<PAGE>
 
================================================================================

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549



                                   FORM 10-Q
                                        
(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
     OF THE SECURITIES EXCHANGE ACT OF 1934

     For the quarterly period ended September 30, 1998

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
     OF THE SECURITIES EXCHANGE ACT OF 1934

     For the transition period from ________ to ________

                         COMMISSION FILE NUMBER 0-28436
                                        

                               OPEN MARKET, INC.
             (Exact name of registrant as specified in its charter)


           DELAWARE                                           04-3214536
(State or other jurisdiction of                            (I.R.S. Employer
incorporation or organization)                          Identification Number)


                                ONE WAYSIDE ROAD
                        BURLINGTON, MASSACHUSETTS 01803
              (Address of principal executive offices)  (Zip Code)

                                 (781) 359-3000
              (Registrant's telephone number, including area code)



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes  [X]     No  [ ]


As of October 31, 1998, there were 35,005,983 shares of the Registrant's Common
Stock outstanding.


================================================================================

                                      -1-
<PAGE>
 
                               OPEN MARKET, INC.

                               TABLE OF CONTENTS

<TABLE> 
<CAPTION> 
                                                                            Page
                                                                            ----
<S>                                                                       <C>
PART I - FINANCIAL INFORMATION

   ITEM 1.  Financial Statements
 
      Consolidated Balance Sheets as of September 30, 1998 and 
      December 31, 1997.                                                     3
 
      Consolidated Statements of Operations for the three and nine 
      months ended September 30, 1998 and 1997.                              4
 
      Consolidated Statements of Cash Flows for the nine months ended
      September 30, 1998 and 1997.                                           5
 
      Notes to Consolidated Financial Statements                             6
 
 
   ITEM 2.  Management's Discussion and Analysis of Financial
            Condition and Results of Operations                             12
 
 
   ITEM 3.  Quantitative and Qualitative Disclosures about
            Market Risk                                                     21
 

PART II - OTHER INFORMATION
 
   ITEM 1.  Legal Proceedings                                               21
 
   ITEM 2.  Changes in Securities and Use of Proceeds                       21
 
   ITEM 3.  Defaults Upon Senior Securities                                 22
 
   ITEM 4.  Submission of Matters to a Vote of Security Holders             22
 
   ITEM 5.  Other Information                                               22
 
   ITEM 6.  Exhibits and Reports on Form 8-K                                22
 
SIGNATURES                                                                  23
 
EXHIBIT INDEX                                                               24

</TABLE>
                                                                                

                                      -2-
<PAGE>
 
                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                               OPEN MARKET, INC.
                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                       September 30,  December 31,
                                                          1998           1997
                                                       -------------  ------------
<S>                                                     <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents                              $  14,299     $  19,666
  Marketable securities                                     26,618        10,972
  Accounts receivable, net of allowances of $1,761                     
    and $1,470, respectively                                25,776        23,102
  Loan to founder                                                -           993
  Prepaid expenses and other current assets                  2,032         1,423
                                                         ---------     ---------
     Total current assets                                   68,725        56,156
                                                         ---------     ---------
Property, plant and equipment, at cost:                                
  Computers and office equipment                            14,848        12,129
  Furniture and fixtures                                     2,092           812
  Construction in progress                                       -         3,300
  Leasehold improvements                                     5,475         1,072
  Land and building                                          4,200         4,200
                                                         ---------     ---------
                                                            26,615        21,513
  Less: Accumulated depreciation and amortization           10,028         6,356
                                                         ---------     ---------
                                                            16,587        15,157
                                                                       
Intangible assets, net (Note 3)                              7,672         7,787
Other assets                                                 1,957         1,774
                                                         ---------     ---------
   Total Assets                                          $  94,941     $  80,874
                                                         =========     =========
                                                                       
LIABILITIES AND STOCKHOLDERS' EQUITY                                   
Current liabilities:                                                   
  Line of credit                                         $  10,500     $   5,168
  Accounts payable                                           3,576         3,268
  Note payable (Note 3)                                      5,000        10,000
  Accrued expenses                                          12,729        14,440
  Deferred revenues                                          4,644         4,390
  Current maturities of long-term obligations                  116            50
                                                         ---------     ---------
     Total current liabilities                              36,565        37,316
                                                         ---------     ---------
                                                                       
Long-term obligations, net of current maturities             2,798            99
                                                                       
Stockholders' equity:                                                  
  Preferred stock, $.10 par value -                                    
   Authorized - 2,000,000 shares;                                      
   Issued and outstanding  none                                  -             -
  Common stock, $.001 par value -                                      
   Authorized - 100,000,000 shares;                                    
   Issued and outstanding  34,994,321 shares and                       
    30,970,791 shares at September 30, 1998 and                        
    December 31, 1997, respectively                             34            31
                                                                       
  Additional paid-in capital                               184,906       137,427
  Deferred compensation                                       (192)         (275)
  Other equity (Note 3)                                          -         6,920
  Accumulated deficit                                     (129,170)     (100,644)
                                                         ---------     ---------
   Total stockholders' equity                               55,578        43,459
                                                         ---------     ---------
   Total Liabilities and Stockholders' Equity            $  94,941     $  80,874
                                                         =========     =========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      -3-
<PAGE>
 
                               OPEN MARKET, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED                NINE MONTHS ENDED
                                                                 SEPTEMBER 30,                     SEPTEMBER 30,
                                                        ---------------------------        -----------------------------
                                                           1998             1997              1998               1997
                                                         --------         --------          --------           --------
<S>                                                   <C>                 <C>              <C>                <C>
REVENUES:
   Product revenues                                      $ 8,693           $11,859           $ 32,123           $ 33,348
   Service revenues                                        5,670             3,872             13,967              9,275
                                                         -------           -------           --------           --------
        Total revenues                                    14,363            15,731             46,091             42,623
                                                         -------           -------           --------           --------
COST OF REVENUES:                                                                                               
   Product revenues                                          702               468              2,044              1,973
   Service revenues                                        3,850             2,294             10,259              6,815
                                                         -------           -------           --------           --------
        Total cost of revenues                             4,552             2,762             12,303              8,788
                                                         -------           -------           --------           --------
        Gross profit                                       9,811            12,969             33,788             33,835
                                                         -------           -------           --------           --------
OPERATING EXPENSES:                                                                                             
   Selling and marketing                                   8,097             9,417             23,980             26,989
   Research and development                                5,350             7,107             18,693             19,943
   General and administrative                              2,957             3,021              8,737              8,676
   Acquired in-process research &                                                                               
    development (Note 3)                                       -                 -             10,800             34,250
                                                         -------           -------           --------           --------
        Total operating expenses                          16,404            19,545             62,210             89,858
                                                         -------           -------           --------           --------
        Loss from operations                              (6,593)           (6,576)           (28,422)           (56,023)
                                                         -------           -------           --------           --------
OTHER INCOME (EXPENSE) :                                                                                        
    Interest Income                                          376               719                985              2,318
    Interest expense                                        (312)             (287)              (849)              (557)
    Other income (expense)                                    19               (95)               (52)              (180)
                                                         -------           -------           --------           --------
Loss before provision for income taxes                    (6,509)           (6,239)           (28,339)           (54,442)
                                                         -------           -------           --------           --------
Provision for foreign income taxes                           121               133                186                584
                                                         -------           -------           --------           --------
NET LOSS                                                 $(6,631)          $(6,372)          $(28,525)          $(55,026)
                                                         =======           =======           ========           ========
NET LOSS PER SHARE-BASIC AND DILUTED (Note 2)            $ (0.19)          $ (0.20)          $  (0.87)          $  (1.79)
                                                         =======           =======           ========           ========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON                                                                    
 EQUIVALENT SHARES OUTSTANDING  - BASIC AND DILUTED                                                             
 (Note 2)                                                 34,323            31,476             32,945             30,798
                                                         =======           =======           ========           ========
</TABLE>
                                                                                
