⚡ Get All Content for 20% Off ⚡

Netscape's 18th Birthday Is Today. Here's Why You Should Care. Netscape's memory has left a complicated free-market legacy, with some good and bad effects felt nearly two decades down the line.

By Ray Hennessey

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

Fashion Gal

Happy birthday, Netscape. The entrepreneurial community has a lot to ponder because of you.

Today marks 18 years since Netscape went public. The initial public offering was a phenomenon all its own, but its memory has left a complicated free-market legacy, with some good and bad effects felt nearly two decades down the line.

First the good. Netscape, known for its dominant Navigator browser, was just over a year old, unprofitable and unproven when it became the impetus behind the Internet age. It was more than just an IPO. It was the birth of an era of innovation that continues today. If you work for a startup, fund one or have ever considered clearing out the cubicle and starting your own business, you have Netscape to thank.

For one thing, Netscape's deal proved that Wall Street would take a chance on something unproven but with tons of potential. Netscape was young, and its promise was built on a revenue model, rather than profitability. It was also built around faith in the founders themselves, in this case Jim Clark and Marc Andreessen. Before then, companies needed a stronger track record to experience a successful IPO. Venture capitalists took chances. Wall Street didn't.

That changed with Netscape and, from a stock-market perspective, in a hugely unexpected way. Netscape shares were estimated to price at about $14 a share. The IPO price was actually twice that. And it closed its first day of trading, August 9, 1995, at $58 a share.

Related: Groupon's New CEO May Be the Company's Best Deal Yet

What followed was a transformation of the free markets themselves. Suddenly, the Internet was its own market -- and a lucrative one. Silicon Valley existed before Netscape, but, as its name suggests, it was known as the hub of microprocessing, not the web. Netscape created the modern Silicon Valley, where entrepreneurs and venture capitalists could meet at a table on Sand Hill Road and scribble out plans for a multimillion-dollar corporation on the back of a napkin. People with stable jobs in technology left those for startups with not even a dollar in revenue (or even a believable revenue model, for that matter). Culturally, such moves not only became acceptable, they became part of a career path. Would Eric Schmidt have left Sun Microsystems for Novell and, eventually, for a little startup called Google had Jim Barksdale not set the stage by leaving McCaw to run Netscape?

Venture capital also changed. Always the riskiest level on the funding food chain, venture capital experienced its own mini-boom, as fund-raising became easier and more ideas and innovation could be supported at startups.
Wall Street took notice. The lore is that Morgan Stanley, the underwriter for the Netscape deal, was caught off guard by the demand for the deal. But no investment bank wanted to pass up the opportunities for more Netscape-like deals after 1995. The seeds planted with Netscape's deal made firms invest more in their technology practices. Specialty firms like Hambrecht & Quist played with big boys like Goldman Sachs. It was cool, for a time at least, to work for Credit Suisse.

The nature of investors was altered, as well. Large institutions traditionally were the buyers of initial public offerings, but retail showed up in a big way because of the Netscape deal. Demand for Netscape came from people who had never thought about investing in stocks before. They called their brokers, many of whom had to figure out what Netscape was before suggesting their clients put their money in Westinghouse instead. Because of the demand, other entrepreneurs saw opportunity in providing direct access to trading. Thus came a boom in online retail trading platforms, the rise of the Nasdaq and the fall of the New York Stock Exchange.

Some choose to look at the Internet era that Netscape spawned as a bad thing, a time of excesses and avarice. After all, Netscape's IPO led to giant booms and busts like theglobe.com, a social network well ahead of its time, and pets.com, which had a shorter lifespan than most goldfish. While people made money, they also lost it, too. Greed, the critics say, made some lucky few rich, but more regular Joes poor.

Related: Raising Money Through Crowdfunding? Have Your Lawyer Handy

This is overly simplistic. It is true that Netscape caused a bubble, where value ballooned only to crash, causing investors who got in too late to lose big. It also prompted some of the worst behavior on the part of investment bankers and stock analysts, who chose profits over ethics as the market expanded.

