Revised February 18, 1998
`
`Research Associate
`Margaret Johnston
`(MBA’ 98) and
`Assistant Professor
`Suresh Kotha
`prepared this case as
`a basis for class
`discussion rather
`than to illustrate
`either effective or
`ineffective handling
`of an administrative
`situation. Copyright
`© Kotha & Johnston.
`All rights reserved.
`
`RealNetworks
`
`RealNetworks is a streaming-media software firm located in Seattle,
`Washington. The firm’s streaming software products enable multimedia
`content developers and others to stream both audio and video content
`over the Internet and Intranets to end-users.1 End users, in turn, can
`view this content with
`the firm’s “player” software, know as
`RealPlayer. Within three years of its founding, the firm has managed to
`create a strong demand for its streaming server software products and
`become a leader in this important segment. Many aspects of its business
`model are currently being imitated by competitors.
`
`The firm permits users to download its RealPlayer software for free at
`its Web site, http://www.real.com. With over 40,000 downloads a day,
`the firm claims that over 18 million RealPlayers have been distributed
`globally. Recently, the firm signed an exclusive licensing agreement with
`Microsoft Corporation, the world’s dominant PC software firm, to
`bundle RealPlayer with every copy of their Internet Explorer that
`Microsoft distributes. Microsoft’s Internet Explorer is the world’s
`second most popular Internet browser software, after Netscape’s
`Navigator. However, despite its rapid growth and well-entrenched
`position, top management at RealNetworks faces a host of challenges.
`
`This case discusses the genesis of RealNetworks, its rapid growth and
`approach to competition in the audio and video streaming on the
`Internet and Intranet markets. It highlights the issues faced by the firm
`as its top management formulates its strategy to continue its rapid
`growth in the face of different uncertainties and challenges.
`
`
`1 Streaming technology enables the transmission and playback of continuous “streams” of multimedia content, such
`as audio and video, over the Internet and Intranets and respresents a significant advancement over earlier
`technologies.
`
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`COMPANY BACKGROUND
`
`Founded in April 1994 RealNetworks (formerly known as Progressive Networks) has quickly
`established itself as a pioneer and industry leader in the delivery of real-time audio and video content
`over the Internet. The firm was the brainchild of Rob Glaser, a former Microsoft executive. Early in
`1994, Rob was toying with the idea of using interactive multimedia technology to create a “cable
`channel focused on politics and culture.” Robert Reid, who has chronicled the early growth of the
`Web and Rob Glaser’s contributing role in its evolution, points out that:
`
`The notion of interactive television (ITV) was by then [early 1994] all the rage. Many smug pundits were even
`viewing the PC as downright dowdy. For his part, Rob was at first agnostic about whether to use ITV or the
`PC as the medium for his half-formed vision. Then he encountered Mosaic—a ‘total epiphany,’ he remembers.
`He almost immediately concluded that ‘interactive TV was going to be stillborn,’ and that ‘the whole
`mechanism that Mosaic had used to bootstrap itself, A, was a big deal in its own right, and B, once
`established, itself could be used as a bootstrapping mechanism for other stuff.’ That other stuff, or rather some
`of it, turned out to be RealAudio.2
`
`According to a report in The Wall Street Journal: “Mr. Glaser sank about $1 million of his own
`money into a start-up that would first produce software for compressing and transmitting sound.
`With additional funding from friends such as Lotus founder Mitch Kapor, RealAudio 1.0 quickly made
`its debut in April 1995.”3 It had been exactly one year since Rob founded RealNetworks.
