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Chapter One

The Offering

On August 9, 1995, I woke up at my usual time. The weather at seven A.M. was typical for a summer morning in the semimythical part of California known as Silicon Valley: While the rest of the country sweltered, in my neighborhood thirty miles south of San Francisco the clouds lay so low they verged on fog. The temperature hovered in the mid-fifties. Had this been almost anywhere else, the dull light coming through the bedroom windows would have suggested a day of rain, but I knew that within two hours the sun would burn away the clouds and the temperature would climb into the nineties. Rain still was months away.

Despite the typically overcast weather, everything else about this particular Tuesday was full of expectation. It was as different as it could possibly be from just another day. Nothing about what would come could be predicted except the weather. At nine-thirty New York time, half an hour before my clock radio had blinked on in the middle of a traffic report, the first shares of Netscape were to have been offered to the public on the NASDAQ exchange. Netscape, a software company I had formed only a little over a year before in partnership with Marc Andreessen, a recent graduate of the University of Illinois, was the second technology company I had founded. On this day, the first company, Silicon Graphics, was worth $2.2 billion, but that was no longer my passion. Netscape would give me the chance at a second billion-dollar company--a rare opportunity in American business--but everything depended on the mood of an uncertain stock market.

Though Wall Street had been enthusiastic about high technology launches in the mid-1990s, some analysts were saying that this market, in the words of the old Cole Porter song, was too hot not to cool down. Little did they know that the forthcoming Netscape IPO would spark an Internet boom that would give at least five more years of life to the bull market, which was already fairly old. By the time the NASDAQ market would close, about six hours later, many people at Netscape could be wealthier than they could ever have imagined. But if we'd miscalculated in going public so early in the game, with no profits and only modest revenues, the flop would be dramatic.

As I got ready to go to work, I went over in my mind various reasons for optimism. Market share counted far more than profits in the early stages of a company's development. What Netscape had produced was Navigator, a browser "device" to give people an easy-to-use doorway into the rapidly expanding new world of the Internet and the World Wide Web. Most of the major players in the business, those who were thought to know everything, including Bill Gates, were sure there was no money to be made on the Internet. Gates had intimated at a Networked Economy conference in Washington, D.C., before Netscape released its first "beta" of the browser--in essence, a public test--that no one except operation systems vendors would make money on browsers. I knew that his mission at the time was still to put America Online (AOL) out of business by building an online service that leveraged his monopoly in the operating system; he was still in denial that this online service business model, as well as AOL's, was going to be dramatically transformed by a standard Internet network run by the communications companies of the world and accessible to all, not just those he would choose.

We had come up with something, to borrow a phrase from Steve Jobs, "insanely great," and we knew that a solid potential customer base was already using the Net. So our response to Gates's smug assumption that any territory he didn't already own wasn't worth owning was to make our product so that it could be quickly and easily distributed over the Internet. We did this by offering an early beta version of Navigator on the Internet in October of 1994, just six months after we had formed the company. In what the Army Airborne might call a "vertical envelopment," we used the Web, the very medium we hoped to support (and be supported by), to outflank the crowded shelves of the software stores and go directly to the user.

The gambit worked. By spring, more than 6 million copies had been downloaded by users all over the world. I figured that if you could get enough people to use something, you couldn't not make money with it eventually. If, as I suspected, the majority of people who had sucked our software out over the Net were inside companies, sooner or later chief information officers were going to realize that many of their employees were using Netscape and decide it was necessary to license the software for everyone. This was the biggest single bet I had ever made--not being paid for the product before it's put to use--but it was already beginning to pay off, and the company was enjoying rapidly expanding revenues. Now I was about to find out how many people in the investment community agreed with me about our competitive chances.

However the events of the day went, Marc and I, a few ex-SGI engineers, and our children's crusade of overworked young programmers--the handful of recent college graduates who had swapped having a life for months of long days creating Navigator--were convinced that somehow today would make the world aware of the huge commercial potential of the Web and the Internet. We felt certain we were in the right place at precisely the right time, poised to catch the crest of the information revolution's next big wave.

Even the man who would be king has to brush his teeth and go about the ordinary little rituals of everyday life. As I ate breakfast, I thought about an "all-hands" meeting the company's CEO, Jim Barksdale, had held a few days before. "The worst thing in the world," he sternly stressed to the four hundred or so employees who by now made up the company, "is to pay attention to the stock price. Once we are public, I don't want people to discuss Netscape's stock price at work."

