Stock’s Ride Illustrates Risk, Reward Internet-Related Investment Offers Some Unique Challenges

Betting on Internet-related businesses is like driving on the freeway with a shattered rear-view mirror and your neck in a brace.

You can see miles and miles of empty road ahead. But you never know when a rampaging 18-wheeler is going to come up from behind and roll right over you.

That caveat did not stop Netscape Communications Corp. from making one of the most stunning debuts in stock market history Wednesday, when it more than doubled its opening price of $28 a share, closing at $58.25 a share with 13.8 million shares changing hands.

But the caveat may have much to do with why the stock backed off its high of $75 Wednesday and continued to tumble Thursday, closing at $51.37, down $6.87 a share.

Because behind all this fuss is a company whose technology could be rendered obsolete at any moment.

“This sets a new point on the scale for overpriced merchandise,” said John Kinnucan, portfolio manager for Crabbe Huson Group in Portland, Ore. “People think that because it’s the Internet, there’s this huge potential for future growth, so no price is too high. You saw a lot of institutions flipping out over it (Wednesday.)”

So what is the buzz about? The Mountain View, Calif., company has created the most popular application for allowing Internet users access to the graphic-filled, easy-to-use World Wide Web.

Even though the stock market has a tendency to push up initial public offerings, such ballyhoo is unusual - the offering, after all, raised more than $2.3 billion.

But Netscape is an unusual company.

And its unconventional conduct as a fledgling company contributed heavily to the feverish trading over the last two days.

After a technology team at the University of Illinois, including Netscape founder Marc Andreessen, developed the application that would allow text and graphics to be transferred at once, the team set out to make it the Internet standard.

So the year-old company gave it away.

Kinnucan and others say this strategy may have boosted Netscape’s offering because a lot of people have seen its product. It has brand recognition in a field full of the nameless and the faceless.

In almost any other industry, that makes sense.

But the Internet is a different animal. It is developing so rapidly that no one knows when new technology will make everything else obsolete.

For example, Sun Microsystems is ironing out the kinks on a new language called HotJava that will make Netscape’s current browser look about as appetizing as a ketchup sandwich.

While Netscape allows users to see graphics and text at the same time, HotJava will allow users to watch those graphics move and listen to audio and read the text and answer interactive questions at the same time.

Even though the Netscape folks are smart enough to be talking with the HotJava folks, there are literally dozens of other companies working on the “killer app,” the application that will defeat all other Internet applications.

Those companies have names like AT&T, IBM and Microsoft. They have experience that is priceless. They have development resources that Netscape couldn’t even dream of. And they have huge sales staffs.

Netscape’s biggest problem is that these companies are looking to make money the same way Netscape is - through sales of upgrades and versions that support computer mainframes - rather than capitalizing on the application itself.

“When you consider who their competitors are, they are puny,” Kinnucan said. “It’s not even a comparison.”