RealNetworks Fends Off Microsoft Challenge

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June 09, 1998 (1:26 PM EDT)

By John Borland,

Forget the browser wars. The release of RealNetworks' RealSystem G2 streaming-media player and Microsoft's NetShow 3.0, both scheduled to come out of beta-testing this summer, sets up a battle between maturing Web video and audio formats that could eventually determine the look and sound of online multimedia.

Seattle-based RealNetworks, born in 1995 as Progressive Networks, starts with an enviable position. Company officials said they estimate 85 percent of the Internet's streaming-media files are RealAudio or RealVideo. Even Microsoft (company profile) does not vigorously contest these figures, though Redmond, Wash., officials said momentum is beginning to swing their way.

"Real has done a good job of making market share an issue," said Gary Schare, lead product manager for Microsoft's Windows NT server division, which is now responsible for NetShow products. "They have been more aggressive than we have."

But the market is still young, Schare said. "As of the end of 1997, only about 1 percent of websites offered streaming video," he said. "Even though Real clearly has a pretty huge share in that market, it is an embryonic market."

Enter Windows
Microsoft officials leave no doubt that their task is to link their streaming-media system, NetShow, closely to Windows 95, NT, and their NT servers, boosting their player's profile to near ubiquity. "We're integrating the player into Windows, so the entire experience of audio and video is integrated in a Web page," Schare said.

The 3.0 version of Redmond's NetShow Media Player, now available in beta, will be released on the Web this summer. Its development ran too late to make the first shipments of Win 98, but the player will be included in later releases and online updates.

"Now we've got both the product and the market share to take off," Schare said. "Before, Microsoft was kind of schizophrenic in this space."

The OS piggyback is a familiar -- and successful -- Microsoft strategy, seen most controversially in its bundling of the Internet Explorer browser with Windows. But RealNetworks officials said they are prepared, since early versions of NetShow have already been bundled with Windows. The OS also ships with RealPlayer 4.0 as part of a technology swap and distribution agreement between the two companies. But that client is now two versions old, and there are no plans to update the agreement.

"We have been dealing with that reality for six to nine months," said RealNetworks president Bruce Jacobsen. "People think there is a sea change happening, but it's not." Real's online market share still shows no signs of dropping, he said, and added the company's business plan girds it against a Microsoft market takeover.

Real's Foothold
Real is relying on a kind of feedback loop between use of its servers and players, as each product drives demand for the other in what company officials liken to the action of interlocked gears. Users download the player more than 3 million times a month as they encounter Web content that requires it, Jacobsen said. That market penetration drives companies to keep using Real servers and file formats.

The company's new G2 player, which will automatically update individual components instead of requiring complete new downloads, will deepen the player's marketplace roots, Jacobsen added.

Microsoft's plan is to throw a wrench squarely into the teeth of one of those gears. Once the Windows OS comes standard with the NetShow Media Player, Schare said, Real will lose its client-side advantage in numbers.

When the player playing field has been leveled -- or tipped Microsoft's way -- Redmond said it plans to characterize the market as a fight between servers. NetShow has been folded into Redmond's NT division for a reason: The streaming-media servers have been tightly integrated with the NT line of server software, and Microsoft said it hopes to persuade content providers that an all-NT shop makes more sense than devoting resources to additional Real software.

"I think this is a server battle more than a client battle," Schare said. "It's a feature battle."

Depending On Relationships
But Real officials point to the relationships they have built with content companies, and the near ubiquity the technology has established among content developers. "We've developed deep and mutually beneficial relationships with media companies," Jacobsen noted. "What draws use of our player is the content out there."

Many of the largest online media companies, including Fox Broadcasting, CNN, and Bloomberg, are hedging their bets, providing content in both formats.

"We approach this from a universe perspective," said CNN senior executive editor Jeff Garrard. "We want to reach the widest possible audience."

Smaller companies do not have the luxury of funding staff and technical resources for both formats, however. C-SPAN, which started with RealNetworks content several years ago, is typical of many such companies. "We don't really have the resources in-house to diversify," said C-SPAN online specialist Craig Berkey. "We can't stick our fingers in whatever pie comes along, no matter how cool it is."

RealNetworks is relying in large part on companies such as C-SPAN, with their investments in time, staff training, and technical resources, to keep their market share high once the Microsoft player becomes ubiquitous. "Could [our lead] go away in five years? Sure," said Jacobsen. "But we're not resting on our laurels." Real is constantly adding new features to its technology and working with content companies to help them develop new uses for streaming files, he said.

The two streaming-media companies' market shares are also being watched by more than their accounting staffs. The U.S. Department of Justice, which is pursuing an antitrust claim against Microsoft over Internet Explorer, has had Real under subpoena since Redmond began buying streaming-media companies last year.

But whatever its competitive concerns, Real's 80 percent-plus market share precludes any browser-style antitrust actions in the near future. "We've been competing with Microsoft for the last year or so, and nothing much has changed," Jacobsen said, adding that the company is "absolutely not" interested in taking any legal action on its own.