`
`Despite some disdain from the Internet elite, because of the tinny sound which created an
`unsatisfying experience, RealAudio 1.0 broke the Web’s sound barrier. Soon, however, the product
`began to win industry favor. Notes Reid:
`
`RealAudio debuted on the Web on April 10, 1995, along with content from ABC News, National Public Radio
`(NPR), and others. Tiny Progressive was soon covered by such publications as The New York Times, The Wall
`Street Journal, and The Economist. USA Today characterized RealAudio as ‘The technology of the ‘20s
`meeting the technology of the ‘90s,’ while Time [Magazine] meanwhile assured the image-conscious that
`‘Glaser’s system is not just for geeks.’4
`
`Within a month, Netscape, the world’s largest browser-software firm, began shipping RealAudio as
`part of its Navigator browser software. By August of that year, RealNetworks had sold its server
`products to several large Internet media companies including Starwave, Ziff-Davis, and ABC News.
`
`Just months later in October 1995, the firm released a newer and more advanced version of its server
`and player (RealAudio 2.0) products. The firm’s player software won the Internet World Magazine’s
`“Outstanding Software Product of the Year” award in April of 1996. By September of 1996, the
`firm released yet another version, this time RealAudio 3.0. Shortly thereafter Prodigy, a leading
`Online Service Provider, began bundling the firm’s player software with its custom browser. Although
`there were a handful of other firms providing audio-streaming solutions, none matched the rapid
`growth of RealNetworks.
`
`Having established itself as a leading provider of audio-streaming software, the firm turned its
`attention to video streaming. According to a report in Wired:
`
`In December 1995, while attempting to vacation in Hawaii, Glaser got some email from a two-person San
`Francisco company, FreeVu, which had an Internet videoconferencing tool under development. Glaser took a
`
`
`2 R. Reid, Architects of the Web. NY:Wiley, pp. 77.
`3 A Web pioneer does a delicate dance with Microsoft, The Wall Street Journal, February 12, 1998.
`4 Reid, p. 79.
`
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`look, was impressed, and persuaded FreeVu’s principals to sign on as Progressive employees. RealVideo’s
`development effort had begun.5
`
`In February of 1997, the firm released a product that combined video and audio streaming,
`RealPlayer 4.0. At this time however, unlike when audio-only player was released, there were several
`video-streaming providers Xing Technologies, VDOnet, Vosaic and VXtreme who already marketed
`products on the World Wide Web (WWW). Recognizing this, Rob signed an exclusive licensing
`agreement with Microsoft to bundle RealPlayer with Internet Explorer. With such an agreement, the
`firm has had little difficulty in achieving a dominant position in video streaming on the Internet.
`
`In September 1997, the firm changed its name from Progressive Networks to RealNetworks and filed
`for an initial public offering (IPO). The IPO was undertaken to raise capital to continue to fund
`further product development. During this period, the firm also introduced its fifth major upgrade of
`its server (RealSystem) and player (RealPlayer) software.6 On October 3, 1997 the firm went public
`on the NASDAQ Stock Exchange with a 3.5 million-share offering. The stock opened at $12.50 per
`share and then moved higher to $19 per share before settling around $16. Net proceeds for the
`offering were approximately $38.5 million. The stock has remained healthy throughout the fall of
`1997, despite the slump in over-the-counter stocks of other Internet companies. Within a three-
`month time period, Rob had successfully partnered with Microsoft, launched a major upgrade of the
`product system, and had taken RealNetworks public.
`
`With frequent product upgrades, RealNetworks has garnered widespread support and won many
`industry awards. For example, writing about its latest product upgrade, Allen Weiner, an analyst with
`Dataquest, notes that the firm has demonstrated superiority in all areas of streaming:
`
`the streaming media market by
`taking
`the release of RealSystem 5.0, RealNetworks is
`With
`storm...RealNetworks’ emphasis on innovation, coupled with its cross-platform architecture, incredible brand
`recognition and majority market share, continues to place it at the forefront of the streaming media market.”7
`
`Most importantly, RealNetworks has managed to compile an impressive list of companies that use its
`server software to transmit multimedia content over the Internet. This list includes all three major
`US television networks (NBC, ABC and CBS), two major long-distance telephone carriers, the United
`States Senate, and many of the biggest companies in the music industry, including SONY. In just four
`years since its founding, RealNetworks has produced over eight product varieties and has grown to
`over 350 employees. For 1997, the firm as a whole reported total revenue of $32.7 million, an
`increase of 134% from $14.0 million in 1996. However, the net loss was $11.2 million for 1997,
`compared to $3.8 million for the previous year (see Exhibit 1).