But, if the Netscape era was driven by greed, it was -- with a hat-tip to Gordon Gekko -- a good greed. Entrepreneurship was funded, ideas were fostered, and the public markets were democratized. People who believed in their ideas had access to both private and public capital to make their dreams into reality. People started businesses. Other supported that trend by investing their capital differently.

Did many people fail? Sure. But at least they had the chance to try. Did some investors lose their shirts? Absolutely -- but they had no one but themselves to blame. The IPO market is unique in that all cards are on the table. The disclosures required by the Securities and Exchange Commission for an IPO are fulsome. You know all the financials, the outlook and the risks. No one who invested in pets.com could say they didn't know the company was far from profitability. It was in black and white in the Red Herring. Nothing was hidden from public view.

No, the bubble around Netscape isn't the problem. Rather, it was Netscape's subsequent actions as a public company that was more troublesome from a free-market perspective. Here is where the potentially bad effects still linger: While Netscape was born and grew as a creature of the free markets, it faded away having embraced more government involvement and interference in American business.

Having taken the browser world by storm, fueled with its IPO war chest, it faced a bruising battle with Microsoft. Netscape's Navigator browser had, at one point, 80 percent of the market. Microsoft then got tough, using its competitive advantage with its Windows operating system to crush Netscape.

Rather than make Navigator more competitive, Netscape sued and the U.S. government got involved, bringing a massive antitrust case against Microsoft. Netscape did not survive the battle itself, being acquired in 1998 by America Online for $4.2 billion.

Related:The 5 Rules for Silicon Valley Success That Apply Everywhere

Netscape's desire for government help for a market problem left a lasting legacy, though. Microsoft, through appeal, narrowly escaped a government-ordered breakup but it still had to fundamentally change its business. Prior to that case, many technology companies were dismissive of any government interference. Famously, Microsoft did not even have a lobbying office in Washington.

Netscape's fight with Microsoft was a change that worried legendary economist Milton Friedman, who called it an example of "the suicidal impulse of the business community."

Tech companies, he wrote, "will rue the day when you called in the government. From now on the computer industry which has been very fortunate in that is has been relatively free of government intrusion, will experience a continuous increase in government regulation. Antitrust quickly becomes regulation."

Tech companies now are more intimately aware of the workings of Washington. Some would argue they are actually colluding with the government now, and that could be bad for business. Either way, the presence of the Valley in the Beltway is closer than ever before. Rather than ignoring Washington, Google last month expanded its own presence there.

So Netscape is gone, but the legacy remains. How it is remembered in another 18 years remains to be seen.

Ray Hennessey

Former Editorial Director at Entrepreneur Media

Ray Hennessey is the former editorial director of Entrepreneur.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Side Hustle

The Remote Side Hustle a 43-Year-Old Musician Works on for 1 Hour a Day Earns Nearly $3,000 a Month: 'All From the Comfort of Home'

Sam Ziegler wanted to supplement his income as a professional drummer — then his tech skills and desire to help people came together.

Business News

Costco CFO Reveals Uncertain Fate of $1.50 Hot Dog and Soda Combo

CFO Richard Galanti reveals that the price will stay the same — but only "for a while."

Business News

The Most Unexpectedly Popular Side Hustle of the Decade Has Low Startup Costs and High Markups

A new report shows that vending machines are a popular investment — and the industry is set to grow up to $3 billion by 2031.

Marketing

Ever Wonder Why Certain Websites Rank Higher Than Yours? This SEO Expert Reveals The Secret to Dominating Search Results

It's often the smart use of SEO, now supercharged with AI, particularly in keyword optimization.

Business News

AI Is Impacting Jobs. Here Are the Gigs Affected the Most, According to an Analysis of 5 Million Upwork Postings

The researcher said in the report that freelance jobs were analyzed first because that market will likely see AI's immediate impact.

Leadership

Former Interrogator Shares 5 Behaviors Liars Exhibit and How to Handle Them

Five deceptive behaviors to look for and how to respond to those behaviors when you encounter them.