The man is as cool as custard. You'd hardly know that his sales team has been having trouble closing the big deals with corporate customers, and that a number of 1997 sales Netscape had been counting on to make the nut would bleed over into 1998. He's smooth. He doesn't let slip his own knowledge that in a few days he'll announce that Netscape flamed in the fourth quarter of 1997, posting a loss of $80 million at a time when the bigshot Wall Street analysts had been predicting a profit. He's upbeat. He's uplifting. The new hires are satisfied.
But I'm not. Where's his secret plan? As he winds down, sends the troops into battle, and accepts their applause, I look down at my pad of paper. I see only the words "Jim's Big Plan" scrawled across the top of the blank sheet, and nothing below it. "Uh, Jim, can we grab a cup of coffee and talk strategy?"
On the way out of the hall, we pass the reception table, piled high with snack foods. Barksdale grabs a granola bar and as we head down a long flight of stairs, he reads the ingredients on the wrapper. Suddenly, without a word he hurls the still-wrapped granola bar onto the landing below. Was it the fat content? Or was it a chink in the armor? Are the browser wars finally getting to Jim Barksdale?
Before Barksdale arrived at Netscape in January 1995, he had zero experience in navigating the treacherous whitewaters of Silicon Valley. What he did have was something more valuable. His earlier jobs had taught him how to survive in a business world where someone has seemingly cornered the market. His career provided him a singular education in monopolies.
At IBM, which had managed to gain and lose monopolies in no fewer than four technology markets, he learned what it was like to work for a company that was operating under a federal consent decree. Anyone could see how, over time, IBM got bloated and bureaucratic and lost its edge as smart, innovative competitors created technology that left its standard in the dust.
Barksdale left IBM in 1972 to move to Memphis and cofound Econocom, a company that bought, sold, and leased used IBM computers. Living in the shadow of a giant proved fruitful. A few years later, the company was sold to Cook Industries, where Barksdale labored until that giant fell on hard times and started to sell off pieces of its business.
Within six months, Bark was a senior vice president at Federal Express, running its critical information services. He took the business from $1 billion in revenues when he arrived to $7 billion by the time he left. The entrepreneurial company turned out to be just right for the entrepreneurial Barksdale. With him playing coach, a smart young team of engineers built the largest single information management system database in the world.
At the same time, Barksdale helped carve out a new growth industry in the duopolistic mail delivery industry, creating a profitable service in the deep shadows of the US Postal Service (then a monopoly in document delivery) and the Soviet-style United Parcel Service.
Another opportunity to play in a monopoly market arrived in the form of an offer to become president of McCaw Cellular in 1991. At McCaw, Barksdale experienced one of the biggest business success stories of the decade. He arrived at a suspenseful juncture: Craig McCaw, the company's founder, had borrowed a country's worth of debt - $4.9 billion - to finance a national cellular network. Many analysts were predicting that the company would go under before the first fruits of the mobile-communications revolution could be harvested.
But AT&T bought the company, for a delirious $11.5 billion. McCaw's gamble - that the cellular network would expand exponentially to create new business opportunities for his company - was dead-on. More important, it taught Barksdale something else about monopolies: Just by showing up, a competitor can grab a healthy share of a formerly entrenched market. Customers crave choice.
So from the very first Barksdale knew what he was getting into with Marc Andreessen and company - another monopoly situation. He knew what had to be done if this tiny shop was to succeed. If it wanted to build a business out of a piece of software called a browser, it had to sneak by the sleeping giant, Microsoft. Then run like hell for the beanstalk. But first you had to show up.
Now, as Bark and I settle into our chairs at a little table in the back of a Sunnyvale cappuccino joint, he explains how his Secret Plan will depend on that very lesson.
"By the time I was in the cellular business, there were only two cellular licenses granted in every city," he recalls. "The 'B' carrier was always the incumbent telephone company, right? So by definition I was always competing against the incumbent telephone carrier." McCaw was in virtually every major city, including Los Angeles, San Francisco, Seattle, Houston, and New York. Not surprisingly, it thrived everywhere. "We had a 40 to 60 percent share. All you had to do was show up and you got a 40 share! That's kind of the way that law of large numbers works. Everything else being equal, the market splits."