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      -4-
<PAGE>
 
                               OPEN MARKET, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                            NINE MONTHS ENDED
                                                                                               SEPTEMBER 30,
                                                                                     --------------------------------
                                                                                         1998                1997
                                                                                       --------            --------
<S>                                                                                  <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                                                              $(28,525)           $(55,026)
 Adjustments to reconcile net loss to net cash used in operating activities:                               
   Depreciation and amortization                                                          3,672               2,569
   Amortization of intangible assets                                                      1,315                 946
   Charge associated with acquired in-process research & development                     10,800              34,250
   Deferred Compensation                                                                    105                  78
   Changes in assets and liabilities-                                                                      
      Accounts receivable                                                                (5,784)             (6,185)
      Prepaid expenses and other current assets                                            (604)                489
      Accounts payable                                                                      274              (1,892)
      Accrued expenses                                                                   (2,378)              5,324
      Deferred revenues                                                                     253                (380)
                                                                                       --------            --------
        Net cash used in operating activities                                           (20,873)            (19,827)
                                                                                       --------            --------
                                                                                                           
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                      
 Purchases of property, plant and equipment                                              (5,059)             (2,849)
 Payment from founder on loan                                                               993                   -
 (Purchase) sales of marketable securities, net                                         (15,646)             13,585
 Increase in other assets                                                                  (101)             (1,181)
 Net cash used in the purchase of ICentral                                               (1,420)                  -
 Net cash acquired from the purchase of Waypoint                                              -                 372
 Net cash used in the purchase of Folio                                                       -             (11,400)
                                                                                       --------            --------
        Net cash used in investing activities                                           (21,233)             (1,473)
                                                                                       --------            --------
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                      
 Proceeds from Line of Credit                                                             5,331               3,700
 Payments on note payable                                                                (1,818)                  -
 Proceeds from the factoring of accounts receivable                                       3,128                   -
 Proceeds (payments) on long-term obligations                                             2,761                 (35)
 Proceeds from issuance of common stock                                                  27,336                 981
                                                                                       --------            --------
        Net cash provided by financing activities                                        36,738               4,646
                                                                                       --------            --------
NET DECREASE IN CASH AND CASH EQUIVALENTS                                                (5,368)            (16,654)
                                                                                                          
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                           19,666              49,765
                                                                                       --------            --------
 CASH AND CASH EQUIVALENTS, END OF PERIOD                                              $ 14,299            $ 33,111
                                                                                       ========            ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                                          
 Interest paid during the period                                                       $  1,212            $     25
                                                                                       ========            ========
 Taxes paid during the period                                                          $     48            $    143
                                                                                       ========            ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:                                                  
In connection with the acquisition of ICentral (see Note 3), the following                                 
 non-cash transaction occurred:                                                                            
   Fair value of assets acquired                                                       $ 12,086                   -
   Liabilities assumed                                                                     (666)                  -
   Issuance of common stock                                                             (10,000)                  -
                                                                                       --------            --------
   Cash paid for acquisition and acquisition costs                                     $  1,420            $      -
                                                                                       ========            ========
In connection with the acquisition of Waypoint (see Note 3), the following
 non-cash transaction occurred:
   Fair value of assets acquired                                                       $      -            $  9,922
   Liabilities assumed                                                                        -                (156)
   Issuance of common stock                                                                   -              (9,548)
   Cash acquired                                                                              -                (590)
                                                                                       --------            --------
   Cash acquired in acquisition, net of acquisition costs                              $      -            $   (372)
                                                                                       ========            ========
                                                                                                           
In connection with the acquisition of Folio (see Note 3), the following                                    
 non-cash transaction occurred:                                                                            
   Fair value of assets acquired                                                       $      -            $ 45,512
   Liabilities assumed                                                                        -              (5,682)
   Issuance of common stock                                                                   -             (18,430)
   Issuance of note payable                                                                   -             (10,000)
   Issuance of common stock for repayment of note payable                                (3,182)                  -
   Issuance of common stock for repayment of note payable                                 5,000                   -
                                                                                       --------            --------
   Cash paid for acquisition and acquisition costs                                     $  1,818            $ 11,400
                                                                                       ========            ========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      -5-
<PAGE>
 
                               OPEN MARKET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
                                  (UNAUDITED)

1.  BASIS OF PRESENTATION

  The consolidated financial statements of Open Market, Inc. (the Company)
presented herein have been prepared pursuant to the rules of the Securities and
Exchange Commission for quarterly reports on Form 10-Q and do not include all of
the information and note disclosures required by generally accepted accounting
principles.  These statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended December
31, 1997, included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 31, 1998.

  The consolidated financial statements and notes herein are unaudited but, in
the opinion of management, include all adjustments (consisting of normal,
recurring adjustments) necessary to present fairly the consolidated financial
position, results of operations and cash flows of the Company and its
subsidiaries.

  The results of operations for the interim periods shown herein are not
necessarily indicative of the results to be expected for any future interim
period or for the entire year.


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  The accompanying consolidated financial statements reflect the application of
certain accounting policies described in this and other notes to these
consolidated financial statements.


 (a) Principles of Consolidation

     The accompanying consolidated financial statements reflect the accounts of
  the Company and its wholly owned subsidiaries. All material intercompany
  accounts and transactions have been eliminated in consolidation.


 (b) Cash, Cash Equivalents and Marketable Securities


     The Company accounts for investments under Statement of Financial
  Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in
  Debt and Equity Securities.  Under SFAS No. 115, investments for which the
  Company has the positive intent and ability to hold to maturity, consisting of
  cash equivalents and marketable securities, are reported at amortized cost,
  which approximates fair market value.  Cash equivalents are highly liquid
  investments with original maturities of less than three months at the time of
  acquisition.  Marketable securities consist of investment grade commercial
  paper and corporate notes, and obligations of certain municipalities as of
  September 30, 1998, that have original maturities of greater than three months
  but less than one year.  The average maturity of the Company's marketable
  securities is approximately two months.