`
`PRODUCTS, MARKETS, AND COMPETITION
`
`RealNetworks competes in two different markets—the Internet and the Intranet markets. The
`potential Internet customers include the Web site creators and the end users that access those Web
`sites. The potential Intranet customers include all businesses that have internal networks that
`connect employees.
`
`
`5 R. Reid, Real Revolution. Wired, Issue 5.10, October 1997.
`6 When the firm releases a new product, it releases both the server and player versions simultaneously. For example,
`the most recent product released by the firm is the RealSystem 5.0. Customers can acquire either the server or player
`version of the new software. The new RealVideo servers are always backward compatible with older server products
`and can stream audio only, or video and audio content.
`7 RealSystem 5.0 Experiences Rapid Market Adaptation, RealNetworks Press Release, December, 1997
`
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`The Internet Market
`
`Core Products The firm’s core products include: the RealPlayer and RealSystem server software.
`The RealSystem server software allows developers to display, or “stream,” video content to viewers
`via the Internet. The RealPlayer software enables individuals to view a video clip being “streamed”
`from a server. The player software can be downloaded for free directly from the firm’s Web site. The
`firm also offers RealPlayer Plus, an enhanced version for $29. This version includes several easy to
`use features including memory buttons that are not included in the free version. It can be purchased
`separately in a retail software store or purchased bundled with products such as modems. It can also be
`downloaded and paid for directly from RealNetworks.
`
`When using the RealSystem product, customers have the choice of either streaming video “live” or
`“on-demand.” In order to stream video on-demand to Internet end-users (viewers), a customer or
`developer must take three steps. First, using the RealPublisher tool that is included with the
`RealSystem software she converts the video content into digital-video file. Special video-editing
`equipment not included with the RealSystem software is needed for this process. Second, the customer
`uploads this file on to a server computer that end-users can reach. When end-users link to the server
`using a browser with RealPlayer software (a plug-in) properly installed, the player software will
`automatically begin streaming the video from the server on to the viewer’s computer.8
`
`As noted before, the most recent product release from RealNetworks is RealSystem 5.0. This version
`includes capabilities that were not part of earlier products (see Exhibit 2). Since its release in the
`fourth quarter of 1997, the number of Web pages using streaming media has grown by 50%.
`According to industry experts about 80% of those Web pages now use RealAudio, RealVideo or
`RealFlash content.
`
`Despite the growing popularity of video streaming, the quality of the video streamed over the
`Internet does not compare to that of broadcast TV.9 Although the quality of the streaming video has
`improved with each new product release, the video images still look jerky when customers use a 28.8
`Kbps modem to access such content. But for customers who use higher-bandwidth access lines such as
`an ISDN connection, the video quality is markedly better.
`
`Other Products and Services In addition to selling software products, the firm offers a range of
`consulting services. These services include training sessions on (a) how to set up and administer the
`firm’s server software, and (b) creating RealAudio and RealVideo content. For large customer
`installations, the RealNetworks consulting staff often assist
`in re-designing
`the customer’s
`information systems to best adapt and incorporate its streaming technology. Although some of the
`consulting services offered by the firm are free, many are fee-based and charges for such services vary
`with individual client reguirements.
`
`An additional source of revenue for the firm is its content aggregation and hosting business on the
`Internet. On the firm’s Web site, customers can view different types of content (audio or video)
`
`
`8 The approach used for streaming media live is similar. The difference between live streaming and on-demand
`streaming is that the content is converted to streaming format as it is being created. For example, a customer could
`stream a live video of a conference speaker. To view the speech, a person would have to be at his or her computer at
`the same time of the actual presentation. Live streaming media content can be recorded for on-demand viewing at a
`later time.