His Secret Plan is simple. Netscape, essentially, just needs to show up. And take its cut of the split market.
But ... (I'm thinking out loud here) the problem is this market isn't splitting. Microsoft is in the process of gobbling it up ...
Ah, but that's where the Justice Department comes in. The government will remove Microsoft's advantage and even up the playing field. Then all that Netscape needs to do is keep showing up.
So can Netscape blame all of its troubles on Microsoft? As early as mid-1995, Netscape's corporate counsel, Roberta Katz, started talking to other Valley companies and collecting war stories about what it's like to compete against Microsoft. It wasn't long before she began hearing internal stories from the front lines of the browser wars. Eventually, the Justice Department managed to collect evidence that Microsoft had refused to allow at least three computer makers, including Compaq, to remove either Internet Explorer or its desktop icon from the machines they sold.
Barksdale recalls thinking that Microsoft's tactics "could not be lawful. You cannot take one product and tie another one to it, or else the logical conclusion is all products would be tied to the monopoly operating system."
In an August 8, 1996, letter to the government, Netscape complained that Microsoft had embedded secret hooks into its operating systems to enable its own Web server to run faster than competitors'. The result of the hooks was software reviews - such as one published in PC Week's March 1996 issue - that reported Microsoft's speed superiority. By the time Netscape's products caught up, most reviewers were already writing about the next generation of software.
Furthermore, word was that Microsoft was offering Internet service providers "side payments" of up to $400,000 if they would agree to make Netscape Navigator inaccessible to customers. In other instances, Barksdale's staff believed, Microsoft offered corporate customers freebies - including software upgrades and consulting services - if the customer used Internet Explorer. Netscape even suspected that Microsoft paid a bounty to kill copies of Netscape's browser. Microsoft "offered international telecommunications customers $5 for every installed Netscape Navigator that they removed from their corporation and installed with Internet Explorer," Bark's lawyers alleged.
Meanwhile, Netscape's sales staff started to hear disturbing stories about Microsoft's business tactics from customers. Bark's lawyers reported that one customer said Microsoft "gave me a deal that I couldn't refuse. Free dialer, browser, developer's kit, free distributable, et cetera ... I know Netscape is better, but $0 versus $18K is impossible to beat."
After the letter was made public, Microsoft called Netscape's charges "false" and "bizarre," and accused Netscape of launching "a calculated attempt ... to enlist the government and the media in its market campaigns."
Barksdale stayed in the background, letting the lawyers do their work. His staff worried that the dramatic press reports about the browser wars could, in the long term, damage the company's relationships with key customers. At the same time, Netscape worked to convince other software shops to come forward and talk to the Justice Department.
As I sip my cappuccino and work this offensive through in my mind, Barksdale says, with a straight face, that despite all this heavy lifting by lawyers his Secret Plan is not dependent on what the government does. "The legal part of our strategy accounts for probably 1 percent" of Netscape's overall strategy, he claims, adding that the company must win or lose on its own merits.
The Internet software market will grow, Barksdale believes, and as it does, so will Netscape. Just as FedEx thrived in the shadow of the UPS giant. Just as McCaw Cellular thrived in the shadow of the AT&T giant. Netscape will take it one step further and ... embrace the giant. Work with the monopoly, and, he hopes, grow with it. Keep showing up!
"The number of connected users is growing at least 50 percent a year," he says. By "connected" he means networked over the Internet, corporate intranets, and business-to-business extranets. All of them need (as in "will pay for") sophisticated software to function well. By 2001, that networked market will be worth nearly $26 billion. "Would I take 50 percent of the new users next year? You're damned right." In fact, he claims, he'd be happy to settle for 10 to 20 percent of the whole market. Who wouldn't?
"There's a huge market for Web advertising, commerce, email, groupware, and application servers that is a wide-open space. Nobody has a great advantage. Nobody. And all I have to do is get 10 percent of that over the next three years and we'll continue as the fastest-growing company in history."