A veteran telecommunications executive who had been with the company since January, Barksdale knew it was unprecedented to go public so early, and initially hadn't been enthusiastic about the brash move. He would have preferred to hold off until the spring of 1996, when the company would be two years old with a one-year-old product on the market, five or six quarters of revenue, and at least a bit of profitability. On this August day, only nine months had passed since our first browser had gone out over the Net and we'd had only two quarters with money coming in--with no profits. Even given the aura of glamor surrounding technology stocks and quite a lot of press interest, we were decidedly a dark horse.

Barksdale, a canny, hands-on leader, also was worried about the impact a liquid stock might have on the employees of the company. Since the beginning of the Silicon Valley gold rush, early employees of companies that successfully went public, like the first prospectors on a rich claim, suddenly became wealthy, while latecomers didn't. In a situation where all animals are equal, but some are more equal than others, camaraderie can unravel fast.

"I worry what it will do to our employees," Barksdale said. "There's a certain excitement at being a pre-IPO company. Anything can happen, and it's all still ahead. Once you go public, old hands and recent hires are sometimes in different classes due to the vagaries of the market."

Walk through a Silicon Valley company's parking lot in the weeks following an IPO and you'll see the proof of a new caste system; side by side stand beat-up Toyota Tercels and glittering Porsche Carreras, rusty old Volvo station wagons and sleek BMWs. The fact that the owners of such dramatically different cars may be doing very similar jobs can impact company morale.

Yet somewhere in this process of equity sharing and technology IPOs is the basis for a new economy that distributes wealth far more diversely than at any other time in the history of business, giving rise to what might be called a "new age capitalistic socialism." Contrast the distribution of wealth in the Information Age with that of the Industrial Revolution. The Carnegies and Rockefellers were downright stingy compared to the founders of modern companies. Even the biggest "robber baron" of our time, Bill Gates, has enabled thousands of millionaires by causing Microsoft to award generous stock options. Despite Barksdale's reservation, the IPO was a necessary part of this process. Most of the money made in successful companies is made after the IPO, and employees who come afterward can also make enormous wealth if they learn to compete.

Barksdale's worry was not only the sudden appearance of "class" differences but also the potential loss of focus the stock sale might cause, since at this point weariness in the company was at epidemic levels and focus was everything. The date for the release of Netscape's second product, Navigator 2.0, was approaching quickly. The nucleus of young programmers that had got us this far this fast was still putting in long hours. As Aleks Totic, a young immigrant from what used to be Yugoslavia and one of the original University of Illinois group, described the situation in a telegraphic note to himself: "Development was in full swing: Work all day, night, have late-night breakfast at Denny's." In a business where success never brings rest, that wasn't likely to change anytime soon (and in fact it hasn't). The release of 2.0 was crucial for the company's momentum, and the idea that even one day's progress might be lost while people followed the rise or fall of the stock price was worrisome.

I could understand and share Barksdale's concerns--I wasn't so sure I could keep my own mind on business during our first public offering. Not only was I a cofounder of Netscape, I had also functioned as the primary venture capitalist, buying all the Series A stock with $3 million of my own money (about 30 percent of the small fortune I had made at Silicon Graphics). I'd learned a lot about the ins and outs of start-ups since founding Silicon Graphics, where, as the technology visionary, business leader, organizer, and founder, I'd ended up with only about 3 percent of the company--and then had to watch even that minor share steadily diluted as more capital was raised and other expensive executives were recruited. This time, I'd been determined not to let my equity bleed away as other investors came in. If I could have kept the wheels on the start-up all by myself, I would have. From April until September of 1994 I was the monarch at Netscape, at least in its business functions. I'd really liked that brief period, because I could make instant decisions without consulting anyone but Marc, and then because I wanted to, not had to. But high-tech companies have a way of becoming very expensive very fast. With no money coming in and expenses growing exponentially, I'd known the time had come to bring in the velociraptors--the venture capitalists.

My experience with venture capitalists at SGI had cost me plenty, both financially and emotionally, so this was a decision made with some trepidation. But at least I'd been around long enough to balance the risk with talent. So for the second stage of financing, the Series B offering, I'd approached John Doerr at Kleiner Perkins Caufield and Byers, without question the star at the most successful and influential venture capital firm in this phenomenal era. Doerr had an extraordinary gift for selling ideas, and for recognizing good ideas when he heard them. And he acted on them--he's a "doer." If he was on your side in any conflict, you were better off. Unlike many venture capitalists, Doerr was technologically savvy, and if he believed in the future of your company, he had the ability to help make that future work out well. He was as pragmatic as he was prescient, which is to say he could be very tough on management if he thought KPCB's investors' money might be endangered. His response to a reporter's question about whether his close involvement in many competing companies constituted a conflict of interest was legendary: "No conflict, no interest."

