NetObjects

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NetObjects, Inc.
Type	Incorporation
Founded	1995](closed 2001)
Headquarters	Redwood City, California
Key people	Samir Arora, founder
Industry	Internet, software
Products	Web design applications, Content management systems
Revenue	$34.2 million USD (2000)
Employees	~240 (2000)
Website	www.netobjects.com (owner now Website Pros)

NetObjects, Inc. was a software company founded in 1995 by Samir Arora, David Kleinberg, Clement Mok and Sal Arora. The company is best known for the development of NetObjects Fusion, a web design application.

NetObjects was based in Redwood City, California, and ceased operations in 2001 after selling its assets to Website Pros and a portfolio of patents to Macromedia. NetObjects' main application, NetObjects Fusion, is still distributed.

Contents 1 Introduction 2 Key positions 3 Launch of NetObjects Fusion and IPO 4 Success on the market and the stock exchange 5 Challenges and crisis 6 Shift in strategy 7 IBM decisions and sale of NetObjects 8 NetObjects Fusion now 9 Main applications of NetObjects 10 References

[edit] Introduction

From 1992 to 1995 the founders of NetObjects had worked at Rae Technology and before that in part at Apple Computer investigating proto-types of web browsers, information navigation and web design tools.

In 1995 NetObjects was founded to market NetObjects Fusion, a new design tool to build web sites. The term "web site", well-known and wide-spread today, was then still on the rise and is connected with the work of Samir Arora, David Kleinberg, Clement Mok and Sal Arora.

Initially NetObjects was as a privately held company with the Series A venture investment led by Rae Technology, Series B by Norwest Venture Partners and Venrock Associates, followed by Novell, Mitsubishi and AT&T Ventures and the last round by Perseus Capital, L.L.C.. In April 1997 IBM invested $100 million to acquire a majority of the company.^[1][2]

[edit] Key positions

Key positions in the company were as follows:

• Chairman and Chief Executive Officer (CEO): Samir Arora,^[3] who held executive positions at Apple Computer and Rae Technology.

• Executive Vice President, Products and Marketing: David Kleinberg, who co-founded Rae Technology with Samir Arora.

• Chief Creative Officer: Clement Mok^[4], well known as an interactivity designer.

• Vice President of Product Development and Chief Technology Architect: Sal Arora, who was the lead engineer at Rae Technology.

• Director of Product Design: Victor Zauderer^[5], who had been focusing on developing and designing online systems solutions.

Additionally, Susan Kare, who had built many of the interface elements of the Apple Macintosh, was a consultant to help design the user interface of NetObjects Fusion.^[6]

Other key people involved in NetObjects were: Martin Frid-Nielson, Raj Narayan, Bernard Desarnauts, Mark Patton, Jack Rotolo, Jim Calhoun, Morris Taradalsky and Ernie Cicogna.

[edit] Launch of NetObjects Fusion and IPO

NetObjects Fusion 1.0 was released in 1996. As the first complete web design tool it was seen as groundbreaking by technology observers. NetObjects was elected as one of "25 Cool Technology Companies" of 1996 by Fortune^[7]. Also in 1996, NetObjects Fusion won PC Magazine's Editors' Choice award. CNET's Builder.com elected Samir Arora one of the Web Innovators of 1997, and in 1998 NetObjects received the prestigious Gold award from the Industrial Designers Society of America (IDSA).^[8]

Eleven U.S. patents were granted for Internet-related technologies (design and utility).^{[9][10][11][12][13]}

Releases 2.0 (1997) and 3.0 (1998) of NetObjects Fusion again gained positive reactions by the PC press as well as commercial success on the market. In 1999 IBM brought NetObjects to the stock exchange with initial public offering while remaining the major shareholder. The initial public offering (IPO) on NASDAQ raised $72 million.

The board of directors consisted of six people: Samir Arora as Chairman of the Board, Chief Executive Officer and President, and five directors including John Sculley from Apple Computer, three representatives from IBM and one from Novell.

[edit] Success on the market and the stock exchange

In the following years numerous product-bundling deals^[14] were made with nearly all the big PC sellers like Dell and HP, and with Internet service providers like UUNET, Earthlink or 1 & 1 (Germany). The company itself said it licensed the distribution of more than 15 million copies of NetObjects Fusion. In addition, the company sold over 500,000 copies of NetObjects Fusion directly through retail. In 2001 a number of 5 million users worldwide was published.

In 2000 the stock price of NETO (ticker symbol) reached its record high of $45 11/16 USD, making NetObjects worth $1.5 billion.

Revenue had started at $7.2 million in 1997, reached $15 million in 1998, $23.2 million in 1999 and peaked at $34.2 million for fiscal year 2000 (October 1999 - September 2000).