 (c) Net Loss Per Share

     Effective December 31, 1997, the Company adopted SFAS No. 128 Earnings Per
  Share. SFAS No. 128 establishes standards for computing and presenting
  earnings per share and applies to entities with publicly held common stock or
  potential common stock. The Company has applied the provisions of SFAS No. 128
  and Staff Accounting Bulletin (SAB) No. 98 retroactively to all periods
  presented. Weighted average shares outstanding includes the shares issued to
  Reed Elsevier in January 1998 relating to the Folio acquisition. Diluted net
  loss per share

                                      -6-
<PAGE>
 
  for the three and nine months ended September 30, 1998 and 1997 are the same
  as basic net loss per share as the inclusion of potential common stock would
  be antidilutive. Calculations of basic and diluted net loss per common share
  are as follows:


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(in thousands, except                Three Months Ended                 Nine Months Ended
per share data)                 September 30,   September 30,     September 30,    September 30,
                                    1998            1997              1998             1997
------------------------------------------------------------------------------------------------
<S>                              <C>             <C>               <C>              <C>
Net loss                          $(6,631)        $(6,372)          $(28,525)        $(55,026)
------------------------------------------------------------------------------------------------
Net loss per common share  
 basic and diluted                $ (0.19)        $ (0.20)          $  (0.87)        $  (1.79)
------------------------------------------------------------------------------------------------
Weighted average common shares
 outstanding-basic and diluted    34,323          31,476             32,945           30,798
------------------------------------------------------------------------------------------------
Antidilutive securities that 
 were not included-common 
 stock options                      7,318           6,399              7,318            6,399
------------------------------------------------------------------------------------------------
</TABLE>

3.   ACQUISITIONS

  (a) ICentral Incorporated

    On April 30, 1998, the Company acquired all of the outstanding shares of
  capital stock of ICentral, Incorporated (ICentral) based in Provo, Utah.
  ICentral specializes in Internet store-building products geared to small and
  medium-sized businesses. As payment of the purchase price, the Company (1)
  issued an aggregate of approximately 480,140 shares of the Common Stock of the
  Company and (2) made a cash payment of $720 to the former stockholders of
  ICentral. The value of the shares of the Company's common stock issued in
  connection with the acquisition was approximately $10,000 based on a weighted
  average market price, as defined. In addition, in connection with this
  acquisition, the Company entered into employment agreements with certain key
  employees of ICentral under which the Company agreed to pay bonuses in an
  aggregate amount of $1,000, depending on certain future events, as defined.
  For financial statement purposes, this acquisition was accounted for as a
  purchase, and accordingly, the results of operations of ICentral subsequent to
  April 30, 1998 are included in the Company's Consolidated Statements of
  Operations.  Fifty percent of the shares of common stock issued to the former
  stockholders of ICentral have been registered for resale pursuant to a
  registration statement on Form S-3 declared effective by the Securities and
  Exchange Commission on November 3, 1998.

     The aggregate purchase price of $12,086 consisted of the following:
<TABLE>
<CAPTION>
                  Description                                Amount
                  -----------                                ------
                  <S>                                       <C>
                  Common stock                               $10,000
                  Cash                                           720
                  Assumed liabilities                            666
                  Acquisition costs                              700
                                                             -------
                  Total purchase price:                      $12,086
                                                             =======
</TABLE>

                                      -7-
<PAGE>
 
     The purchase price was allocated based upon the fair value of the tangible
  and intangible assets acquired.  These allocations represent the fair values
  determined by an appraisal.  The appraisal incorporated proven valuation
  procedures and techniques in determining the fair value of each intangible
  asset. The purchase price has preliminarily been allocated as follows:

<TABLE>
<CAPTION>
                  Description                                Amount
                  -----------                                ------
                  <S>                                       <C>
                  Current assets                             $    86
                  Other acquired intangible assets             1,200
                  In-process research & development           10,800
                                                             -------
                  Total assets acquired:                     $12,086
                                                             =======
</TABLE>

     The in-process research and development has been expensed as a charge
  against operations as of the closing of the transaction, and is included in
  the accompanying Consolidated Statement of Operations for the nine months
  ended September 30, 1998.  The amount allocated to acquired in-process
  research and development relates to projects that have not yet reached
  technological feasibility and that, until completion of development, have no
  alternative future use.  These projects will require substantial development
  and testing prior to the reaching of technological feasibility. However, there
  can be no assurance that these projects will reach technological feasibility
  or develop into products that might be sold profitably by the Company. The
  intangible assets are being amortized over five years. The Company recorded
  approximately $60 and $100 of amortization expense relating to these
  intangible assets during the three and nine months ended September 30, 1998,
  respectively.

   (b) Waypoint Software Corporation

     On February 12, 1997, the Company acquired all of the outstanding shares of
  capital stock of Waypoint Software Corporation (Waypoint), a software
  development company specializing in the business-to-business industrial
  catalog segment of the Internet.  As payment of the purchase price, the
  Company issued an aggregate of approximately 739,000 shares of its common
  stock to the stockholders of Waypoint and issued options to acquire
  approximately 6,000 shares of the Company's common stock at $0.456 per share
  to Waypoint option holders.  The value of the shares of, and the options to
  acquire, the Company's Common Stock issued in connection with the acquisition
  was approximately $11,000 based on a weighted average market price, as
  defined, of the Company's freely tradable shares of common stock.  The shares
  of common stock issued were subject to certain selling restrictions.
  Therefore, for purposes of calculating aggregate consideration paid, the value
  of the shares of common stock issued was recorded at a discounted value. In
  addition, in connection with this acquisition, the Company entered into
  employment agreements with certain of the principals of Waypoint under which
  the Company agreed to pay bonuses in an aggregate amount of $1,200 over two
  years depending on certain future events, as defined. The employees earned
  $600 under their employment agreements in the year ended December 31, 1997
  with the final payment expected in February 1999. For financial statement
  purposes, this acquisition was accounted for as a purchase, and accordingly,
  the results of operations of Waypoint subsequent to February 12, 1997 are
  included in the Company's Consolidated Statements of Operations. The shares of
  common stock of the Company issued to the former stockholders of Waypoint have
  been registered for resale pursuant to a registration statement on Form S-3
  declared effective by the Securities and Exchange Commission on June 11, 1997.

     The aggregate purchase price of $9,922 consisted of the following:
<TABLE>
<CAPTION>
                 Description                            Amount
                 -----------                            ------
                 <S>                                  <C>
                 Common stock                           $9,548
                 Assumed liabilities                       156
                 Acquisition costs                         218
                                                        ------
                 Total purchase price:                  $9,922
                                                        ======
</TABLE>

                                      -8-
<PAGE>
 
     The purchase price was allocated based upon the fair value of the tangible
  and intangible assets acquired.  These allocations represent the fair values
  determined by an independent appraisal.  The appraisal incorporated proven
  valuation procedures and techniques in determining the fair value of each
  intangible asset.  The purchase price has been allocated as follows:

<TABLE>
<CAPTION>
                 Description                            Amount
                 -----------                            ------
                 <S>                                  <C>
                 Current assets                         $  590
                 Property, plant and equipment              76
                 Other assets                                6
                 In-process research & development       9,250
                                                        ------
                 Total assets acquired:                 $9,922
                                                        ======
</TABLE>

     The in-process research and development has been expensed as a charge
  against operations as of the closing of the transaction, and is included in
  the accompanying Consolidated Statement of Operations for the nine months
  ended September 30, 1997.  The amount allocated to acquired in-process
  research and development relates to projects that have not yet reached
  technological feasibility and that, until completion of development, have no
  alternative future use.  These projects will require substantial development
  and testing prior to the reaching of technological feasibility. However, there
  can be no assurance that these projects will reach technological feasibility
  or develop into products that might be sold profitably by the Company. The
  technology acquired in the acquisition of Waypoint has required, and may
  require, substantial additional development by the Company.