`9 Television video (using NTSC standards) has a basic rate of roughly 100 megabits per second. Encoding this
`signal at 100 Kbs implies a compression ratio of 1000:1. By comparison, audio is typically compressed at a rate of
`roughly 15:1. Clearly, the process of video compression is challenging. Solutions typically involve dramatically
`reducing (sub-sampling) the size and frame rate of the images. However, such tactics induce visual artifacts in the
`reconstructed images. Artifacts are noticeable differences between the original images and the encoded images that
`can be identified and characterized.
`
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`assembled on many different Web properties. Although many are by managed by RealNetworks,
`some of them are owned and maintained by others. But all of these sites are hosted by RealNetworks
`(see Exhibit 3 for a detailed list). By combining different sites, the firm hopes to a demonstrate the
`capability and superior quality of its streaming technology solutions (relative to its competitors),
`provide exclusive access to interesting multimedia content to Web surfers, and generate revenues
`from advertisement sales based on the sites’ ability to attract traffic. Finally, the firm operates a
`virtual store called RealStore, where customers can purchase products such as content-creation
`utilities, training videos, modems, and other software products.
`
`Competitive factors in this market include: (a) the quality and reliability of software; (b) features
`provided for creating, editing and adapting multimedia content; (c) the ease of use and interactive
`user features provided as part of the system; (d) issues pertaining to scalability and cost per user; and
`(e) compatibility with the user's existing network components and software systems.
`
`Customers The firm’s Internet customers can be broadly segmented into two groups: server and
`player customers. These two segments can be further divided by customer requirements. For the
`player segment, there are three basic types of customers—beginner/light users, experienced/light users
`and advanced users. Beginner/light users are interested in a viewing solution that is easy to install and
`use. These customers are likely to choose the $29 RealPlayer Plus product over the free version
`distributed by the firm. This is because this “plus” version includes a manual that provides installation
`and set-up instructions. The more experienced/light users are likely to choose the free version of the
`RealPlayer product. Finally, the advanced users, may or may not choose the Plus product depending
`on how much they value the extra features offered by that version relative to competitor products.
`
`The Internet server customers can be divided into the following five specific segments that include:
`
`• Media Companies . These include companies such as The Wall Street Journal, CBS, Fox News, and Warner
`Brothers who create content and fund parts of the infrastructure for delivering that content.
`
`• Commercial Web Site Developers . They include businesses with Web sites that are used for revenue
`generation. Examples include Yahoo!, Lands’ End and numerous others. Some of these sites generate revenue
`via transactions, while others focus on generating advertising revenues based on the traffic attracted to the sites.
`
`• Non-Commercial Web Site De velopers . These are firms that operate Web sites to distribute information.
`Examples include government agencies, schools, and private clubs that could potentially include streaming
`content on their sites.
`
`• Internet Service Providers (ISPs) . ISPs are the businesses that sell access to the Internet. In addition to
`access, ISPs often offer Web site development and management services to their customers. These types of
`businesses may wish to offer their customers streaming capabilities and thus purchase streaming server products
`directly from RealNetworks.
`
`• Streaming Service Providers . Some businesses exist solely to develop and manage sites with streaming
`content. US-West Enterprise Networking and Digital Nation are examples of “hosting” service businesses.
`
`As of December 1997 there were an estimated 40 million Internet users in the world. According to
`NetRatings, a market research firm, by the year 2000 this number is expected to grow to 200
`million. In January of 1998, a little over 21% of all US households had access to the Internet. Of
`these, about a quarter had signed up only in the preceding six months. Hence, the size of the
`potential consumer market for the firm’s products is growing rapidly, but so is the competition.
