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RealNames cuts staff, refocuses business strategy

The Internet keyword company will lay off one-third of its employees by the end of the year, a move it insists has nothing to do with the dot-com doldrums.

RealNames plans to lay off more employees by the end of the year, a move the company insists has nothing to do with the dot-com doldrums decimating staffs across the industry.

RealNames, which maintains a simplified system of addressing Web pages that bypasses URLs, has been shrinking its work force markedly throughout the year. Since June, the company has shed through layoffs or attrition nearly 60 percent of its employees.

The company said Wednesday that 20 employees will be let go by year-end. It also laid off about 35 people at the beginning of the month on announcing a major restructuring and a fourth round of funding worth $46.5 million. Combined, these cuts bring the head count down to 130, according to an internal company document.

RealNames chief executive Keith Teare said the latest round of cuts is a "byproduct" of the company's new structure and the elimination of its customer operations force.

This month's layoffs aren't the first for RealNames. In June, the company cut 20 percent of its staff, citing the need to streamline operations. RealNames lost another 69 employees between June and December, which it attributed to normal attrition.

Layoffs have swept the Web in recent months, driven by tighter capital markets and shortening patience on the part of investors waiting for companies to turn profits. But Teare vehemently denied that RealNames was cutting jobs because of those kinds of pressures.

"It's really out of the context of what's happening in the dot-com layoffs," RealNames chief executive Keith Teare said in an interview. "Because of the restructuring, customer service reps dealing with end customers are no longer required because the company is moving to a 100 percent channel-based model."

The way it worked before, RealNames made its money through direct sales. Individual consumers could buy Internet keywords for $100 per year on a subscription basis, and companies could buy keywords related to their products.

In the new model, the Redwood Shores, Calif.-based company will designate registries to oversee each country's keyword system, following the current method of delegating traditional, top-level domain names such as those ending in ".com" and ".org." A country registry under the traditional domain name system is Network Solutions.

So far, RealNames has designated an entity in Korea and has inked a memorandum of understanding with a consortium in China for a RealNames system there.

RealNames will retain the country registry itself in four countries: Japan, Germany, the United Kingdom and the United States. The company will maintain its direct sales operations for those four. It also will sell search, directory and navigation services based on the keyword system to portals, wireless services and other companies.

In view of the restructuring, one analyst agreed with Teare's statement that the recent cuts are not necessarily a sign of weakness at the company.

"I thought that they were big before," said Michael Hoch, research analyst at Aberdeen Group. "To use registrars distributed throughout the world makes more sense than using direct sales."

Under the new wholesale model, most of RealNames' head-count reductions will come from corporate services including customer operations, marketing and international operations. The company will increase its sales and engineering departments.

Hoch remains undecided, however, on RealNames' long-term chances for success.

"I think RealNames has something," Hoch said. "The whole 'www' convention doesn't make sense in the long term, but right now it's part of the branding and the user experience. It's a question for me whether RealNames is too early to the market.

"Is the user ready to type just 'Toyota' and go right to the Toyota Web site? Something like RealNames is inevitable, but I don't know if it's going to be RealNames itself."

RealNames has had difficulty raising consumer awareness of its system of simplified Web addresses.

Teare said that the decision by the Internet Corporation for Assigned Names and Numbers to establish seven new top-level domains is likely to create additional confusion in the current system of addressing Web pages. The restructured RealNames will be poised to profit from that confusion, he added.

"The fact that we just raised $46.5 million on an increased market capitalization should indicate that the driver of these cuts is not cash preservation, but rather optimizing market opportunity," Teare said. "The driver of that is the ICANN conference and the new top-level domains, which are confusing the hell out of people, and the proliferation of foreign language solutions, which are very confusing also.

"Those two things have opened up an opportunity for RealNames to step up to the plate as the solution."