 (c) Folio Corporation

     Pursuant to a Stock Purchase Agreement dated as of February 20, 1997 (the
  Stock Purchase Agreement), the Company acquired all of the outstanding shares
  of capital stock of Folio Corporation (Folio), a leading supplier of software
  for managing business-critical information.  As payment of the purchase price,
  the Company (1) issued 897,866 shares of common stock of the Company, (2) made
  a cash payment of $10,000, (3) agreed to issue 897,866 shares of common stock
  of the Company subject to adjustment in January 1998 and (4) issued a
  promissory note of the Company in the original principal amount of $10,000
  payable in either cash or a combination of cash and common stock of the
  Company. The value of the shares of the Company's common stock issued in
  connection with the acquisition was approximately $25,000 based on a weighted
  average market price, as defined, of the Company's freely tradable shares of
  common stock.  The shares of common stock issued on March 7, 1997, as well as
  the shares of common stock issued in January 1998 were not freely tradable due
  to selling restrictions. Therefore, although 448,993 and 538,342 shares were
  registered by the Company in August 1997 and February 1998, respectively, upon
  the request of the former stockholder of Folio as required under the terms of
  the Stock Purchase Agreement, for purposes of calculating aggregate
  consideration paid, the value of the shares issued was recorded at a
  discounted value at the time of issuance. The Stock Purchase Agreement
  provided for a purchase price adjustment based on the change in the net assets
  of Folio from the estimated value at December 31, 1996 through the date of
  closing.  As a result of this adjustment, the former stockholder forfeited
  270,116 shares of common stock of the Company to be issued in the transaction.
  Other equity in the accompanying December 31, 1997 Consolidated Balance Sheet
  included the value of the shares issued in January 1998, net of the forfeited
  shares.  The Company repaid $5,000 of the note payable issued to Reed Elsevier
  in 1997 in connection with the Folio acquisition with a $1,818 cash payment.
  The balance of $3,182 was settled by the issuance of common stock.  For
  financial statement purposes, this acquisition was accounted for as a
  purchase, and accordingly, the results of operations of Folio subsequent to
  March 7, 1997 are included in the Company's Consolidated Statements of
  Operations. For tax purposes, this transaction was treated as a deemed asset
  purchase in accordance with the Internal Revenue Code section 338 (h)(10).

                                      -9-
<PAGE>
 
  The aggregate purchase price of $45,512 consisted of the following:

<TABLE>
<CAPTION>
                 Description                            Amount
                 -----------                            ------
                 <S>                                  <C>
                 Common stock                          $21,612
                 Cash paid                              11,818
                 Note payable                            5,000
                 Assumed liabilities                     5,682
                 Acquisition costs                       1,400
                                                       -------
                 Total purchase price:                 $45,512
                                                       =======
</TABLE>
 
     The purchase price was allocated based upon the fair value of the tangible
  and intangible assets acquired.  These allocations represent the fair values
  determined by an independent appraisal.  The appraisal incorporated proven
  valuation procedures and techniques in determining the fair value of each
  intangible asset.  The purchase price has been allocated as follows:

<TABLE>
<CAPTION>
          Description                                   Amount
          -----------                                   ------
          <S>                                        <C>
          Current assets                               $ 4,729
          Property, plant and equipment                  6,605
          Other assets                                      41
          In-process research & development             25,000
          Other acquired intangible assets               9,137
                                                       -------
          Total assets acquired:                       $45,512
                                                       =======
</TABLE>

     The in-process research and development has been expensed as a charge
  against operations as of the closing of the transaction, and is included in
  the accompanying Consolidated Statement of Operations for the nine months
  ending September 30, 1997.  The amount allocated to acquired in-process
  research and development relates to projects that have not yet reached
  technological feasibility and that, until completion of development, have no
  alternative future use.  These projects will require substantial development
  and testing prior to reaching technological feasibility.  However, there can
  be no assurance that these projects will reach technological feasibility or
  develop into products that might be sold profitably by the Company. The
  technology acquired in the acquisition of Folio has required, and may require,
  substantial additional development by the Company. The intangible assets are
  being amortized over five to seven years. The Company recorded approximately
  $1,351 of amortization expense relating to these intangible assets during 1997
  and $1,215 of amortization expense during the first nine months of 1998.

  (d) Pro Forma Results of Operations

     The following unaudited pro forma combined results of operations of the
  Company assume that the Waypoint and Folio acquisitions were completed on
  January 1, 1997. (in thousands, except per share data):

<TABLE>
<CAPTION>
                                    For the nine months ended 
                                       September 30, 1997
                                    -------------------------
            <S>                         <C>
            Total revenues                  $ 45,368
            Net loss                        $(23,793)
            Net loss per share              $  (0.76)
</TABLE>

     These pro forma amounts represent the historical operating results of
  Waypoint and Folio prior to their respective dates of acquisition, combined
  with those of the Company with appropriate adjustments which give effect to
  interest income, interest expense, amortization expense, as well as the
  exclusion of the charge for acquired in-process research and development.
  These 

                                      -10-
<PAGE>
 
  pro forma results are not necessarily indicative of operating results,
  which would have occurred if the Waypoint and Folio acquisitions had been
  operated by current management during the periods presented.


     The results prior to the ICentral acquisition were not material to the
  Company. Accordingly, ICentral pro forma results for 1998 and 1997 were not
  presented.

4.  RELATED PARTY TRANSACTIONS

                                        
     The Company has entered into agreements with certain stockholders that
  provide for product and service revenues. The Company believes that the terms
  of these transactions are no less favorable to the Company than could be
  obtained from unaffiliated third parties. The Company recognized revenues from
  certain stockholders of approximately $407 for the nine months ended September
  30, 1998, and revenues of approximately $6,000 for the nine months ended
  September 30, 1997.

5. SALE OF ACCOUNTS RECEIVABLE

     The Company has a non-recourse factoring agreement under which it can
  factor up to $8,000 of qualified accounts receivable, as defined. The Company
  sold approximately $3,000 of accounts receivable during the second quarter of
  1998. The Company sold no accounts receivable during the third quarter of
  1998. The Company records these transactions as a sale of financial assets in
  accordance with SFAS No. 125, Accounting for Transfers and Servicing of
  Financial Assets and Extinguishment of Liabilities, as it surrenders control
  to these receivables upon transfer.

6. MORTGAGE

     In July 1998, the Company entered into a $2,800 mortgage of its Provo, Utah
  building which bears interest at a fixed rate of 8.5%. The mortgage principal
  payments are based upon a twenty-year term with a balloon payment required at
  the end of the fifth year.

7. COMMON STOCK

     On June 4, 1998, the Company announced that Intel Corporation (Intel) had
  made an investment in the Company, purchasing 335,852 unregistered shares of
  the Company's common stock for an aggregate purchase price of $5,000. In
  addition, the Company plans to port its Transact software to Intel Pentium(R)
  Processor II-based servers running Windows NT and Intel's next-generation 
  IA-64 processor. The estimated costs of $1,000 associated with the port will
  be expensed as incurred with a completion of the IA-64 version expected at the
  time of the release of Intel's next-generation IA-64 processor. The two
  companies also plan to collaborate on joint marketing activities.

     On July 31, 1998, the Company announced that CMG Information Services,
  Inc., an investor and developer of Internet companies (CMG) and Capital
  Ventures International, a fund managed by Heights Capital Management, a leader
  in equity financing for emerging growth companies (CVI), made a $20,000 equity
  investment in the Company. Pursuant to the terms of the agreements, the
  Company issued an aggregate of 1,545,893 shares of common stock of the Company
  to CMG and CVI at a price of $12.94 per share. In addition, the Company issued
  to CMG and CVI warrants to purchase an additional 334,728 shares of common
  stock at a price of $16.43 per share.  The Company filed a registration
  statement on Form S-3, covering all such shares of common stock, which was
  declared effective by the Securities and Exchange Commission on August 13,
  1998.