`
`Competition The market for software and services for the Internet (and Intranet) is relatively new,
`constantly evolving, and becoming intensely competitive. In a broad sense, audio and video
`streaming technology faces competition from traditional media such as TV and radio broadcasting,
`and storage devices such as VCRs and CD-ROMs. A major limitation of current streaming technology
`5
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`is its inability to deliver the video quality similar to that of broadcast TV. Hence, these existing
`alternatives limit the immediate market potential for streaming products. However, the appeal of
`streaming media is its potential to deliver multimedia content directly to users on-demand.
`
`RealNetworks’ direct competitors include companies such as Microsoft, VDOnet Corporation, Xing
`Technology Corporation, VivoActive Software, Inc., and Vosaic LLC. All of these companies
`currently offer products and services that are similar to RealNetworks’ (see Exhibit 4 for third-party
`reviews of the products). Additionally, there exist a large number of potential competitors such as
`media companies and browser developers that may aggressively pursue this market.
`
`A competitive threat that RealNetworks faces is the likely integration of streaming software with
`other widely used applications. Although Microsoft currently ships its Internet Explorer browser
`software with a RealNetworks’ media player, it has announced that future versions of its Operating
`Systems will include a built in streaming-viewer product. For example, a product labeled “Windows
`Media Player” is expected to be included in forthcoming Windows ‘98. Furthermore, Microsoft has
`also announced plans to release a server product for video and audio streaming, known as SiteServer.
`It intends to provide its player and server products for free. Although some Web-browsers already
`include a “media player” component, industry observers predict that all Web-browsers will include a
`streaming-media viewer in the near future.
`
`RealNetworks’ products also compete, to a lesser degree, with non-streaming audio- and video-
`delivery technologies such as AVI and QuickTime, and indirectly with delivery systems such as
`Macromedia’s Flash. Flash marketed by Macromedia Inc., a leading producer of animation and
`multimedia authoring software, is a product used for delivering text-based training content on the
`Internet.
`
`The Intranet Market
`
`Products There are two basic products targeted at Intranet customers: the server, and player
`products. Businesses interested in streaming video and audio content can purchase both the server
`and player as a bundle. Such bundles are available in five configurations. The low-end solution bundle
`is free, offering the ability to stream 10-video clips at one time. This product is called the Intranet
`Solution RealServer 5.0. The second bundle, the RealSystem Intranet Solution IS100, allows for 100-
`simultaneous streams and is priced around $5000. It offers features not available in the free version.
`The third bundle, the IS600, is priced at $25,000 and supports 600 streams. The two largest bundles,
`the IS2500 and the IS7500, support 2500 and 7500 streams and cost $50,000 and $100,000
`respectively. These prices are for annual licensing fees. In addition to the licensing fees, customers
`have the option to purchase support and upgrade contracts ranging from $2,000 to $40,000
`depending on the bundle purchased initially.
`
`Customers Although there are many types of businesses buying solutions from RealNetworks, the
`firm targets companies with an Intranet. Intranets are private-computer networks that use Internet
`technology to connect employees within the firm. Specifically, they focus on businesses that: (a)
`can afford a $50,000 solution, and (b) frequently create multimedia content for company-wide
`dissemination. Many businesses recognize the benefits of streaming multimedia content to employees
`in many different locations nationally and globally. RealNetworks promotes two streaming video
`applications for such firms:
`• Corporate Communications. Businesses can use RealVideo and RealAudio to distribute company-
`wide information. For example, the Boeing Corporation uses RealVideo to provide employees
`with the latest information on their company, products, and industry. Boeing estimates that it
`saved nearly a million dollars in 1997 on replication and distribution costs of multimedia content
`alone.
`
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` •
`
` Training. Businesses can use RealVideo to stream training material to employees. Such video
`training modules can be viewed on-demand by employees in different locations. For example,
`General Electric uses RealVideo to create video-based interactive product training programs for
`new employees. Such programs are distributed over the firm’s Intranets.
`
`
` RealNetworks sells RealSystem Intranet solution products directly to customers. For large customers,
`RealNetworks has outside account executives and consultants available to visit the customers on-site.