Barksdale's conciliatory stance is not new. From the day he became Netscape's CEO, Bark has explored ways to work with Bill Gates. He ran into Dan Rosen, one of Gates's deputies, at an industry conference in early 1995. Barksdale was happy to sit down and have a friendly talk. He and Rosen, who was officially Microsoft's senior director of strategic relationships, already knew each other from the not-so-distant days when they both worked at AT&T. "We spent an hour or so over drinks swapping stories about AT&T and brainstorming about how Microsoft and Netscape could work together," Rosen remembers. "Jim said that he would rather find a way to work with Microsoft than compete against us, so we agreed to try to scope something out."
Then in April 1995 Barksdale invited Rosen to come to Mountain View with a team of negotiators for a day-long meeting. This wasn't the first time that emissaries of the two companies met each other. The previous year, Microsoft had been briefly interested in licensing Netscape Navigator's code as a basis for creating its own browser to ship with Windows 95. But Jim Clark, cofounder of Netscape, had "rudely" rebuffed Redmond in its initial foray, Rosen recalls. (Clark remembers it differently. He says that Microsoft wanted to license Netscape's code for $1 million, but he sent word to Redmond that "I was not even remotely interested in licensing this to Microsoft, because they would subsequently use it against us.") In any case, the kiss-kiss talk went well enough this time that in April 1995, Rosen and Barksdale met privately to discuss Microsoft's desire to buy a 15 to 20 percent stake in Netscape.
Money was one thing. The sticking point was that Redmond wanted Netscape to put a Microsoft executive on the company's board of directors. (Microsoft insists this was only a "possibility.") That would be a guarantee that Netscape would report to Redmond regularly, keeping Microsoft up to date on all of the company's plans.
That day, according to Rosen, Barksdale said that "he would welcome the board seat, if we got the business deal done at the same time." But Marc Andreessen, who was also present at the meeting, believes that the whole meeting was Bark's way of gauging Microsoft's plans in the browser market. Says Andreessen: "Jim's method is to let people talk, because when they talk they say things. His eyes narrow and he gets a reptilian look, and you're in water ankle deep. I always try to make sure I don't fall into that trap."
A few weeks later, Barksdale visited Microsoft's offices to continue the discussions. Rosen had arranged a meeting between Barksdale and top Microsoft executives Paul Maritz and Nathan Myhrvold. "At the meeting, Jim still expressed a desire to work together," Rosen recalls.
But shortly after, negotiations ended as it became clear that the companies would pursue separate - and competitive - paths.
Now, nearly three years later, Barksdale claims that - the antitrust action notwithstanding - sooner or later Microsoft must come to its senses and allow his company to flourish. "There's a sort of winner-take-all perception in the press which is just foolishness," he says. "I do not subscribe to the conventional wisdom that Microsoft can do all things and be all things and supply all things. There's room for many others. And I would think that Microsoft would want that."
But isn't he playing it both ways? Isn't his company unchecked a threat to Microsoft's control of the desktop? Don't the browser and the open standards of the Internet seize the power from the operating system and vest it in the network?
"What's the threat?" Barksdale asks incredulously. "Let me tell you something: they have an engine of enormous power. They have a market cap of $170 billion, they have $9 billion in cash reserves. They have the hearts and minds of every computer developer in the world. They are in every retail store of any type with their products. They are now even included in cereal boxes. They're an awesome engine and they're going to grow and prosper regardless. Here they've wasted $2 million fighting me on something that they get no revenue for - they don't charge for the product! This is not a good strategy."
Barksdale's advice to Microsoft: "Sometimes you're better off if you just relax. If you give a little, you get a little." And if you don't, you get sued.
To anyone who knows Barksdale well, the plan is a signature strategy. Keep showing up. Let the big guys make their mistakes. Like the generals of North Vietnam, General Barksdale is waging a war of attrition. He is outgunned and outnumbered, yet he possesses an unusual and incalculable asset: patience.