                                      -11-
<PAGE>
 
8. SUBSEQUENT EVENT

  In October 1998, the Company announced a restructuring of its internal cost
structure to better align its operating costs with its revenue stream.  As part
of this restructuring plan, the Company expects to terminate approximately 10%-
20% of its current workforce.  In addition, the Company expects to incur costs
relating to the redesign of its internal organization.  As a result, the Company
will record a restructuring charge of approximately $2-$4 million in the fourth
quarter of 1998.


   ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
             --------------------------------------------------------------- 
            RESULTS OF OPERATIONS  (IN THOUSANDS, EXCEPT SHARE DATA)
            --------------------------------------------------------

RESULTS OF OPERATIONS

OVERVIEW

  Open Market, Inc. (the Company) develops, markets, licenses and supports
enterprise-class, packaged application software products and professional
services that allow its customers to engage in business-to-consumer and
business-to-business Internet commerce, information commerce and commercial
publishing. Open Market's software includes a wide spectrum of functionality
required to effectively conduct business on the Internet, allowing companies to
attract customers to their Web sites, engage them in acting upon an offer,
complete a transaction and service them once a transaction has been completed.

REVENUES

  Total revenues for the three months ended September 30, 1998 were
approximately $14,363 or a 9% decrease when compared to $15,731 for the three
months ended September 30, 1997. For the nine months ended September 30, 1998,
total revenues were $46,091 or an 8% increase when compared to $42,623 for the
same period of the prior year.

  Product revenues decreased to $8,693, or 61% of total revenues, for the three
months ended September 30, 1998, compared to $11,859, or 75% of total revenues,
for the same period of the prior year.  Product revenues include: (1) software
products, which include the licensing of Transact, the Company's flagship
product for Internet commerce, LiveCommerce, the Folio product suite, and
ShopSite products, and (2) royalty revenues, which include publisher royalties
and merchant license fees.  The decrease in product revenues was attributed, in
part, to a decrease in publisher royalties and decreased demand for CD Rom based
publishing software produced by the Company's Folio division, which is mainly
sold to corporate customers through the Company's business partners.  Management
believes the decrease in demand for CD Rom based publishing software was due to
the industry's gradual migration to Internet based publishing software.

  Additionally, in the third quarter of 1998, the Company experienced lower than
planned product revenues due to a decrease in merchant license fees, which are
deal-specific and fluctuate on a quarterly basis, and general weakness in the
Asia/Pacific and Japan regions as a result of the Asian economic crisis.

  Product revenues decreased to $32,123, or 70% of total revenues, for the nine
months ended September 30, 1998, compared to $33,348, or 78% of total revenues
for the comparable prior year period.  In the first nine months of 1997, the
Company recorded product revenues of approximately $5,000 for the sale of its
Axcess product line to Raptor, Inc.  The slight decrease in revenues for the
nine months ended September 30, 1998, was attributed primarily to this one-time
event.  Product revenues declined as a percentage of total revenues primarily
due to growth in the Company's service business.

                                      -12-
<PAGE>
 
  Service revenues increased to $5,670, or 39% of total revenues, for the three
months ended September 30, 1998, from $3,872, or 25% of total revenues, for the
three months ended September 30, 1997. Service revenues increased to $13,967, or
30% of total revenues, for the nine months ended September 30, 1998, from
$9,275, or 22% of total revenues, for the nine months ended September 30, 1997.
Of the total service revenues for the three and nine months ended September 30,
1998, 32% and 39%, respectively, came from maintenance and support services,
which include customer service and technical support, and 68% and 61%,
respectively, was attributed to professional services, which include consulting,
implementation, and education services. For the three and nine months ended
September 30, 1997, maintenance and support represented 45% and 41%,
respectively, of total service revenues, and professional services represented
55% and 59%, respectively, of total service revenues.  Professional services
revenues increased as a percentage of total service revenues for the three and
nine months ended September 30, 1998, primarily due to increased demand for
consulting services across the Company's customer base.  The increase in demand
for consulting services is the result of improvement in the Company's design and
execution in selling and delivering these services.

COST OF REVENUES

  Cost of product revenues increased to $702, or 8% of total product revenues,
for the three months ended September 30, 1998, from $468, or 4% of total product
revenues, in the prior year period.  For the nine months ended September 30,
1998, cost of product revenues increased to $2,044, or 6% of total product
revenues, from $1,973, or 6% of total product revenues, for the comparable prior
year period.  The increase in cost of product revenues was primarily due to
increased costs for third-party licensing royalties.  For all periods presented,
cost of product revenues includes the costs to distribute products as well as
third-party royalties for technology incorporated into certain products of the
Company.  Management believes that these costs as a percentage of product
revenues will remain in the range of 6%-10% for the foreseeable future as the
Company incorporates more third-party technology into its products.
 
  Cost of service revenues increased to $3,850 for the three months ended
September 30, 1998, from $2,294 for the comparable prior year period. Cost of
service revenues increased to $10,259 for the nine months ended September 30,
1998, compared to $6,815 for the comparable prior year period. Cost of service
revenues consists primarily of personnel and related costs incurred in providing
development, consulting, and other technical services to customers.  The
increase was primarily attributed to the growth of these costs, which have
increased in proportion to higher service revenues, as a result of growth in the
Company's consulting business.  Service revenue gross margin decreased
approximately 9% in the three months ended September 30, 1998, from the
comparable prior year period.  The decrease was attributed primarily to the
investments made during the period to grow the consulting business.  Management
believes that the service gross margin may fluctuate over the next few quarters
depending upon such factors as resource utilization rates and growth in the
consulting business.

 OPERATING EXPENSES

  Selling and marketing expenses consisted primarily of the cost of sales and
marketing personnel and consultants, as well as the costs associated with
marketing programs, advertising costs, and literature. Selling and marketing
expenses decreased to $8,097 and $23,980 for the three and nine month periods
ended September 30, 1998, respectively, from $9,417 and $26,989 for the three
and nine month periods ended September 30, 1997, respectively.  The decrease in
these expenses was attributed primarily to decreases in employee-related
expenses as the Company experienced a 24% reduction in headcount in its sales
and marketing 

                                      -13-
<PAGE>
 
organization from September 30, 1997 to September 30, 1998. In addition, sales
and marketing expenses decreased as a result of a decrease in sales commissions.

  Research and development expenses consist primarily of the cost of research
and development personnel and independent contractors, as well as equipment and
facilities costs related to such activities.  For the three months ended
September 30, 1998, these expenses decreased to $5,350 from $7,107 for the three
months ended September 30, 1997. The decrease in expenses of approximately 25%
was attributed primarily to a reduction in the cost of outside contractors as
certain development projects came to fruition.  As a result of the completion of
those projects, the Company experienced a 22% reduction in headcount in its
research and development organization from September 30, 1997 to September 30,
1998.  For the nine months ended September 30, 1998, research and development
expenses decreased to $18,693 from $19,943 for the comparable prior year period,
primarily due to reductions in headcount and expenses related to outside
consultants.  Qualifying capitalized software development costs were immaterial
in both periods.  Accordingly, the Company has charged all such expenses to
research and development in the period incurred.  The Company believes that
significant investments in research and development are required to remain
competitive in the software industry.  Certain research and development
expenditures are incurred substantially in advance of the related revenues and
in some cases do not generate revenues.

