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Netscape's Delicate Balancing Act

The market valuation of Netscape Communications is not specifically a
Cypherpunks topic, though many of us interested in it, and/or use Netscape.

But there are some issues about Netscape's future product plans which may
affect market valuation, and which also could hinge on PR issues like Jim
Clark's apparent support for mandatory key escrow.

To wit, Netscape is currently valued at $5 billion or so, despite having
essentially no revenues or profits (sure, it has a little of each, but not
much). This is more than the market capitalization of many sizable,
respected companies. Companies like General Dynamics, Apple Computer, CBS
(which was just sold to Westinghouse for $5B). Granted, Netscape investors
are betting on the come. (And contrary to what someone said, investors in
companies like Netscape are not mostly interested in profits. Rather, they
are interested in selling at a higher price, for whatever reason. This is
also known as the "greater fool" theory: that no matter how high the price
of a stock, there is some greater fool who will buy it a higher price. Of
course, the corrolary to the greater fool theory is that there is usually a
greatest fool.)

So, can Netscape keep a $5 billion valuation? (And more to the point, can
it double from where it is now, say, and sustain a $10 B valuation? I am
skeptical, personally, but I've been wrong before.)

What Netscape has to offer is based on a *public* standard, the Web and all
the various pieces that so many companies are supporting. Netscape's
_server_ market--which is said to be where the revenues are mostly coming
from--is likely to face heavy competition. As is the browser, of course.
(Spyglass Mosaic, Ravi's company, HotJava, CyberDog, MacWeb, and a bunch of

Scenario #1: Netscape sticks to an open standard. Hard to see what keeps
the valuation at $5 B with so many free browsers, free servers, low-cost
servers, etc.

(From the browsing side, "brand loyalty" is probably minimal: I've used
several browsers, and currently use Netscape 1.1N for _some_ of my Web
needs. I'll switch "on a dime" to another browser if it offers features I
like. Others I have talked to feel the same way. I think "loyalty" to a
particular browser is close to nil. Much less than loyalty to a text
editor, for example.)

Scenario #2: Realizing this, Netscape seeks to "differentiate itself" by
proprietary technology.

"'Nuff said."

I can't see any means of "proprieterizing" the Web that Netscape could hang
on to. Any good ideas will be quickly copied or reverse-engineered by other
companies and groups.

Unlike a chip company, with various and complicated secrets tied up in
internal chip design data bases and in billion-dollar fabrication plants,
what could a browser or server really keep secret? Unlike a company like
Adobe, with various programs whose functionality can mostly be protected
from copying by use of copyright laws, a Web browser that operates on
public standard files in standard ways will be hard to protect.
(Ironically, Netscape's valuation is significantly higher than Adobe's, and
Adobe had something like $700 million in yearly sales and $100+ million in

So, it is my thesis that "brand loyalty" to Netscape is ephemeral, that
users will flock to the Next Whizzy Thing faster than you can say "price

The connection with crypto and key escrow is that any bad publicity, any
hint that Netscape is signing-on to be an agent for Big Brother, could
hasten this conversion.

While I would never, ever suggest to anyone that the sticker idea I devised
a few years ago--"Big Brother Inside"--be applied here, I can imagine
others will.

Netscape is in a very delicate balancing act. Jim Clark may turn out to be
the Karl Wallenda of the Web (with no Net to catch him).

--Tim May

Views here are not the views of my Internet Service Provider or Government.
Timothy C. May              | Crypto Anarchy: encryption, digital money,
[email protected]  408-728-0152 | anonymous networks, digital pseudonyms, zero
Corralitos, CA              | knowledge, reputations, information markets,
Higher Power: 2^756839      | black markets, collapse of governments.
"National borders are just speed bumps on the information superhighway."