| Mosaic, the first graphical Web browser, was developed
by grad students at the University of Illinois. They made it available
for free across the Net and it was an instant hit: millions of copies
were downloaded, it was talked about in all sorts of publications
from technical trade mags to the Wall Street Journal and everybody
loved it. Soon the developers must have thought, if only I had a
dollar for each copy of Mosaic, I'd be doing ok now. So they formed
a company, Netscape, to do just that.
But here's the strategic challenge: how do you compete with
a product that has nearly 100% market share, is the darling of
the press, is loved by everybody and which is free?
Netscape made good use of the New Economics of the Net.
How to compete? The typical answer from a developer would be,
build a better browser! But a technically superior product is
rarely sufficient to unseat a dominant product...unless the replacement
is very superior.
The answer from Netscape (and as we all know, the strategy worked),
was to use the New Economics of the Net. With physical products
it's expensive to buy marketshare by giving away product. Obviously,
each one you give away costs you something. But not so with information
products across the Net. They can be given away at effectively
zero incremental cost per copy. But what worked for Netscape went
beyond this.
Netscape used a paired product strategy: they offered both new
client software (the browser) and new server software. And the
key differentiator was that if a Netscape browser was talking
to a Netscape server the transactions between them could be encrypted.
Netscape aggressively pushed the notion that encrypted transactions
would foil would-be credit card thieves.
Ordinary transactions going across the Net are sent in the clear,
meaning that it is possible for a skilled systems administrator
to look at transactions and messages passing through her systems
as they traverse the Net. If she can look at them she could write
a program to scan them as they go by...scan them, for example,
for anything looking like credit card numbers. So if hackers were
going to set up credit card number sniffing programs with the
intent to capture and abuse the card numbers, electronic commerce
would be inhibited.
Along comes Netscape and encrypted transactions making it vastly
more difficult to crack the encryption than the value of having
the credit card number. The Net is seen to be safe for electronic
commerce.
And by the way...the Netscape browser was better than the Mosaic
browser.
So the free downloads of the Netscape browser began. People
wanted to get in on those encrypted transactions. The more Netscape
browsers were out there (enabled for encrypted transactions),
the greater the demand for Netscape servers...the only servers
at the time which could handle encrypted transactions. And the
more Netscape servers (which Netscape sold), the greater the demand
for Netscape browsers.
The paired product strategy worked. Netscape browsers soon displaced
Mosaic browsers. Netscape grew on the basis of server sales. But
the strategy of giving away literally millions of free copies
of the Netscape browser can only work with the New Economics of
the Net: the fact that information can be given away at almost
zero incremental cost.
One more interesting point: there never was and still isn't
a single recorded case of a credit card number being stolen and
abused as it crossed the Internet--encrypted or not.
©1997, Harry Tennant & Associates |
