"And then there are the ActiveX controls," Frank added. "They built audio and streaming media directly into the browser, so you don't need to download any plugins. The functionality is undeniably powerful, but it's a trap. Once developers get used to these, they're essentially locked into Microsoft's ecosystem."
Takuya Nakayama scribbled "Embrace and Extend" on a notepad.
"What about the security protocols?" Takuya asked.
Google Search TWKAN
Silicon Valley Online's Passport System had extremely high security requirements.
"SSL and basic authentication are very well-implemented," Frank replied. "Silicon Valley Online gave both of them a lot of suggestions in this area. After all, we're holding the accounts of tens of millions of users; there's no room for error in our security protocols."
Technical catch-up was just the surface.
Takuya knew that Microsoft's real killer move lay in its distribution channels.
"Windows 95 OSR2 is already being shipped, right?" Takuya pointed out the key issue.
"That's the most lethal part," Tom interjected, his voice laced with the weariness of someone who knew this distribution strategy all too well. "Microsoft is bundling IE 3.0 directly into new PCs. Starting in October, every new machine you buy comes with IE pre-installed. And with the IEAK we discussed earlier, major ISPs like EarthLink and Netcom are all using Microsoft's pre-configured homepages."
"There's also NT 4.0, released in September," Tom added, flipping through the documents in his hand. "Microsoft has deeply integrated IE into the File Explorer shell. For corporate IT procurement, there's no choice—IE is the default."
Netscape's situation was self-evident.
"How is Marc Andreessen reacting?" Takuya Nakayama asked.
"He's fighting a desperate defensive battle," Frank said, a hint of mockery in his tone. "Navigator 3.0 still has a solid technical foundation. Its JavaScript ecosystem is deep, and its cross-platform advantage is obvious. It runs on Mac, Linux, and Unix—things Microsoft can't achieve right now. Its plugin architecture is also very mature; those in media and creative fields can't live without Netscape."
Frank paused.
"But their business model was crushed by Microsoft."
"How so?"
"Microsoft never expected to make money from the browser," Tom pointed out sharply. "Gates was calculating the cost of defending Windows. IE is completely free. Netscape used to charge forty-nine dollars for its personal edition, but now it's been forced to go free."
Without the browser's front-end revenue, Netscape's financial statements were about to look very ugly.
"What are they relying on to survive now?" Takuya Nakayama asked, tapping the table with the tip of his pen.
"They're retreating to the enterprise server market," Frank replied. "The SuiteSpot server product line has become their main revenue pillar. But how could the growth rate of enterprise IT procurement cycles possibly keep up with the explosive heat of the consumer market?"
The loss of distribution channels was the most fatal signal.
"It's not that consumers actively chose IE," Frank concluded. "It's those ISPs and OEMs who were swayed by the terms Microsoft offered. Netscape's channels are rapidly drying up. They've even started discussing open-sourcing internally, but the decision-makers still can't bring themselves to do it."
Takuya Nakayama leaned back in his chair, lost in thought.
If a technical advantage couldn't be converted into a channel barrier, a deep-pocketed competitor would eventually bleed you dry with a free strategy.
"What's the word from Wall Street?"
"The wind has shifted," Tom snorted. "A few months ago, analysts were still hyping Netscape's certain victory. Now, the Q4 research reports are all headlined 'The Browser War.' Everyone's starting to doubt whether Netscape can keep collecting its browser tax."
The market's reaction was even more direct.
"Nowadays, if you open any popular website, you'll see a little badge at the bottom," Frank said. "It either says 'Best viewed in IE' or 'Best viewed in Netscape.' The sides have already been drawn."
"What are we displaying at Silicon Valley Online?" Takuya asked.
"Nothing," Frank replied flatly. "We're focusing on compatibility. No matter what browser a user is on, the experience on go.com remains the same. While the gods are fighting, we'll just reap the traffic."
"Wise move," Takuya Nakayama agreed. "But with Microsoft playing this game, is Washington just sitting on its hands?"
"The Department of Justice is already on them," Tom replied, his intel as sharp as ever. "Bundling IE with Windows 95, and that exclusivity agreement they signed with AOL—it's cost Netscape more than half its OEM channels. The antitrust undercurrent is already surging through the legal circles; the public just hasn't caught on yet."
Takuya tore the sticky note from his desk, crumpled it into a ball, and tossed it into the wastebasket.
"The picture is clear now," Takuya said into the microphone, issuing his final instructions. "We maintain our neutrality. Use Microsoft's IEAK to counter AOL's closed ecosystem, while continuing our technical partnership with Netscape. The fiercer the Browser War, the more they'll need the traffic support of a super-portal like Silicon Valley Online. We need to elevate our position."
"Understood," Frank replied. "While they fight each other to a bloody pulp, we'll seize all the territory."
With the business concluded, the tension on the transoceanic call completely dissipated.
Takuya Nakayama lifted his teacup, gazing at the fully illuminated Tokyo morning scene outside his window.
"Speaking of which, Brad from Goldman Sachs, who's handling our underwriting, called my office three times the day before yesterday," Frank said over the phone, shifting his position. His chair gave a faint creak. "He heard AOL is launching a monthly subscription plan and was eager to know Silicon Valley Online's counter-strategy. Those Wall Street types have zero tolerance for any drop in data."
"You didn't tell him about our plan to build a position in AOL, did you?" Tom interjected.
"Didn't mention it. Just told him we're optimizing our channels," Frank replied. "Michael Moritz from Sequoia is keeping his cool, though. He even sent over two cases of Napa Valley wine last week. John Doerr from KPCB is also in wait-and-see mode. But the atmosphere in Silicon Valley has been a bit feverish lately. As long as a business plan has a '.com' suffix, no matter how absurd, it can secure a check for several million dollars on Sand Hill Road."
Takuya leaned back into his chair, tapping his fingers on the desk. By the end of 1996, the Internet carnival had already begun to show its first signs.
"The Goldman Sachs crowd is in it for the trading commissions; they thrive on market volatility," Takuya Nakayama said into the microphone. "Sequoia and KPCB, on the other hand, are playing the long game. Silicon Valley Online only cares about controlling the traffic gateways—they won't interfere with management's decisions."
He paused. "Ignore Brad. Just send him the user growth reports on schedule. As for those checks coming from Sand Hill Road, let them keep writing. The bigger the bubble, the more we can scavenge when it bursts."
It was nearly six o'clock in California.
The faint chatter of employees leaving for the day echoed in the hallway outside the office on the other end of the line.
"Alright, that's enough for now," Takuya said, glancing at the clock on his wall. "The evening rush on Highway 101 won't wait for you."
Tom burst out laughing over the phone.
"Don't even get me started on the 101. I was stuck on the San Mateo Bridge for a whole hour after work yesterday. A truck full of old monitors broke down in front of me, and the entire lane was a parking lot," Tom complained. "California's transportation infrastructure is a joke."
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