As long as Doerr was on our side, I trusted him. But I'd insisted that Kleiner Perkins pay three times as much per share for their stock as I had for mine. A couple of other venture companies had heard this demand from me and quickly backed off, but Doerr and his partners had sensed a winner and agreed. By the day of the IPO, despite several infusions of cash during the past year, I still owned 19 percent of Netscape. I was about to find out how good an investment I had made in my own company.

Just before eight, California time, I made another espresso and called Bruce Pate, my broker at Morgan Stanley, the investment bank in New York that was handling the offering. I got through right away, and asked how the stock was doing.

"It hasn't opened yet," he said. "I'm not sure why. This is strange ..."

I felt a nagging concern. We'd had a problem deciding what the offering price ought to be. The trick is to keep the price low enough so that buyers find the stock attractive, but not so low that if it rises substantially the company itself will have left too much money on the table. Barksdale and I both felt that an IPO was as much a marketing event as a financial event, so it was just as important to price the stock where it would express the quality of the company, sell well, and create buzz as it was to reward the new shareholders with something that went up, showing that they had made the right decision.

The price had remained in flux up to the last minute, and the need for constant conferences among the executives at the company had lent an air of almost surreal comedy to a scene a day or two before the offering. Barksdale and Marc Andreessen were still on the East Coast with the Netscape road show, which included various investment bankers and tech support people, drumming up interest among institutional investors. While driving toward Baltimore in a small squadron of limousines, everyone constantly talking back and forth across the country on their cell phones, they found themselves in a dead spot where their phones didn't work. Out of touch for ten minutes at a moment like this? Unthinkable! So at a truck stop, the flotilla of black Lincoln Town Cars pulled up to a bank of pay telephones, and almost the entire team poured out to use the phones. "It looked like a Mafia convention," Barksdale told me later. The irony of top executives at a revolutionary new communications company lining up impatiently to feed quarters into roadside pay phones was not, I suspect, lost on anyone in the group.

Eventually we had settled on $28 a share, but now, with the delay in the opening of trading, we couldn't know how good a number that was. I wondered yet again whether the timing of the offering was right. In a May board of directors meeting, when I first raised the subject of going public, the Morgan Stanley bankers had said that the earliest we could be ready was August. Someone remarked drily, "But nobody goes public in August." I was against waiting, however. Earlier that month Spyglass had gone public with a market capitalization of $200 million! Spyglass--a small company in Illinois to which the University of Illinois had licensed Mosaic (spitefully, I believe), a pre-Navigator browser originally developed by Marc and his colleagues--was a company with no engineering or management talent in comparison to us.

In fact, Morgan Stanley's marketing of Netscape Series B equities had spurred Spyglass to go public; in turn, their offering made me realize the time had come to make our move. Spyglass was not a particularly formidable foe. Douglas Colbeth, who had joined the company in 1991 as CEO a year after it was founded, had previously been a salesman at Data General, whereas I had started Silicon Graphics. In my interactions with him, I had found him to be inexperienced as a technology CEO, and everything they were doing seemed small-time to me. Before being named the master licensor for Mosaic, the company was struggling to survive by marketing 3-D software tools for use in government-funded research. What infuriated Marc and me was that Colbeth and others at Spyglass were bad-mouthing us, telling our customers that we were trying to build our business around a program we had stolen from the National Center for Supercomputer Applications at the University of Illinois. The thing I understood--and Colbeth evidently didn't--was that high technology isn't about software or hardware, but about brains and people. Spyglass had Mosaic, but Netscape had imagination and IQ in the form of the people who had written the program they were selling. In trying to leverage the "Mosaic problem" against us, he was drastically overestimating the value of proprietary implementations. I knew we were going to kick their ass.

Besides the fact that we were all determined to beat Spyglass, and by extension the University of Illinois, with whom they were allied, we had been driving ourselves to make a better product, a major leap beyond Mosaic, and were already doing as much business in a week as they were in a quarter. Before the Spyglass IPO, Barksdale, Andreessen, and I had agreed that if they did badly, we'd hold off until the spring of 1996. But a market that would give a rich reward to a company we considered our inferior in every way couldn't be ignored. "If these guys can do this," I told the board, "we'd better get going."