`These account executives and consultants study the customers’ requirements before making a
`recommendation.
`
` Competition VDOnet Corp., Xing Technologies, and Microsoft compete with RealNetworks in the
`Intranet market. All three competitors have streaming-video products targeted at businesses with
`corporate networks. The technologies offered by VDOnet and Xing Technologies are designed
`specifically for higher-speed networks, and thus are more of a threat to RealNetworks in the Intranet
`market than in the Internet market.10
`
`
` APPROACH TO COMPETITION
`
`
` Rob Glaser’s objective is to build RealNetworks into a “leading media streaming company, providing
`software and services that enable the delivery of a broad range of multimedia content over the
`Internet and Intranet, thereby facilitating the evolution of the Internet into a mass communications
`and commerce medium.” He, along with his top management team, plans to achieve this objective
`by: (a) making the “Real” brand name ubiquitous on the Internet and corporate Intranets; (b)
`developing and fostering alliances and partnerships to promote multimedia streaming; (c) shaping
`industry standards for streaming; and (d) funding technological innovation regarding streaming
`technology to stay ahead of the competition.
`
` Brand Ubiquity
`
` From its inception, RealNetworks has chosen to offer its RealPlayer software to individuals free-of-
`charge. RealNetworks has done so to promote the widespread adoption of its client (player) software
`and to speed-up the acceptance of the Internet as a mass-communications medium for streaming
`multimedia content. Any person with a PC and an Internet connection could download a free copy of
`the firm’s player software to view and listen to video and audio clips. Notes Rob:
`
`
` Our belief has always been that we benefit tremendously by pursuing the most rapid and broadest paths to
`growing the streaming-media market. . . . You can expect us to continue to be oriented towards ubiquity.11
`
`
` Notes Reid:
`
`
` The genesis of Rob’s decision to give away his client software lay in his decade...[of experience at]...
`Microsoft. There he learned that if you make your business beholden to making money from the initial-use
`client software, the result could be easily be that Microsoft would just sort of suck away your core business,
`either by putting a feature in Windows, or by aggregating a set of things like with Office.12
`
` According to Reid, although Rob’s business model appears similar to that pioneered by the Netscape
`Corporation, it was in no way inspired by it. Indeed, Rob settled on this model months before the
`
` 10 One major difference between Intranet and Internet customers is the speed of transmission. The transmission
`between an Intranet server and a player is usually much faster. This is because businesses have network connections
`for their employees’ computers that are faster than the modems typically used for home computer users. Faster
`transmission of data means that video clips are less distorted.
` 11 G. Welz and J. Carl, Progressive Networks’ CEO Talks About RealVideo, Web Week, March 17, 1997.
` 12 Reid, p. 79.
`
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`Navigator, Netscape’s browser software even shipped.13 Recalls Rob: “I was really struck by the fact
`that if you look at the long-term survivors against Microsoft—Novell, Oracle, even Intuit...they
`didn’t try to make all their money on initial-use client software. They made their money on a mix of
`things.”14 To encourage free RealPlayer downloads and RealPlayer Plus sales, the firm advertises
`heavily on the Internet. RealNetworks also promotes its brand name with many public relations
`activities.
`
` As mentioned earlier, Rob Glaser and his firm have managed to attract the attention of many
`mainstream journalists from newspapers and magazines including The New York Times, The Wall
`Street Journal, USA Today, Time, and Wired. Also, the firm’s products have garnered many awards at
`industry trade shows, thus increasing the firm’s visibility. So it is not surprising that Rob claims with
`confidence that, “Our ‘Real’ brand is one of the most widely recognized brands on the Internet.”