  General and administrative expenses consist primarily of the cost of finance,
management, and administrative personnel, as well as legal and other
professional fees.  These expenses decreased slightly for the three months ended
September 30, 1998, to $2,957 from $3,021 for the three months ended September
30, 1997. The decrease was due mainly to a decrease in travel-related expenses
and legal and professional fees.  For the nine months ended September 30, 1998,
these expenses increased slightly to $8,737 from $8,676 for the prior year
period. The increase was due mainly to amortization of goodwill associated with
the Folio and ICentral acquisitions.

  In connection with the acquisition of ICentral in May 1998, the Company
allocated $10,800 of the purchase price to acquired in-process research and
development. In connection with the acquisitions of Waypoint in February 1997
and Folio in March 1997, the Company allocated $9,250 and $25,000, respectively,
of the purchase price to acquired in-process research and development.
Accordingly, these costs were expensed as of the acquisition dates.  The amount
allocated to acquired in-process research and development relates to projects
that have not yet reached technological feasibility and that, until completion
of development, have no alternative future use. The technologies acquired in the
acquisitions of Waypoint, Folio and ICentral have required, and will continue to
require, substantial additional development by the Company.

  Interest income represents interest earned on cash, cash equivalents and
marketable securities. Interest income decreased to $376 and $985 for the three
and nine month periods ended September 30, 1998, respectively, from
approximately $719 and $2,318 for the three and nine month periods ended
September 30, 1997, respectively.  The decrease was primarily attributed to
lower average investments in cash, cash equivalents and marketable securities
during the periods. Interest expense increased to $312 and $849 for the three
and nine month periods ended September 30, 1998, respectively, from
approximately $287 and $557 for the three and nine month periods ended September
30, 1997, respectively. Interest expense relates to the accounts receivable line
of credit, the Company's note payable issued in conjunction with the Folio
acquisition, a non-recourse factoring agreement, the mortgage on the Company's
Provo, Utah facility, as well as an obligation under a license agreement. Other
income of $19 represents foreign currency translation gains recorded during the
three-month period ended September 30, 1998.  Other expense of $52 for the nine-
month period ended September 30, 1998 represents foreign currency translation
losses.

                                      -14-
<PAGE>
 
  The Company recorded a provision for foreign income taxes of $121 and $186
compared to $133 and $584 for the three and nine months ended September 30, 1998
and 1997, respectively.  This provision was recorded for estimated taxes due in
foreign jurisdictions.  The Company has had losses for U.S. tax purposes for all
periods to date and, accordingly, there has been no provision for U.S. income
taxes.

LIQUIDITY AND CAPITAL RESOURCES

  At September 30, 1998, the Company had $40,917 in cash, cash equivalents and
marketable securities, which represented an increase of $10,279 from 
December 31, 1997.

  The Company's operating activities utilized cash and cash equivalents of
approximately $20,873 and $19,827 for the nine months ended September 30, 1998
and 1997, respectively. Accounts receivable increased primarily as a result of
the quarterly cyclical nature of the sales process as well as the granting of
extended payment terms to certain new and long-standing creditworthy customers.

  The Company's investing activities used cash and cash equivalents of
approximately $21,233 and $1,473 for the nine months ended September 30, 1998
and 1997, respectively. The principal uses of cash for investing activities for
the nine months ended September 30, 1998, were $15,646 paid for the purchase of
certain marketable securities and $5,059 for purchases related to property,
plant, and equipment.  Additionally, during the nine-month period ended
September 30, 1998, the Company paid $1,420 in cash for part of the purchase
price and acquisition costs of ICentral.

  The Company's financing activities provided cash and cash equivalents of
approximately $36,738 and $4,646 for the nine months ended September 30, 1998
and 1997, respectively. During the first nine months of 1998, the Company
received proceeds of 5,000 from Intel and $20,000 from CMG and CVI for the
private sale of equity securities.  In addition, the Company received proceeds
of $2,336 from the exercise of stock options under the Company's 1994 Stock
Incentive Plan and stock purchases under the Company's Employee Stock Purchase
Plan. The Company repaid $5,000 of the note payable issued to Reed Elsevier in
1997 in connection with the Folio acquisition with a $1,818 cash payment.  The
balance of $3,182 was settled by the issuance of the Company's common stock.

  In July 1998, the Company entered into a $2,800 mortgage of its Provo, Utah,
building which bears interest at the fixed rate of 8.5%. The mortgage principal
payments are based upon a 20-year term with a balloon payment required at the
end of the fifth year.

  The Company has an unsecured bank credit facility that provides up to $15,000
in financing.  Borrowings under this line are limited to 80% of eligible
domestic accounts receivable and 90% of eligible foreign accounts receivable, as
defined, and bears interest at the prime lending rate (8.5% at September 30,
1998).  The Company is required to comply with certain restrictive covenants
under this agreement.  During the nine months ended September 30, 1998, the
Company increased its borrowings under this facility to $10,500.  At 
September 30, 1998, $4,500 remained available to the Company under this 
facility.

  The Company has a non-recourse factoring agreement under which it can factor
up to $8,000 of qualified accounts receivable, as defined. The Company had
approximately $5,965 available under this agreement at September 30, 1998.

                                      -15-
<PAGE>
 
  At December 31, 1997, the Company had net operating loss carryforwards for
income tax purposes of approximately $65,000. These losses are available to
reduce federal and state taxable income, if any, in future years. These losses
are subject to review and possible adjustment by the Internal Revenue Service
and may be limited in the event of certain cumulative changes in ownership
interests of significant shareholders over a three-year period that are in
excess of 50%.  While the Company believes that it has experienced a change in
ownership in excess of 50%, it does not believe that this change in ownership
will significantly impact the Company's ability to utilize its net operating
loss carryforwards.


  The Company believes that its existing capital resources are adequate to meet
its cash requirements for at least the next 12 months. There can be no
assurance, however, that changes in the Company's plans or other events
affecting the Company's operations will not result in accelerated or unexpected
expenditures.

Year 2000 Compliance

  Background

  The Company recognizes that it must ensure that its products and operations
will not be adversely impacted by Year 2000 software failures, which can arise
in date-sensitive software applications that utilize a field of two digits to
define the applicable year.  In such applications, a date using "00" as the year
may be recognized as the year 1900 rather than the year 2000.

  State of Readiness

  For internal purposes, 80% of the Company's mission critical information
technology systems are considered to be Year 2000 compliant.  For external
purposes, the Company has developed and implemented a detailed Year 2000 test
procedure for the phase review and software release process to ensure that its
software products are Year 2000 compliant.  Management expects that execution of
this test procedure will begin in the first quarter of 1999.  Overall, testing
of the Company's products and subsequent releases began in 1998 and management
expects that such testing will continue throughout 1999.  Additionally,
approximately 90% of the Company's embedded product vendors are already
considered to be Year 2000 compliant, based wholly on external and internal
testing of such embedded products.  As a result, management fully expects that
the Company and its key vendors will be positioned to successfully meet all Year
2000 compliance issues for the Company's products.

  Related Costs

  Management has assessed the related costs for Year 2000 compliance to be in
the range of $300-$700.  To date, the Company has incurred costs of
approximately $200 for its Year 2000 projects.  Such costs may include those for
research and development, capital equipment, outside software tools, outside
contractors, and other internal resources that may be assigned to the project.
Management acknowledges that these costs may be subject to reassessment as
testing of the Company's products and mission critical systems is completed and
compliance is fully achieved.

