Netscape’s Ipo Case Solution
The Board of Directors at Netscape have been looking for a fair offer price to be determined, as the company is aiming to go for its initial public offering in the year 1995. The demand for the company’s shares are predicted to be high and the company is concerned regarding the revise offer price from $14 to $28 for 5 million shares to be issued. It is because the company has not generated positive earning as it has just started its business in the technology industry and needs to gain credibility among its customers.
History of Netscape
The Netscape Company was founded in 1994 by James H. Clark, who is one of the leading and valuable providers of the open software designed for the use on the intranets and internet. The company was founded with an intent of having a line of server, client and integrated applications software. The company entered the broad internet market through web browser market where it faced two considerable threats and challenges, which were: it had to make money and set a new industry standard.(Officials, 2015)
The company experimented with the prototypes of the web based systems, which in turn allowed the users to edit and access their files anywhere across the network. It is a system that Microsoft perceives as a threat to their monopoly of operating system. Besides the point-and-click simplicity of interface; the company also provided the unprecedented security. It also offers line of server and client software, commercial applications and development tools for creating a complete platform for the live online application (Blitz, 2019).
The role of the Netscape Communication Corporation is highly considerable as it was founded with the aim of becoming a leader provider of open software that links information and people over the intranet and internet. From its inception to the meteoric fall and rise; the company had the spark that tended to touch off the boom in global internet. With the use of the “give away today and make money tomorrow” strategy; the company had succeeded in capturing 75 percent of the web browsing market. Having set the standard of internet industry; the company had become more successful by selling server software to firms that wanted marketing access to the potential users.
Success reasons, competitive advantage and strategy
There are various reasons due to which the company has been so successful, such as: Netscape entered into the broad market of internet and had the first mover advantage, being the pioneer of web browsers in the highly competitive and evolving internet market. The market position was achieved by Netscape in a short span of time, with its Netscape leadership Commerce server and Netscape Communicator. For a while, the company was the incontrovertible leader of its kind, thus demonstrating that it was able to command strong customer loyalty and high brand recognition.
Furthermore, Netscape introduced value-added and innovative products in the market. It catered the growing market where the information was highly valued. The products offered by Netscape allowed the user to have public information and access the information from anywhere. Furthermore, when the company entered into the market; the intensity of competition was less, which in turn allowed Netscape to grow and lead the market even though the future competition in market was going to be robust and with multiple players coming in, including: Microsoft. Thus, the success of company is based on various factors, including: web-surfing, user-friendly click-and-point browser, growing industry and working on both sides of the market, i.e. browser for clients and e-commerce service and application for firms.
In addition to this, the company uses the “give away today and make money tomorrow” strategy, through which the company has attempted to create a customer base by allowing them to experience the product free of cost & then it has built the market on the basis of that platform. Additionally, the company has created a brand new identity in the market, after having paid onetime fee for the original code to Spyglass. Furthermore, Netscape-went on to launch Mozilla, which helped the company with the creation of the impression of an upgraded version of Mosaic. Also, the company focused on offering bundle packages with browser service &Netscape server as an integrated application software, and marketed them as the individual products.
To further grow in the market; the company must accelerate its efforts on improving the financial performance and positive operating cash flows followed by the growing and sustained operating profits. It should compete with its competitors by establishing some form of lock-in, either due to the proprietary functionality or user interface, to get the price advantage. Also, the company is recommended to broaden the product range to grow and sustain in the market. The larger product range would lend company more stability & develop more competences in the industry.
The current competitive position of the company is deemed to be highly risky because Spyglass is targeting the corporate market and more companies, such as: Microsoft, are under the license of Spyglass. The major threat to the growth and survival of the company is Microsoft, whichis dominating the operating system space. As Netscape is an emerging technology; there is a risk of creating a sustainable and ample business in the long run, which in turn increases the risk related to it. Based on fact that the browser technology is not proprietary technology; it creates lower entry barriers & allow the new entrants to capture the market share.
Netscape’s Reasons for Issuing IPO
The technology industry has remained very volatile due to shifting trends and consumer preferences. The products initially developed by the firms usually go obsolete with the passage, ultimately creating a need for latest innovations. These innovations require the firms to put up capital investments and other research and development costs for keeping the desired innovation competitive and profitable in the industry. Similarly, Netscape has to raise capital in order to meet its growing capital needs.
The key reasons behind going public was the requirement of funds to support the company’s expected growth in the industry, to keep cash for possible future acquisitions and to remain visible and credible among the public.
Since its inception in 1994; the company’s operating expenses have increased tremendously by 177% in 2005. The growing operating needs have been satisfied by personal funding and private equity investments. The operating expenses are assumed to remain constant as a percentage of sales in the future. It is predicted that the capital requirements for the Netscape would be $948,823,157.98 and $46,015,902,860.80 for five and 10 years, respectively. (See Appendix 1)………………….
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