Once again, a lesson in Apple

Several years ago, QuickTime was a breakthrough technology when Apple brought it to the marketplace. Since then, it also has become an object lesson for RealNetworks and any other company that confronts Microsoft in the multimedia industry.

Despite its early lead in multimedia software, Apple was somewhat caught off guard when rival streaming technologies advanced with the growth of the Web.

"The big loser in this market is Apple, which had a huge opportunity. Its arrogance led it to believe that streaming was not going anywhere," said Seamus McAteer, an analyst with Jupiter Communications. "Apple could've owned this market."

Apple rejects such criticism, saying that it is rapidly gaining ground. "I believe that because we give away (streaming) server software for free, that has certainly had an effect on Real's business model," said Frank Casanova, director of QuickTime marketing. "We're very happy to be growing as fast as we are."

The Macintosh maker has been reluctant to speak directly about its dealings with Microsoft in the multimedia business. However, a description of events found either in the written testimony of Apple executives or in Jackson's findings in Microsoft's antitrust case could prove revealing for RealNetworks.

QuickTime and RealPlayer software work in similar ways: To enable a video to run well on a wide array of computers, engineers use a special set of APIs (application programming interfaces) to work with various PC chips to speed the process.

Because the QuickTime software could theoretically be used to control much of a PC, Microsoft viewed it as a "potential threat" to Windows, Jackson wrote in his findings of fact. Microsoft risked losing control over the development of software in a fashion similar to Netscape's browsers.

To neutralize QuickTime, Apple executives alleged, Microsoft threatened to cancel important products and intentionally disabled portions of Apple's software. In particularly memorable testimony disputed by Microsoft, Apple executives said their Redmond counterparts were "talking about knifing the baby," a reference to QuickTime software.

The discussions between Apple and Microsoft about QuickTime were rooted in a legal tussle that started in early 1995. That was when Apple alleged that Microsoft and Intel had illegally copied portions of its QuickTime for Windows product after hiring a third party, Canyon Company of San Francisco, that Apple had used to help develop the Windows version of its playback software. In 1996, Apple also notified Microsoft that elements of Windows and its Internet Explorer browser infringed certain patents.

This was occurring at the height of Microsoft's worries over Netscape. Microsoft and Apple reached an initial agreement to include Internet Explorer with Apple products, but by the spring of 1997, the browser bundling and patent infringement discussions were merged, according to testimony by Tevanian. At that time, in attempting to stop Apple from producing a Windows version of its multimedia software, Microsoft threatened to withdraw a critical program for Macintosh users: the Mac version of Microsoft Office software.

By August of that year, when Apple was desperate to restore customer confidence as the company's fortunes were flagging, it announced an agreement with Microsoft to bundle Explorer as the preferred browser with Macintosh computers. The company received a $150 million investment in return, and both parties settled their patent disputes. Shortly afterward, the Justice Department began a review of Microsoft's moves in the streaming market.

Only a month after the browser agreement, Microsoft said it would let Apple have the market for content production tools if it stopped development on QuickTime player software, Tevanian testified. If not, he added, Microsoft would spend the money needed to displace Apple from that market. Microsoft later denied those charges.

The conversations came to a head June 15, 1998, at Apple headquarters in Cupertino, Calif., where Microsoft again attempted to get Apple to cede the market for playback software, according to Jackson's findings. Jobs eventually rejected the proposal.

"Had Apple accepted Microsoft's proposal, Microsoft would have succeeded in limiting substantially the cross-platform development of multimedia content," Jackson wrote.

But by that time, Apple was already well behind RealNetworks and Microsoft in streaming media software. It wasn't until April 1999 that Apple introduced a version of QuickTime that had such technologies.

"QuickTime was on the verge of missing out on the whole streaming industry space before they released QuickTime 4, even though they had one of the favored authoring environments," said one industry source who works with Apple, Microsoft and RealNetworks.

QuickTime appears to have rebounded. According to recent measurements from Nielsen/NetRatings for February 2000, 9.26 percent of those on the Internet used QuickTime, compared with 9.42 percent for Microsoft's Windows Media Player. RealNetworks' RealPlayer topped the hotly contested field of audio-video Internet software, with research showing that about 26.6 percent of people used RealNetworks' products.

Apple is fighting Microsoft on another front, providing an open-source version of its streaming server software for the Windows NT corporate operating system. And Apple could still find itself a significant player in high-speed content delivery. As cable and DSL providers use streaming technologies more widely, they are not likely to tolerate three different formats--pushing instead for open standards.

That is, unless RealNetworks or Microsoft manage to establish themselves as the de facto standard first.

Go to: Playing the standards game