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The Netscape IPO
7 Dec

History of the Internet: The Importance of the Netscape IPO

In 1992 There Were 50 Websites In The World

There were less than 50 websites in the entire world when I entered college in 1992. In 1993 CERN, The European Organization for Nuclear Research, announced that “World Wide Web” technology would be free. This paved the way for all that followed.  The first commercial sites including Amazon.com appeared soon after. I remember being amazed seeing a corporate URL on TV for the first time. But what really advanced the boom was the distribution of first the Mosaic browser and then Netscape. As 1995 began, there were a million browser copies in use. But that was just the beginning. The seminal event of the internet boom was just seven months away.

Students from every major and background reconsidered their career plans after August 9, 1995. That was the day that Netscape  went public.

Early Growth of the World Wide Web

 

graph. Number of websites. early internet
From 10 websites in December 1991 to 23,500 in June 1995

The world wide web was conceived of by CERN physicist Tim Berners-Lee. That “1” you see back in December 1990 is for CERN’s website.  Here is CERN’s simulation of what using a line-mode browser to view the original website was like. This was the way that any of us who were there for the early days of the World Wide Web viewed websites. The growth rate of the internet from those 50 websites in 1992 to more than 25,000 in the fall of 1995 fueled investor imaginations. Netscape’s 70% share of the browser market fueled their expectations. Everyone knew the story of Bill Gates,  Microsoft , and their ten thousand employees who became millionaires after the company went public. Microsoft was such a success that everyone was always looking for the next one. In 1995, many people thought they had found it and analysts were calling Netscape the “Microsoft of the Internet.” Some were even calling Netscape twenty-four-year-old co-founder Marc Andreesen the “Next Bill Gates.”

The Netscape IPO

Investor interest in Netscape’s IPO was frenzied.  The company had planned to sell 3.5 million shares of stock to the public for $14 each. But investors subscribed for one-hundred million shares during the week before the public offering.  One day before the company went public, the Netscape Board of Directors took their underwriter’s advice and increased the offering to 5 million shares at $28 per share.

Demand was so high that when the opening bell rang, there was an order imbalance that kept the stock from trading for two hours. When shares finally exchanged hands, they did so at more than $70 per share. Netscape’s stock finished the day at $58 per share.

A sixteen-month-old company with no profit and not much revenue now had a market capitalization of $2.2 billion!  Its twenty-four-year-old co-founder  was just two years out of college.  Netscape’s culture, business model and IPO became a template for many young entrepreneurs. It started a wave of “hot IPO’s” that had much greater demand than supply and helped to create a meteoric rise in the markets, especially in tech stocks. That boom ended, as all do, in a bust.

I found mistakes to be common in articles on Netscape’s IPO. For a look at the hot IP market in general, check out Andre Rueda’s The Hot IPO Phenomenon and the Great Internet Bust published in the Fordham Journal of Corporate & Financial Law in 2001. The information on Netscape’s IPO is well-researched and heavily documented. This is an excellent account of how Netscape’s IPO fit into the broader phenomenon of “hot IPO’s” during the Dot-com era.

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