On March 3, 2000, TheStreet.com's Adam Lashinsky praised NetObject's financial performance and its early adoption of e-business:

And, more so than many start-ups, NetObjects has managed to deliver on what it has promised. It has slightly beaten the expectations of the friendly analysts who follow it. And quarter by quarter, it has steadily reduced its operating losses. Plus, it got lucky. It was firmly entrenched as a business-to-business software company before the term gained currency and B2B companies took off."^[15]

[edit] Challenges and crisis

However, several factors lead NetObjects to a crisis starting in 2000.^[16]

Tough competition by companies with huge resources like Microsoft, Macromedia and Adobe put pressure on market share and falling prices of web-design applications affected revenues. In a proven strategy, Microsoft was even going to give its competing product FrontPage away for free by bundling it with versions of Microsoft Office. NetObjects slashed prices for NetObjects Fusion from release 1.0 to release 4.0 by more than 50%. Older versions stayed in distribution for even lower prices.

Long-term revenue effects of bundling deals in the software industry are controversial.^[14]

Technical demands for large business web sites changed and required direct access of programmers to HTML code — which NetObjects Fusion was not designed for.^[17] Its target market were designers who need complete control over page layout and a similar user interface as desktop publishing applications.

[edit] Shift in strategy

In 1998 the company had developed and since then distributed NetObjects Authoring Suite and the related "Collage" product, which as content management solutions were aimed at big businesses and ranged at much higher price levels than NetObjects Fusion.

However, IBM and NetObjects decided that its target market was the sector of small businesses, so it would focus on its flagship application NetObjects Fusion which would fit within the scope of these customers.

Secondly the company made a bet on its ability to recognize technological trends in their beginnings and coined a strategy shift to a subscription model. To this end NetObjects Matrix was developed. Subscribing web and online services would help small businesses keep pace with the Internet.

To finance this shift of strategy, the NetObjects Enterprise Division with 40 employees along with two applications, Collage and NetObjects Authoring Suite, was sold for $18 million to UK-based Merant^[18] (merged in 2004 with Serena Software, Inc., based in San Mateo, California).

[edit] IBM decisions and sale of NetObjects

In 2001 revenue streams decreased sharply,^[19] a result of changing markets, price cuts, strategy shift, and absent Authoring Suite / Collage sales. Subscription fees from NetObjects Matrix started coming in but the company had to face losses. Total revenues for the first three quarters of FY 2001 were only as much as $4.22 million opposed to total costs of $7.67 million.^[20]

While trying to raise an additional $50 million in a private placement with Deutsche Bank, the cash reserves started to fade. In the summer of 2001, the markets plummeted with the bursting of the dot.com bubble. The decision of the NASDAQ to de-list NetObjects in August 2001 because the share price had been hovering below $1 for longer than a year made things even worse. Ultimately IBM as the majority shareholder decided to sell NetObjects.

In a message to the user community, CEO Samir Arora had to announce that NetObjects was ceasing operations on September 1, 2001.^[21]

NetObjects Fusion, NetObjects Matrix, BizGoBiz and other assets were sold to Website Pros, a web design and services company based in Jacksonville, Florida, for an estimated amount of $4 million, including instant payments as well as fees from future revenues from NetObjects applications and services within three years. (The sum of $4 million was based on assumptions about sales in this three-year period. Depending on real sales the price could in fact be lower or higher up to a limit of $10 million.)^[22]

Additionally a portfolio of seven patents was acquired by Macromedia (now Adobe), the distributor of Dreamweaver, the long-term main competitor of NetObjects Fusion.

[edit] NetObjects Fusion now

Website Pros (WSP) went on developing and distributing future versions of NetObjects Fusion^[23] and offering subscription services based on this application. License revenue from direct sales of NetObjects Fusion to end-customers reached nearly $3.58 million in 2006 and $2.4 million in 2007.^[24] The mixed business model that was invented at NetObjects seems to work at Website Pros, which was founded in 1999 (Website Pros was also backed by venture capital).

[edit] Main applications of NetObjects

• NetObjects Fusion: web design tool created in 1996, sold to Website Pros in 2001, still distributed. The latest version is 11, released in May 2008.

• NetObjects Authoring Server, a collaborative Web development and content management solution, created in 1999, sold to UK-based Merant in 2000, after Merant's merge in 2004 with Serena Software still distributed as "Collage". The predecessor of this was NetObjects Team Fusion, introduced as a client-server application in 1998.

• NetObjects Matrix, an online Web builder and Web services tool, invented in 2000, sold to Website Pros in 2001.^[25]

[edit] References