After breakfast, I called Pate again, only to learn that the stock still had not started trading. At around eight-thirty A.M.--eleven-thirty Wall Street time--I finally drove the five miles from my Atherton home to Netscape's headquarters in Mountain View, an undistinguished two-story building typical of the no-frills anti-architecture that high-tech start-ups move into and out of like so many hermit crabs. Morning fog had burned away to a thin veil through which the sun was beginning to warm the day. In the company parking lot, start-up democracy was still symbolically evident in the gaggle of cars as nondescript as the building. I walked past the long line of cubicles occupied by programmers, saying hello to those who were already in. Some of the workspaces were decorated, if that's the word for it, like generic dorm rooms; some were individualized with a vengeance in what was a standard-issue start-up crash pad. In almost all of the cubicles, sleeping bags and pillows or beat-up couches offered evidence of life and work inextricably mixed, of catnaps grabbed during three- and four-day stints of code writing. In an excerpt from a stream-of-consciousness log kept by one of the brilliant programmers who was not from Illinois, Jamie Zawinski, the life he and his colleagues led in the long days before the IPO is perfectly described:

Thursday, 28 July, 1994, 11 P.M.

I slept at work again last night; two and a half hours curled up in a quilt underneath my desk.... On Friday, which is when I most recently woke up, I got to work at around three, and had a ton of e-mail waiting, all work-related. And we had an all-hands meeting at 4 P.M., and everyone wanted to come talk to me at once before then, so I was feeling really overwhelmed and behind. I mean, I had only been away from the office for like seven hours! The meeting was another mindblower; apparently we closed some kind of OEM deal (I forget with whom) for like six hundred thousand seats of the client. Gag. I actually get the feeling that our sales and marketing people know what they're doing! I've never gotten that feeling from them at any previous job. This is wild. Six hundred thousand people is more than any software I've ever worked on has come anywhere near. I'm completely terrified.

At this time, of course, many of the core group of programmers hadn't started their day yet. The elite troops who write code for software companies are notoriously peculiar about working hours, carrying over eccentric biorhythms from their college days. Nine-to-five shifts may do the job on automotive assembly lines and at insurance firms, but the standard workday has never had much meaning in Silicon Valley. Programmers are the shock troops of a software start-up. Abundant energy, a reckless disregard for their own well-being, and an underdeveloped notion of what it is to live a full life are considerable strengths. As a result, many programmers simply go on living and working the way they had as computer science students, pulling all-nighters, cramming, and letting off steam with pranks, obsessive hobbies, or, in Netscape's case, wild games of indoor "chair football" or roller hockey in the parking lot. At one point late in July, when the pressure seemed even more intense than usual, a couple of the programmers spent an entire day building remote-control cars, annoying the hell out of their colleagues.

But in this way, Netscape wasn't much different from many other high-tech start-ups, which have a free-for-all quality that doesn't respond to normal management techniques; a certain level of insanity--often a pretty high level--went with the territory. Despite the craziness, or perhaps because of it, we had accomplished a tremendous amount in very little time. We had set a new standard for the future of American industry. This defined the idea of "Netscape time," which also became known as "Internet time."

I said hello to those of the "old gang" who were at their computers, checking e-mail, drinking their morning round of coffees and Jolt colas. We had all come a long way in a short time, but somehow I doubted they had any real idea of what could happen for them today. At the moment they didn't look like young men excited at the possibility of becoming rich, but rather like very tired kids.

Approaching my office, I saw that not everyone was heeding Barksdale's decree. Our shared executive assistant, D'Anne Schjerning, who had worked for me at SGI before signing on as Netscape employee number three, had put up an electronic ticker tape on the partition that separated her desk from the corridor. Anyone looking toward my office or Barksdale's wouldn't be able to miss a running tally of our stock price in bright red lights. I knew what Barksdale would do when he saw it, but I walked on without telling her to take it down. I've been known to be a difficult, testy boss, but today I wasn't about to play the heavy. Like everyone at Netscape that day, D'Anne was a stockholder; I had promised that if she took the chance to leave a rock-solid job to work for me, I'd make her a million dollars. I didn't want to throw cold water on her anticipation. Or on my own.

What I couldn't help noticing was that the numbers on D'Anne's ticker tape read "28," our opening price. Again, I called Pate at Morgan Stanley. "Nothing yet. There is a trade imbalance," he said, though I thought I detected a note of concern in his voice.

"This is nuts," I said, and hung up.

