As the race heats up for dominance in the emerging streaming-media market, the two biggest players, Microsoft and RealNetworks, find themselves engaged simultaneously in cutthroat competition and hand-in-hand cooperation.
The Redmond software behemoth owns a 10-percent stake in the Seattle-based upstart and is actively working with it on streaming standards, but the two companies go head-to-head in the sales arena. Both are hawking competing server technologies to big corporations ready to put training videos and other programming onto their intranets, and both are trying to gain market share for their RealPlayer and Windows Media Player clients.
"The relationship is developing like a double-helix, where both companies are competing and yet ensuring that they cooperate with each other on standards," said Ron Rappaport, an industry analyst with Zona Research.
RealNetworks calls the relationship "multifaceted." Microsoft calls it "coop-etition." And both see it as a bizarre necessity in the market they're each fighting to conquer.
"You really have to recognize that Microsoft really is the environment," said Brett Goodwin, media systems group product manager at RealNetworks. His CEO must certainly agree, as Rob Glaser spent a decade singing Microsoftian praises as one of Bill Gates’s top dogs, before heading out to found up the streaming start-up.
"The success of Windows has been incredible, and we build software for that platform," Goodwin added. "On the server side, Windows NT is a very popular platform, and taking advantages of the enhancements there is important for us."
For Microsoft, the necessity of cooperation was born out of its competitor’s lead on the technology - and its acknowledged dominance in the marketplace. Some 85 percent of all streaming content online is formatted in RealNetworks files, according to the folks at Real.
"The Microsoft investment in RealNetworks was an ante to get the technology they wanted," said John McCarthy, group director of new media research at Forrester Research. The deal allowed Microsoft to license playback technology for RealNetworks streamed media, which Microsoft then incorporated into its Media Player.
"I think that in the end our shared goal is to push toward standards," said Gary Schare, product manager for Microsoft's Netshow streaming server software. "We're working together in general to grow the market."
In the two years since RealNetworks (then called Progressive Networks) first introduced its RealAudio technology, which allowed real-time audio over the Internet, a number of other companies have joined the race for primacy in the streaming market. In addition to Microsoft, Vxtreme, VDONet, and a slew of smaller players jumped into the fray, offering competing products - and, just as often, competing format standards.
As quickly as competition reached full steam, it dawned on the major players that the market couldn't develop without some degree of cooperation.
"Without a standard underneath their products, and without interoperability, user frustrations will run high," said Ron Rappaport, an industry analyst with Zona Research, who believes that most end-users don't want to worry about which file types can be viewed or heard on which players.
That recognition was likely the driver behind an announcement this week that Microsoft’s Windows Media Player will read content files formatted for the RealSystem 5.0 RealServers. Still, Microsoft's introduction last weekend of its own new streaming software package, Netshow 3.0, spelled out a clear message: While the two companies will support each others' file formats, they'll continue to butt heads over who will sell the software to create, send, and play back the files.
As the browser war taught Netscape, the battle here is not about the clients, but which company will sell its server software packages. RealNetworks' RealSystems 5.0 is widely touted as the industry standard; but when Netshow 3.0 hits the streets in two months, the game is once again wide open.
"RealNetworks is definitely still leading the pack, but Microsoft is coming on," said Rappaport. "The gap is now measured as a couple of months rather than a couple of quarters."
RealNetworks' latest strategy for selling its server technology has it partnering with one of Microsoft's most bitter rivals, Sun Microsystems. This week, RealNetworks announced that it would be porting its server software to Sun's Solaris platform. RealNetworks already runs on Windows, NT, Macintosh and Unix.
Analysts agree that the partnership between Sun and RealNetworks gives a strategic advantage to both companies. "It's a very synergistic arrangement," said Forrester’s McCarthy. The arrangement with Sun will mean that, "instead of having to run three or four NT servers, you can run one big Sun server."
And that's good ammunition for Sun's marketing guns. "The deal will get the Sun sales force out there selling the bigger deals for RealNetworks," said McCarthy.
But when competing with Microsoft, a battle of sales forces is almost inevitably an ugly one. Therefore, analysts believe RealNetworks' focus must remain on its products.
"This game is around RealNetworks' ability to innovate and stay focused," said McCarthy. "As long as they can continue to add value and services, they'll be able to sell their software and keep sites in the fold. If they continue to offer a higher-end server, they can make it."