"I think we could be a great partner to Microsoft," he says. "Microsoft built a platform on which people build software - they're called independent software vendors. I am an independent software vendor! I'm doing what they told me to do. They should partner with their partners, not try and put them out of business. I don't think we're as big a threat to Microsoft as they think we are."
My wife Michelle thinks that Barksdale has charmed me into zombielike loyalty. I can now do the Netscape finger chant in five seconds flat. She says I'm being so old economy. So what if Microsoft does have a lock on the operating system? she asks. Everyone in the world - except Netscape - is benefiting.
Even some economists say the same. Getting the government involved in regulating innovation is bad enough. Regulating Microsoft could be worse for the global economy than allowing it to push its de facto standard for all things digital. Once standards are set, we all benefit, right? Investment pours in because people like to invest into certainties, and standards are certain. Increased investment breeds more technology and the whole shebang takes off. Especially on the infobahn, where, as Bob Metcalfe told us, the power of the network is equal to the number of the end-users squared. The more the merrier. But if half of us are using one technology - Netscape Navigator, say - and the other half are using Microsoft's blend, and the Net world is halved, aren't we all a little bit poorer? So why not let the stronger player kill the weaker?
Maybe it will. Netscape's dismal fourth-quarter '97 losses prompted a new round of "Netscape is dead" stories in the media. I'm ready to forget the Netscape finger cheer.
Then ol' Barksdale, bless his soul, comes through. Three weeks after announcing plans to lay off 400 of its 3,200 employees - some 12.5 percent - the company announces that it will give away Navigator for free.
I'm excited, because this will level the playing field. Countless studies have shown that most of the people who switched from Netscape's Navigator to Microsoft's Internet Explorer in recent months did it simply because Microsoft's browser was free for the past three years. I'm not alone in my new enthusiasm. "Netscape's great strength, from the beginning, was the fact that it had browser market share. And now, in theory, it has the means to maintain market share," says David Smith, an Internet analyst who works for the GartnerGroup. "If they could get the computer makers to bundle their browser along with Internet Explorer, it would help. If Netscape would basically give these hardware makers a cut of whatever the take is, that would work. It's viable."
Barksdale knows that. He also knows that if Netscape's browser already sits on the desktop, then any corporate IS manager considering a back-end solution will at least hear out Netscape before making a buy. The browser puts Netscape in the running in the enterprise market.
More important, Netscape also announced that it would give away its source code, to encourage developers to write code to run with its browser. Hence, computer makers who preinstall Netscape's browser can now optimize the code for their own machines and create and name their own customized flavor of Navigator.
Naturally, Michelle wanted to know why Barksdale didn't decide to give away the browser and source code months ago, back when the government first announced its new initiative against Microsoft. Why now, when it seems so desperate? She, along with some other industry analysts, doesn't think this freebie will do anything to change Netscape's market share. As if in confirmation, a day after the giveaway announcement a bunch of the biggest makers of personal computers joined hands to announce that they had no plans to replace Microsoft with Netscape when they preinstalled a browser on new models. That's because the PC makers, who are under enormous pressure to cut prices, have streamlined the production process as much as possible. Switching browsers now could add a step in the manufacturing process - and driving up costs even a hair could be too costly to risk.
You want to know what is going to happen? Will Netscape prevail and win a place in our desktops, or will the company perish under the Redmond steamroller? Will they sell out to a bigger, tougher company that can afford a bruising, years-long battle with Microsoft? Will they be gold, or will they be toast?
Here's where to look for the answer: watch Barksdale. He'll do surprising things. He can think like the Net. Barksdale has taken an idea from Marc Andreessen, the first guy to suggest giving away a browser for free. Andreessen saw that the browser could be a kind of Trojan horse to get onto companies' servers, where the real money was. The more Netscape browsers are out there, the more the brand name flourishes, the more people are likely to actually pay for other Netscape goods and services. It's a brand world. Sneak past the giant. Be happy with 10 percent of the market. Go with the flow.
Most of all, keep showing up.
