Netscape's folly

Unsurprisingly, ordinary consumers don't value the same things tech people do, any more than you buy the same groceries as Julia Child. For ordinary users reliability takes a back seat to two features that neither Apple nor Sun can match Windows on: the availability of software and, most especially, the price. You just can't buy a system from either company for $1,000 -- but you can buy a really decent PC.

This price disparity has held for the entire history of the PC industry. While low price can't overcome an awful product -- no matter how little I charge for it, people aren't going to listen to any hip-hop album cut by me -- it is decisive if the products offer otherwise acceptable tradeoffs. That's how Microsoft made such inroads into the browser market, though you wouldn't know it from the complaint, which somehow omits one of the most powerful features Microsoft put into Internet Explorer.

It's free.

I mentioned before that, as with my imaginary hip-hop album, Microsoft literally couldn't give away the first three versions of Internet Explorer. It was received wisdom that Microsoft would never catch up, right up until Microsoft released IE 4.0. Oops. Most users couldn't see much difference between it and Netscape -- and while Netscape cost $40, IE 4.0 was on the house.

Netscape couldn't compete. Oh, eventually Netscape stopped charging for its browser, which slowed the decline in market share. But it's hard to see how that helped, really. It's the old economist's joke: "We're losing money on every unit, but we'll make it up in volume!" Netscape's core product cost an enormous amount to develop and generated no direct revenue -- and with Microsoft breathing down its neck, Netscape didn't dare stop building the next generation of product.

Nor were losses limited to browser revenue. When Microsoft became a viable competitor, the other revenue streams on which Netscape had counted -- such as selling server software that was as tightly integrated with its browser as IE is with Windows, and leasing prime space on its product to portals like Yahoo -- became more competitive and therefore much less valuable. With a good competing free browser on the market, Netscape simply couldn't make enough money to survive.

Many observers call that predatory pricing, a highly illegal tactic whereby a company sells its product below cost in order to drive its competitors out of business so it can then jack up prices even higher. There are extensive arguments and counterarguments as to whether Microsoft's behavior fits the description, but ultimately they're irrelevant, because Netscape doesn't mention pricing in the complaint.

Predatory pricing is the first of three main arguments advanced to explain how Microsoft unfairly competed against Netscape. The second argument is that Microsoft abused its control over the OS code, pre-empting a long standards battle by incorporating key code into Windows. This argument is compelling, which is why, as readers may recall, the court ordered Microsoft to separate the browser from the OS.

Many critics go further, alleging that Windows programmers deliberately inserted code to sabotage Netscape's performance, but most such rumors seem to peter out into the friend-of-a-friend-of-a-friend of urban legend. And ultimately Microsoft's technical escapades don't matter either; the complaint makes no mention of them.

The third argument, of course, is the leverage that Microsoft exerted on its distribution network. As we've seen, while this argument is true, it is not sufficient to explain Netscape's decline. Yet the complaint presents only this, the weakest claim. It's hard not to ask yourself: What the heck were the lawyers thinking?

The answer is that they didn't have much choice. The appellate ruling sharply limited Netscape's case. While the appeals court did establish the grounds for the suit by ruling that Microsoft had behaved illegally, it sharply restricted the grounds on which Netscape could sue. In particular, the court specifically excluded predatory pricing as a cause of action, which threw out Netscape's most powerful argument -- price -- and severely undermined its claims about the browser/OS integration, which, after all, is just another way of giving away the product for free.

Moreover, the civil trial, unlike the antitrust action, will probably be a jury trial. Long technical arguments, which didn't fare well even in front of the highly educated district court judge, risk alienating the jury. And, as the O.J. trial showed, jurors often ignore evidence they don't understand. Not to mention that arguing predatory pricing means telling jurors you deserved to win so that ... they could pay $40 for something they currently get for free. Not compelling. On the other hand, not only are predatory tactics easy to explain, but they also play into our twin national dislikes: big corporations and sharp dealing.

Stuck between a rock and a hard place, Netscape repeats its sad tale over and over, in the hopes that we won't ask how, exactly, an icon on a desktop could have been responsible for so much destruction. But we have to ask, because the law demands that lawyers not only tell you how a competitor caused their client harm, but also prove it. Which they can't, at least not with this argument.

It isn't fair. Netscape gave us a revolutionary product that has touched the lives of everyone in America, and in exchange we took away its market and made the company a minor subsidiary of AOL Time Warner. But we can't fix things by exchanging the rule of law for a popularity contest. I know that if it were me I'd be mad as hell -- but nevertheless this is one fight that Netscape deserves to lose.

- - - - - - - - - - - -

First of a two-part series on the legal battle between Netscape and Microsoft. Read Part 2.

Story finder (3 ways to search Salon)

Search terms:

Salon the Web

Salon Directory (browse by topic)