  Perceived Risks

  At the present time, management does not expect Year 2000 issues to have a
material adverse impact on the Company's business or future results of
operations. However, there can be no assurance that there will not be
interruptions of operations or other limitations of system or product
functionality, or that the Company will not incur significant costs to avoid
such interruptions or limitations.  In addition, even if the Company's products
are Year 2000 compliant, other systems or software used by the Company's
domestic and international customers may not be Year 2000 compliant.  The
failure of any such non-compliant third-party software or systems may negatively
affect the performance of the Company's products, which may have a material
adverse effect on the Company's business, financial condition and operating
results.

                                      -16-
<PAGE>
 
  Contingency Plans

  In order to avoid such material adverse effects, the Company will continue to
seek business relationships only with those entities that are actively and
successfully addressing Year 2000 issues.  If the inability of certain existing
vendors or customers to successfully address Year 2000 issues begins to present
adverse business effects for the Company, management may elect to suspend such
business relationships until such time that such vendors or customers become
fully compliant.

Certain Factors that may affect future results

  This Quarterly Report contains certain forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
generality of the foregoing, the words "believes" ,"anticipates", "plans",
"expects", and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the
Company's actual results to differ materially from those indicated by forward-
looking statements made in this Quarterly Report and presented elsewhere by
management from time to time. Some of the important risks and uncertainties
which may cause the Company's operating results to differ materially or
adversely are discussed below and in the Company's Annual report on Form 10-K
for the fiscal year ended December 31, 1997 filed with the SEC.

Rapid Technological Change

  The computer software industry is characterized by rapid technological
change.  As a result, there is uncertainty about the widespread acceptance of
new products that can cause significant delays in the sales cycle.  The Company
must continue to upgrade its own technologies and commercialize products and
services incorporating such technologies that may also lengthen the sales cycle.
The introduction of product or service enhancements or new products or services
embodying new technologies, industry standards, or customer requirements could
supplant or make obsolete the Company's existing products and services.

Developing Internet Market

  The market for the Company's Internet products and services has only
recently begun to develop, is rapidly evolving and is characterized by an
increasing number of market entrants that have introduced and developed products
and services for Internet commerce.  The Company's future operating results
depend upon the development and growth of the market for Internet-based packaged
software applications, including electronic commerce applications.  The
acceptance of electronic commerce in general and, in particular, the Internet as
a sales marketing and order receipt and processing medium are highly uncertain
and subject to a number of risks.  Critical issues concerning the commercial use
of the Internet (including security, reliability, cost, ease of use, quality and
service and the effect of government regulation) remain unresolved and may
impact the growth of the Internet.  If the market fails to develop or develops
more slowly than expected, the Company's operating results could be materially
adversely affected.

Recent Acquisition

  In April 1998, the Company completed the strategic acquisition of ICentral.
The Company faces challenges relating to integration of operations such as
coordinating geographically separate organizations, integrating personnel with

                                      -17-
<PAGE>
 
disparate business backgrounds and combining different corporate cultures. There
can be no assurance that the acquired business or its products will be
successful, that the Company will successfully integrate the acquired business
into the Company, or that the Company will achieve the desired synergies from
the transaction.

Product Release Schedules

     Delays in the planned release of the Company's new products may adversely
affect forecasted revenues, and create operational inefficiencies resulting from
staffing levels designed to support the forecasted revenues.  The Company's
failure to introduce new products, services, or product enhancements on a timely
basis may delay or hinder market acceptance and allow competitors to gain
greater market share than the Company.

Government Regulation and Legal Uncertainties

     The Company is not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to, or commerce
on, the Internet.  However, due to the increasing popularity and use of the
Internet, it is possible that a number of laws and regulations may be adopted
with respect to the Internet, covering issues such as user privacy, taxation,
the content of products, and the nature of services.  The adoption of any such
laws or regulations may decrease the growth of the Internet or inhibit
companies' ability to conduct electronic commerce, which could in turn adversely
affect the Company's business, operating results or financial condition.
Moreover, the applicability of the Internet of existing laws governing issues
such as property ownership, libel and personal privacy is uncertain.  Further,
due to the encryption technology contained in the Company's products, such
products are subject to U.S. export controls.  There can be no assurance that
such export controls, either in their current form or as may be subsequently
enacted, will not delay the introduction of new products or limit the Company's
ability to distribute products outside of the United States.  While the Company
intends to take precautions against unlawful exportation, the global nature of
the Internet makes it difficult to effectively control the distribution of the
Company's products.  In addition, federal or state legislation or regulation may
further limit levels of encryption or authentication technology.  Further,
various countries regulate the import of certain encryption technology and have
adopted laws relating to personal privacy issues that could limit the Company's
ability to distribute products in those countries.  Any such export or import
restrictions, new legislation or regulation or government enforcement of
existing regulations could have a material adverse impact on the Company's
business, operating results and financial condition.

Complex Products; Lengthy Sales Cycles

     The Company's products are complex and often involve significant investment
decisions by prospective customers.  Accordingly, the license of the Company's
software products can be expected to require the Company to engage in a lengthy
sales cycle and to provide a significant level of education to prospective
customers regarding the use and benefits of the Company's products.  As a
result, the Company's sales cycles may be subject to a number of significant
delays over which it has little or no control.  Delays in such transactions due
to lengthy sales cycles or delays in customer production or deployment of a
system could have a material adverse effect on the Company's business, operating
results and financial condition and could be expected to cause the Company's
operating results to vary significantly from quarter to quarter.

                                      -18-
<PAGE>
 
Security

     A significant barrier to market acceptance of online commerce and
communication is the concern regarding the secure exchange of valuable and
confidential information over public networks.  The Company relies on encryption
and authentication technology to provide the security and authentication
necessary to effect the secure exchange of valuable and confidential
information.  There can be no assurance that advances in computer capabilities,
new discoveries in the field of cryptography or other events or developments
(such as break-ins and similar disruptive problems caused by Internet users)
will not result in a compromise or breach of algorithms used by the Company in
its products to protect customer transaction data.  If any such compromise or
breach was to occur, it could have a material adverse effect on the Company's
business, financial condition, and operating results.

Competition

     The market for electronic commerce software is new, rapidly evolving and
intensely competitive.  The Internet is characterized by an increasing number of
market entrants that have introduced or developed products and services for
commerce on the Internet.  Many of the Company's competitors have greater
financial, technical, and marketing resources and greater name recognition than
does the Company.  The Company's operating results will be affected by the
number of competitors and their pricing strategies and market acceptance of
their products.

Dependence on Personnel

     The Company's future success depends in significant part upon the continued
service of its key technical and senior management personnel, and its continuing
ability to attract and retain highly qualified technical and managerial
personnel.  The Company's ability to establish and maintain a position of
technology leadership in the industry depends in large part upon the skills of
its development personnel.

Pricing

     Future prices that the Company is able to charge for its products may
decline from historical levels due to competitive reasons and other factors. In
the future, the Company may have to reduce the prices of its products
substantially or introduce lower-priced lines of products to gain greater market
share.

Limited Operating History

     The Company has a limited operating history.  The Company's ability to
successfully market its existing products and to develop and market new products
must be considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets.