`
` Alliances and Partnerships
`
` Under Rob’s leadership RealNetworks has formed numerous partnerships and alliances. It has signed
`development partnerships with others to ensure that its products work well when integrated with
`their technologies. When using a streaming media solution, server customers in particular are mixing
`this technology with hardware and software products bought from others. For example, the firm
`partnered with Microsoft to ensure the RealPlayer and RealSystem products work in Windows 95 and
`Windows NT environments. RealNetworks has also partnered with Sun Microsystems, the makers of
`the Solaris Operating Systems to ensure that its products will operate smoothly in an Unix
`environment. The firm also makes its products compatible with machines that use the Macintosh
`Operating System. Additionally, the firm has agreements with Macromedia Inc., the largest provider
`of animation-editing software, to transmit animated material over the Internet.
`
` The firm also partners with technology companies to create combined services. In August of 1997,
`for example, RealNetworks signed a joint venture agreement with MCI and launched the Real
`Broadcast Network. This pilot service, created by combining the RealSystem technology with MCI’s
`world-wide Internet network infrastructure, offers broadcasting services for content developers to
`deliver tens of thousands of video streams simultaneous on the Internet. MCI, which owns a
`significant portion of the Internet infrastructure (or backbone), has upgraded its infrastructure to
`facilitate rapid streaming. This was done by strategically placing RealNetworks splitter and multicast
`technology throughout its network. Such devices eliminate bottlenecks by allowing computer users to
`access a video/audio feed from the closest of MCI’s nine US locations. RealNetworks and MCI are
`targeting media companies and Fortune 1000 companies that might use this service for internal
`employee training or to post new product announcements on the Web. ABC News’ on-line service,
`for example, used the service to broadcast audio and video clips accompanying a text story of the
`1997 UPS strike. Other customers include Atlantic Records, ESPN, and Home & Garden
`Television.15 The service costs up to $8,500 a month. The cost is much higher for continuous
`broadcasting.
`
` Shaping Evolving Industry Standards
`
` The firm’s efforts have also focused on shaping industry standards regarding streaming technology
`and protocols. An aspect of the firm’s rapidly evolving marketplace is the trend towards open
`standards and protocols for streaming software. Until recently, only users with a RealNetworks’
`viewer could watch video and audio clips streamed from the firm’s server products. RealNetworks has
`also joined other important industry players (e.g., Microsoft and Sun Microsystems) in their efforts
`
` 13 R. Reid, Real Revolution. Wired, Issue 5.10, October 1997.
` 14 R. Reid, Architects of the Web, p. 80.
` 15 MCI and Progressive Team Up; Microsoft to Acquire Vxtreme, The Wall Street Journal Interactive Edition,
`August 10, 1997
`
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`to set protocol, transmission and compression standards. For example, RealNetworks and Microsoft
`have taken special efforts to define the industry standards for streaming products. Their goal is to
`ensure that any server software can send streams (audio and video) to any player. Emphasizing the
`need for common standards, Microsoft’s soon-to-be-released Windows Media Player will be able to
`play streams from RealNetworks’ server software. At that time, the NetShow, a Microsoft server
`product, will play video streaming from RealNetworks’ server products. Similarly, RealPlayers could
`play video streaming from Microsoft’s NetShow server.
`
` On July 21, 1997 Microsoft acquired a 10% nonvoting minority stake in RealNetworks for $30
`million. However, Microsoft’s new NetShow product is a direct competitor
`to RealVideo,
`RealNetworks' video-streaming software. The two companies declared that the partnership was
`necessary if an industry standard was going to be formed. Rob, in discussing this merger with
`Microsoft, comments:
`
` We see a real pathway forward to turn the Internet into a mass medium. We have worked successfully with
`Microsoft in the past, and this agreement brings our relationship to a new level. The ultimate goal is for
`Microsoft’s and Progressive’s streaming formats to become fully compatible, allowing all on-line audio and
`video broadcasts to be interpreted by both companies’ players.
`
`
` Notes Rich Tong, a Microsoft vice president: “The user only wants it to work....So it is good business
`to work with RealNetworks to set standards for compatibility and expand the market for all of us.”16
`
` Several of the streaming technologies that RealNetworks has developed have been submitted to
`Internet standards committees for review. Althoug