July 22, 2002
RealNetworks Poses Challenge to Microsoft
By JOHN MARKOFF
AN FRANCISCO, July 21 — In a significant challenge to Microsoft, RealNetworks plans to announce a new version of its software on Monday that can distribute audio and video in a range of formats, including Microsoft's own proprietary Windows Media.
The new software is intended for large media companies and other corporations that need to send audio and video data to customers and employees in a variety of different formats. But RealNetworks acknowledged that it was possible that the company might incur Microsoft's legal wrath.
Nevertheless, Rob Glaser, a former Microsoft executive who founded RealNetworks as Progressive Networks in 1994, said he believed the strategy was good for both Microsoft and consumers.
"A rational way for them to respond would be to say, `This is great,' " he said. "That would be Microsoft of the future."
Mr. Glaser said his company, based in Seattle, had developed a version of the Microsoft Media Server software that comes with the Windows operating system.
He said RealNetworks' engineers had studied the data that was sent between the Microsoft media server software and the Windows Media Player program and recreated the technology needed to play files in the Microsoft format. This method created a so-called clean-room version, meaning the developers built the transmission software without any knowledge about the underlying program.
Microsoft has adopted a similar strategy at several junctures, Mr. Glaser said, reverse-engineering technologies like NetWare, PostScript and JavaScript at different times.
Microsoft executives said the company currently licensed the Windows Media Player technology to a variety of companies including Yahoo, RealNetworks and the America Online unit of AOL Time Warner. But a Microsoft executive said that a clean-room copy of the Windows server technology could lead to quality and performance issues.
"It's kind of hard to speculate about the technology until we see it," said Dave Fester, the general manager of the Windows Media division. If a company has not licensed the server software, he added, "we would need to look at it and see what they're doing."
RealNetworks appears to be endeavoring to avoid being "Netscaped," a reference to the fate that befell the Netscape Communications Corporation when Microsoft decided to make an Internet browser, which was pioneered commercially by Netscape, a standard part of the Windows operating system. Netscape was later acquired by AOL Time Warner. Microsoft's decision to build an Internet browser into Windows and give it away at no additional cost led directly to a bitter antitrust lawsuit brought by the Justice Department in 1997.
RealNetworks, which was a pioneer in the market for streaming media to desktop personal computers, has been under growing pressure from Microsoft, which is giving away both the server and Windows Media Player program as part of its operating strategy. RealNetworks also faces challenges from Apple Computer, which offers the QuickTime media player as a part of its Macintosh OS X operating system and sells a more full-featured player.
Moreover, in recent months Macromedia Inc., which makes the Flash animation software used on many Web sites, has added video capabilities to its technology, making it a potential rival.
RealNetworks is gambling that with a proliferation of different standards and formats for video and audio, the media corporations that make content available over the Internet will flock to a single system that supports multiple types of data. The company is trying to shift the focus of the competition from the PC desktop to the server, according to analysts.
Several analysts said the RealNetworks shift in strategy could put Microsoft on the defensive.
"Real has got the experience and sophistication to pull this off," said Richard Doherty, the president of Envisioneering, a market research and consulting firm based in Seaford, N.Y. "It will open up a new horse race."
Until now the companies have been engaged in a technology war to rapidly increase the power and quality of each of their media players. At the same time, they have competed over which of the programs are placed on the desktops of personal computer users. RealNetworks claims to have 700,000 subscribers for pay services, but it is perceived as being increasingly vulnerable, according to some analysts, because Microsoft has included its Media Player as part of the Windows operating system, which dominates the PC market.
There are dozens of data formats for playing audio and video on the Internet, but the dominant ones are RealAudio and RealVideo from RealNetworks, QuickTime from Apple, Windows Media from Microsoft and the industry digital movie standards MPEG-2 and MPEG-4.
Microsoft and RealNetworks are currently locked in a close race for desktop media player leadership. In the first quarter of this year, according to survey data collected by Jupiter Research, a market research firm based in New York, RealNetworks' RealOne Player had a 29.1 percent share of media players, while Microsoft's Windows Media Player had a 28.2 percent share. Apple's Quicktime player was third, with a 12.2 percent.
The new server software from RealNetworks is part of a version of the company's media server that is to be introduced on Monday and which will be called the Helix Universal Server. RealNetworks said it would offer performance data based on a test it financed at an independent testing service, KeyLabs, that indicate that the Helix software can, under some conditions, deliver up to four times the speed of the Windows Media Server in Microsoft's operating system. (Software servers are programs that run on powerful computers and can send streams of digital information to many computer users simultaneously.)
At a news conference scheduled to be held in San Francisco, RealNetworks is also expected to announce that it plans to make the Helix software available as part of a strategy known as community source, which will make it possible for RealNetworks partners and competitors to take advantage of the original programmers' instructions.
RealNetworks is to announce a range of partners, including Hitachi, Hewlett-Packard, I.B.M., Deutsche Telekom, NEC, Nokia, Cisco Systems, Oracle, Sun Microsystems, Palm, Texas Instruments and others. These partners could then incorporate the software into their own hardware and software products.
Under the licensing strategy, companies will be able to freely gain access to the underlying code that the Helix program is based on, but they will still pay a licensing fee when they sell commercial products based on the technology.
The community-source approach to software, which was pioneered by Sun to distribute its Java programming language, is a variation upon the original free software or open-source approach which has confounded the software industry in recent years.
While open-source software can be freely shared, with some restrictions, the community-source approach is more restrictive and yet still tries to persuade others to collaborate and add innovative ideas.
Other large technology companies including Sun, I.B.M. and Apple, have all now adopted variations on such open-source strategy, with varying results. In Sun's case, the company has been criticized because, while Java has become an industry standard, the company has not been the principal financial beneficiary in many cases.
RealNetworks is trying to strike a balance between opening up its technology to persuade others to participate and innovate and not losing control of the technology entirely, Mr. Glaser said. "We think we've struck the balance well," he said.
Analysts said the strategy shift by RealNetworks was likely to shake up the industry. "The moment you've open-sourced something you've cornered your competitor," said Matthew Berk, an analyst a Jupiter Research. "To date this stuff has been very proprietary. Opening it up makes it accessible to creative and gifted programmers who will come up with wild stuff that the companies have never considered."
Mr. Glaser said he expected other companies to produce technology that would rival RealNetworks' commercially as a result of the community-source strategy.
One possibility is that companies such as Sun or I.B.M. could decide to add the Helix technology of RealNetworks as a standard component of their operating systems. Although RealNetworks might not get a significant financial benefit from such an arrangement it could contribute to making its Helix software a de facto industry standard.
Mr. Glaser said he had struck upon the idea of making his media server software open source while visiting with an executive from Nokia, the world's largest cellphone maker.
"Taking all of this stuff beyond the PC has been a huge motivation for us," he said. When he realized that Nokia was interested in deploying the software technology on as many as 30 to 40 different types of phones, he realized that RealNetworks did not have enough programming talent to support the effort.
"I told him, `I don't think we have enough engineers even if you guys were willing to pay us,' " he said.
That touched off a search for an alternative way of having the two companies cooperate.
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