Is Facebook a Modern Day Netscape?

It experienced massive growth practically overnight. It became a staple of nearly every Internet user. At its height, it had a market share well over 90%. It was Netscape Navigator. Marc Andreessen's browser was revolutionary. It defined the idea of a cross-platform, consistent Internet browser -- something that billions of people around the world now take for granted. Yet, despite the usefulness of Netscape's product, over the long-run, the market was not willing to pay a single dollar for Navigator. In 2012 the concept of paying for a browser seems ludicrous. However, there was a time when browsers cost money. In fact, Netscape charged $49 for Navigator in the mid 90s. Unfortunately for the company, Microsoft

came to view Netscape Navigator as a major threat to its operating system. To counter Navigator, it created Internet Explorer. In its earliest incarnations, Explorer was not as technologically advanced as Navigator, but it had one major advantage: it was free. Microsoft was able to use the cash it made from the sale of Windows to finance the development of Explorer. This move lead to the famous antitrust case against Microsoft, but the damage had been done: the concept of paying for a browser became antiquated. By 1998, Netscape was forced to offer Navigator for free and soon thereafter the company was acquired by AOL

. By 2002, Navigator's share of the browser market had declined to near 0%. The story of Netscape illustrates that, no matter how revolutionary or useful a company's product may be, the market may simply be unwilling to pay. After watching Facebook's

stock crash and burn (down over 50% from its IPO) some people may be wondering if the social networking giant is facing a similar problem. Although Facebook has reached hundreds of millions of people and remains the second most visited site on the entire Internet, it may be unable to effectively monetize its success. To date, the biggest knock on Facebook is that it has been unable to make money from its mobile app -- with a smaller screen, advertisements are more burdensome on users. With more and more people using the Facebook mobile app exclusively, the company is facing a major problem in the long-run. Even without its mobile problems, questions remain about the usefulness of Facebook's desktop ads. Still, Facebook does make money and plenty of it. The question for investors is whether or not the company will be able to increase revenues in the future. While it seems unlikely that Facebook would ever outright charge users for its services, it may begin to offer small services for a fee. The company recently demonstrated such a move in New Zealand, allowing its users to purchase increased visibility for their status updates at a small cost. Facebook has also moved to become more aggressive in its approach to advertising, altering its privacy settings and allowing advertisements to appear in users' news feeds. Although these changes do not appear to be threatening Facebook as of yet, it isn't hard to foresee how further moves could discourage users and make them open to switching. With so much tied to their account, users may be resistant to abandoning their Facebook accounts for another service. However, it wouldn't be without historical precedent -- Facebook stole much of Myspace's user base by offering a superior service. If, at some point, Facebook goes overboard with advertising it could kill the service and drive its users to another social network -- perhaps Google+

. Google, with a functioning and profitable search business, could afford to keep Google+ advertisements to a minimum -- in much the same way as Microsoft was able to offer Explorer for free. Without another business to rely on, Facebook would be unable to compete. Thus, despite Facebook's near monopoly status, it is limited in what it can do. The company must boost revenues to satisfy investors, but if it gets too aggressive on advertising, rival social networks from larger conglomerates like Google -- which do not face the same constraints -- could rapidly poach Facebook's user base. So is Facebook another Netscape? Perhaps. Shares may appear cheap given their recent sell-off, but longer-term investors should still approach the name with caution.