RealNetworks Enters Bundling Agreements
RealNetworks, a Seattle-based Web pioneer, will announce several partnership agreements today that it hopes will help answer a much-asked question at this week’s Internet World conference at the Los Angeles Convention Center: How to survive in an environment increasingly dominated by Microsoft.
RealNetworks, the leading provider of software used for delivering and playing video and audio over the Web, will announce it has agreed to bundle its software with Santa Cruz Operating, the leading provider of Unix software, and will co-market its software with computer systems providers Intergraph Computer Systems and Digital Equipment.
When combined with similar deals recently signed with Sun Microsystems, Adobe Systems and Microsoft, the agreements make RealNetworks software available on a range of computer operating systems, giving it an edge over Microsoft’s product, which is only available on its Windows NT networking software.
RealNetworks’ deals are part of a range of tactics the company is using--including giveaways for consumers and close compatibility with Microsoft products--designed to keep the company ahead of the Microsoft steamroller.
RealNetworks needs every advantage it can get. Although RealNetworks is still the dominant player with an estimated 85% of the market--Sony uses it to play movie clips on the Web while virtually every major record labels uses it to promote new releases--it is nevertheless in a precarious position.
The company, which went public in 1997, saw its sales reach $32.7 million last year, up 134% from the year before. But with the company continuing to expand rapidly--it nearly doubled its work force last year to 350--RealNetworks lost $11.2 million and doesn’t expect to turn a profit any time soon.
Meanwhile, Microsoft will announce today the availability of Netshow 3.0, which, analysts said, goes a long way toward bringing the software giant’s technology up to par with RealNetworks’ products.
For example, Netshow 3.0 enables multimedia to be sent to users’ computers at a range of speeds, depending on the size of the communications “pipe” available to the user.
Since Microsoft includes Netshow as a free component in its Windows 95 and Windows NT operating systems, RealNetworks has to stay more than several steps ahead to justify charging for products that come free with Microsoft operating systems.
“We’re building infrastructure that is part of the operating system. This is not a product,” said Mike Nash, Microsoft’s director of marketing for NT Server and Infrastructure Products. Since Microsoft’s Windows NT product far out-ships Unix, Nash said RealNetworks’ availability on the Unix operating system does not provide the company a significant advantage.
Microsoft’s similar tactic of bundling its Internet Explorer browser with its Windows operating system seriously undermined Netscape’s position as the dominant provider of browser software and has prompted a major lawsuit against Microsoft by the Justice Department.
Rob Glaser, chief executive at RealNetworks, won’t comment on whether the Justice Department might play a role in his battle with Microsoft.
But Glaser, who spent 10 years at Microsoft before launching RealNetworks in 1994 with some Microsoft colleagues, isn’t counting on any government help.
“Glaser is a summa cum laude graduate of Microsoft University,” said Jae Kim, an analyst at Carmel-based Paul Kagan & Associates. “He knows the playbooks; he knows how the game is played.”
Rather than fight Microsoft head on, Glaser has chosen “coopetition”--that awkward word analysts use to describe companies that simultaneously cooperate and compete.
Last summer, Glaser sold a 10% share of his company to Microsoft for $30 million and got an equal amount in exchange for licensing Real Video and Real Audio 4.0, an older generation of its technology. The deal helps assure that users of Microsoft’s Netshow software can view multimedia from Web sites that use RealNetworks’ software, Glaser said.
“The agreement was about growing the industry with standards,” said Gary Schare, Microsoft’s lead product manager for Netshow.
Of course, compatibility between the software of the two companies also makes RealNetworks more vulnerable. Microsoft’s key strategy in attacking Netscape was to first make its browser compatible with Netscape’s so that the two were virtually interchangeable.
But Glaser said he won’t make the same mistakes Netscape made. Netscape began by offering its software free, but then gave Microsoft an opening when it began charging for its browser.
By contrast, Glaser said RealNetworks’ strategy from the beginning was to always provide RealPlayer for free, which allows consumers to experience multimedia on the Web.
“That gives us the eyeballs and the ears that we can leverage,” Glaser said.
With about 40 million people using its RealPlayer, RealNetworks seeks to make money by offering consumers better featured upgrades and selling the server software that Web sites use to add multimedia offerings to their sites.
Because RealNetworks controls the bulk of the market both for software on the desktop as well as the server software, a market position Netscape never had, Glaser says RealNetworks can introduce innovations Microsoft will find tough to clone.