Fluctuations in Quarterly Operating Results

     The Company's expense levels are fixed in advance and based in part on its
expectations as to future revenues. Quarterly sales and operating results will
generally depend on the volume and timing of orders received within the quarter.
The Company may be unable to adjust spending in a timely manner to compensate
for 

                                      -19-
<PAGE>
 
unexpected revenue shortfalls.  The Company expects in the future to
experience significant fluctuations in quarterly operating results that may be
caused by many factors, including, among other things, the number, timing, and
significance of product enhancements and new product announcements by the
Company or its competitors; the length of the Company's sales cycle; market
acceptance of, and demand for, the Company's products; the pace of development
of electronic commerce conducted on the Internet; customer order deferrals in
anticipation of enhancements or new products offered by the Company or its
competitors; non-renewal of service agreements; software defects and other
product quality problems; the Company's ability to attract and retain key
personnel; the extent of international sales; changes in the level of operating
expenses, and general economic conditions.  As a result, the Company's operating
results in future quarters may be below the expectations of market analysts and
investors.

Foreign Exchange

     To the extent that foreign currency exchange rates fluctuate in the future,
the Company may be exposed to continued financial risk. Although the Company
attempts to limit this risk by denominating most sales in United States dollars
and limiting the amount of assets in its foreign operations, there can be no
assurance that the Company will be successful in limiting its exposure.

Volatility of Stock Price

     Open Market's Common Stock is quoted on the NASDAQ National Market.  The
market price of Open Market's Common Stock, like that for the shares of many
other high technology companies, has been and may continue to be volatile.
Recently, the stock market in general and the shares of software companies in
particular have experienced significant price fluctuations.  These broad market
fluctuations combined with general economic and political conditions in the
United States and abroad, and factors such as quarterly fluctuations in results
of operations, the announcement of technological innovations, the introduction
of new products by the Company or its competitors, and general conditions in the
computer hardware and software industries, may have a significant impact on the
market price of Open Market's Common Stock.

Dependence on Intellectual Property Rights

     The Company's success is dependent to a significant degree on its
proprietary software technology.  The Company provides its products to end users
generally under non-exclusive, non-transferable licenses for the term of the
agreement, which is usually in perpetuity.  The Company's policy is to enter
into confidentiality and assignment agreements with its employees, consultants,
and vendors and generally to control access to, and distribution of, its
software, documentation, and other proprietary information.  Notwithstanding
these precautions, it may be possible for a third party to copy or otherwise
obtain and use the Company's software or other proprietary information without
authorization or to develop similar software independently.  Although the
Company holds three U.S. patents, issued in March 1998, and covering certain
aspects or uses of electronic commerce software, there can be no assurance as to
the degree of intellectual property protection such patents will provide.
Policing unauthorized use of the Company's products is difficult, particularly
because the global nature of the Internet makes it difficult to control the
ultimate destination or security of software or other data transmitted.  The
laws of other countries may afford the Company little or no effective protection
of its intellectual property.  There can be no assurance that the steps taken by
the Company will prevent misappropriation of its technology or that agreements
entered into for that purpose would be enforceable.

                                      -20-
<PAGE>
 
Risk of Infringement

     The Company may, in the future, receive notices of claims of infringement
of other parties' patent, trademark, copyright, and other proprietary rights.
There can be no assurance that claims for infringement or invalidity (or claims
for indemnification from our customers resulting from infringement claims) will
not be asserted or prosecuted against the Company. In particular, claims could
be asserted against the Company for violation of patent, trademark, copyright,
or other laws as a result of the use by the Company, its customers, or other
third parties of the Company's products to transmit, disseminate, or display
information over or on the Internet. Any such claims, with or without merit,
could be time consuming to defend, result in costly litigation, divert
management's attention and resources, cause product shipment delays, or require
the Company to enter into royalty or licensing agreements. There can be no
assurance that such licenses would be available on reasonable terms, if at all,
and the assertion or prosecution of any such claims could have a material
adverse effect on the Company's business, financial condition, and operating
results.

Risk of Product Defects

     Sophisticated software products, such as those of the Company, may contain
undetected errors or failures that become apparent when the products are
introduced or when the volume of services provided increases.  There can be no
assurance that, despite testing by the Company and potential customers, errors
will not be found in the Company's products, resulting in loss of revenues,
delay in market acceptance, diversion of development resources, damage to the
Company's reputation, or increased service and warranty costs, which would have
a material adverse effect on the Company's business, financial condition, and
operating results.

Litigation

     Litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's patents, copyright or
trade secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity.  Such
litigation, whether successful or unsuccessful, could result in substantial
costs and diversions of resources, which may have a material adverse effect on
the Company's business, financial condition, and operating results.  Litigation
regarding intellectual property rights, copyrights, and patents is increasingly
common in the software industry.  Intellectual property litigation is complex
and expensive, and the outcome of such litigation is difficult to predict.  In
addition, the Company faces risks on other general corporate legal matters.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         NOT APPLICABLE


                             II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

          None

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     On July 31, 1998, the Company sold 1,545,893 shares of the Company's common
stock to CMG and CVI for an aggregate purchase price of $20,000. For these
sales, the Company has relied upon an exemption from registration under 
Section 4(2) of the Securities Act.

                                      -21-
<PAGE>
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES

          None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
          None

ITEM 5. OTHER INFORMATION - STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING

               Any proposal submitted pursuant to Rule 14a-8 under the Exchange
          Act that a stockholder of the Company wishes to be considered for
          inclusion in the Company's proxy materials for its 1999 Annual Meeting
          of Stockholders must be received by the Secretary of the Company at
          the principal offices of the Company no later than December 15, 1998.

               In addition, the Company's by-laws require that the Company be
          given advance notice of stockholder nominations for election to the
          Company's Board of Directors and of other matters which stockholders
          wish to present for action at an annual meeting of stockholders (other
          than matters included in the Company's proxy statement in accordance
          with Rule 14a-8). The required notice must comply with the Company's
          by-laws and be received not less than 60 days nor more than 90 days
          prior to the Annual Meeting, provided, however, that if less than 70
          days' notice or prior public disclosure of the date of the meeting is
          given to stockholders, such notice must be received by the Company not
          later than the close of business on the 10th day following the date on
          which the notice of the date of the meeting was mailed or such public
          disclosure was made, whichever occurs first.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
          (a)  Exhibits

               No. 27  -  Financial Data Schedule

          (b)  During the third quarter of 1998, the Company filed the following
               reports on Form 8-K:

               On July 31, 1998, the Company announced that CMG and CVI made a
           $20 million equity investment in the Company.  Pursuant to the terms
           of the agreements, the Company issued an aggregate of 1,338,912
           shares of common stock, of the Company to CMG and CVI at a price of
           $14.94 per share.  In addition, the Company issued to CMG and CVI
           warrants to purchase an additional 334,728 shares of Common Stock of
           the Company at a price of $16.43 per share.

                                      -22-
<PAGE>
 
                               SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

                                        OPEN MARKET, INC.
                                         (Registrant)



Date: November 13, 1998                 By: /s/ Gary Eichhorn
                                           -------------------------
                                           GARY EICHHORN
                                           CHIEF EXECUTIVE OFFICER


Date: November 13, 1998                 By: /s/ Regina O. Sommer
                                           -------------------------
                                           REGINA O. SOMMER,
                                           SENIOR VICE PRESIDENT AND CHIEF 
                                           FINANCIAL OFFICER (PRINCIPAL 
                                           FINANCIAL AND ACCOUNTING OFFICER)

                                      -23-
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------
                                        
Exhibit No.              DESCRIPTION                        PAGE
-----------              -----------                        ----

   27          Financial Data Schedule (EDGAR)               25