I thought about dropping by to talk with Marc. When he and I had first flown to Urbana to recruit the programmers who had helped him create Mosaic, I'd watched them react to him and I'd known he was their natural leader as well as a brilliant technical thinker. Without him, there would be no Netscape, and he richly deserved whatever good fortune came his way. But I decided to stay in my office. All we'd be able to do, with the stock stuck in limbo, would be to talk about how the work was going. And at the moment I couldn't imagine a more artificial conversation. As it happened, Marc had worked late the night before and didn't even get to the office until later in the day.

At around eleven-thirty, the phone rang. D'Anne announced that Pate was on the line.

"The stock just opened," he said.

"At what?"

"Seventy-one," he said. "Unbelievable! Congratulations!"

To say the least. In a matter of hours, before actual public trading had begun, Netscape stock had more than doubled in value. We were making Wall Street history. It didn't take complicated math for me to know I had now helped create a second company with a market capitalization over a billion dollars. Or to understand that I owned stock suddenly worth $663 million. Although as the original investor, I wouldn't be able to sell anything for another nine months, that symbolic gestation period didn't figure into my daydreaming calculations just then. I had once joked to a friend that if the stock ever reached 140, I'd be a billionaire after taxes. On Day One I was well on my way.

Now, to some people, this discussion of wealth is considered immodest. I spent many years in an academic setting, as a professor at various universities like Stanford and the University of California, where the idea of money and wealth was considered somewhat "dirty." In other words, the pure pursuit of knowledge was considered more important than money. While this viewpoint has some merit if the objective is simply the pursuit of knowledge, I also observe that a successful business has little room for anyone without an economic motive, especially the business managers. Although a personal financial obsession will lead to problems, the ultimate goal of a business is to become self-sustaining, which means that it must make sufficient money to keep its employees paid and remain competitive. The entrepreneur without a financial motive will not be successful. On with the story.

The rocket-propelled stock ride seemed to astonish the press, even though their attention and anticipation had played a part in building the buzz that pushed up the price. On August 11, under the headline WITH INTERNET CACHET, NOT PROFIT, A NEW STOCK IS WALL ST.'S DARLING, The New York Times 's Laurence Zuckerman reported (more or less accurately):

A fifteen-month-old company that has never made a dime of profit had one of the most stunning debuts in Wall Street history yesterday as investors rushed to pour their money into cyberspace.

The Netscape Communications Corporation became the latest--and hottest--company in the Internet business to list shares on the nation's stock exchanges. Shares of Netscape, which had been priced at $28 before trading began at 11 A.M., opened far higher--at $71. The shares soon surged to as high as $74.75. By noon, money managers at big mutual funds and other institutional investors fortunate enough to be in on the ground floor could have cashed in a profit of more than 150 percent and gone to lunch....

At the close of trading, the share price was $58.25. In the days, months, and years that followed, the price of the stock has split, it's risen higher, and it's fallen lower. It has dived and spiked. On August 10, 1998, it rose 24 percent in one day. Barksdale told an interviewer long after the IPO, "When we issued Netscape stock, we gave out neck braces and seat belts." In the same way, the company's fortunes have risen and fallen--it has ridden the crest of a self-generated wave, and sometimes struggled to keep from drowning, finally forming a partnership with an Internet giant. But the frenzy that started that day for Internet stocks has not subsided. Literally and figuratively, it has floated a lot of boats.

But that's getting ahead of the story. Day One wasn't over; the market was just beginning to test the stock. We were getting a hell of a start, but in an increasingly brutal, fast-changing business, where seemingly small missteps can hurt in the short run and kill in the long run, Netscape's future was far from secure. Jim Barksdale would later wonder if we shouldn't have let Microsoft sleep a while longer, and indeed the record-setting performance of our stock was the beginning of a change in Microsoft's thinking about the viability of Internet businesses. (Revisionist historians at the Redmond giant now claim that they were deep in thought about the Web before we came along, but if that's true, one wonders how they could have let a mere upstart like Netscape bite off the lion's share of the browser market--about which more in later chapters.) For all his nerdy ways and offbeat charm for the press, I feel Bill Gates is happiest when he is crushing the life out of companies that dare establish territory on the borders of Microsoft's sprawling dominion. He's like Fafnir, the Wagnerian dragon, jealously guarding a vast hoard of gold. At this moment, however, we had a jump on him, and it was paying off.

I stepped out of my office and leaned into D'Anne's cubicle. She seemed mildly stunned. Her phone was ringing. All at once, it seemed as if everyone's phone was ringing. I reached out and shook her hand.

"Well, I told you I'd make you a millionaire," I said. "And I have."

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Netscape Time : The Making of the Billion-Dollar Start up That Took on Microsoft

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