Real takes the open-source route

The new campaign, dubbed "Helix," and first reported by The New York Times, marks one of the most ambitious moves in the company's history. RealNetworks is simultaneously releasing technology without permission that plugs in to Microsoft's competing software and is raising the hood on much of its own software technology to "open source" developers or anyone else who wants to look.

The twin moves raise the risk of lawsuits and renewed competition--potentially even from Redmond, Wash.-based Microsoft itself, once it gets a look under the hood at RealNetworks' technology. But it marks a dramatic, potential way for a company watching its market share diminish to regain momentum and support across an industry where many other players remain skeptical of Microsoft's power.

"It's a very bold move on the part of Real," said Michael Gartenberg, a research director for analyst firm Jupiter Research. "This was a shot fired by Real and fired directly at Redmond."

The move is the latest in a series of strategic twists and turns that has made RealNetworks one of the only companies to survive direct Microsoft competition for years. While the company has expanded into paid subscription content business, its software and streaming media infrastructures have been under increasing pressure from Microsoft, which has deemed multimedia to be one of the major drives under the latest versions of its Windows operating system.

Real's Helix announcement mainly involves the technology that allows media files to move from place to place over the Internet. RealNetworks and Microsoft both produce servers that allow video and audio to be streamed from a content company such as CNN or NBC to a personal computer. Real has charged for this software, while Microsoft has given it away for free.

In April, RealMedia reached 17 million at-home viewers, compared with Windows Media at 15.1 million and Apple Computer's QuickTime at 7.3 million, according to Nielsen/NetRatings. At work, Windows Media drew about 12.2 million unique viewers, compared with RealMedia's 11.6 million and QuickTime's 5 million.

Real's own new product, called the Universal Server, will allow one server to stream Real's technology, Microsoft files, Apple Computer's QuickTime, and others. Most other competing products do not support competitors' technology.

"When you have all these different platforms, and all these different protocols, it gets unmanageable," RealNetworks' Rob Glaser said at a high-glitz press conference in San Francisco announcing the product. "A lot of what (this technology) is about is breaking those bottlenecks and making convergence really converge."

To make the new product compatible with Microsoft files, however, the company pursued a risky strategy known as "reverse engineering," in which developers examine a competitor's product to see how it works and try to create something that works just like it.

Glaser said that engineers worked entirely in a "clean room" environment, meaning that they had no access to actual Microsoft code. Had they simply copied code, they could be liable for patent infringement. The resulting product simply mimics the way that Microsoft's files are sent across networks and allows a Windows Media player to receive the file.

Other companies have been sued for simply copying a competitor's code and putting it in their own products. But RealNetworks says it's not worried about Microsoft lawsuits, because it took precautions to do all development in the "clean room" environment. Microsoft itself has engaged in this kind of legal reverse engineering.

Analysts say Microsoft, which still faces antitrust lawsuits, is in no position to sue in any case.

"This is a very tenuous time for Microsoft," Gartenberg said. "This is not a time in Microsoft's history when it can be seen as trying to do to Real what it did to Netscape."

The influential giant?
Certainly, Monday's announcement acknowledges Microsoft's influence in media technology, something Glaser and Real have often been loathe to do.

Microsoft was quick to spin Monday's announcement as further validation of its strength in the marketplace.

"It's an admission of RealNetworks that it's important for them to support Windows Media and that we're now the leading player among home and work users," said Michael Aldridge, lead product manager for Microsoft's Windows Digital Media division.

Aldridge added that RealNetworks currently has a licensing agreement for its media player to support Windows audio and video formats. However, RealNetworks and Microsoft do not have an agreement to allow the server to deliver Windows Media formats to end users, which is what RealNetworks trying to do.

Aldridge declined to comment on RealNetworks' replication of Microsoft's technology.

In addition to its own new product, Real has promised to give away source code to much of the underlying technology for streaming media. That stops short of the actual file format, or "codec" itself, but will provide the open-source community and other companies with powerful new tools to build their own streaming media players or software.

Glaser said he wouldn't initially make the software code that mimics Microsoft's streaming available but that he was considering the idea. A first chunk of code underlying the RealNetworks multimedia player software will be released in 90 days. Other code, including the basic functions of its streaming media server and encoder, will be released by the end of the year, the company said.

The company's plan to reveal its source code--the basic instructions underlying the software--echoes similar moves made by Netscape Communications to defend against Microsoft. In March 1998, Netscape took the bold step of opening its source code to allow software developers to help create the next generation of its popular browser.

James Barksdale, then CEO of Netscape, said the move would allow the company to "tap into a virtually unlimited developer talent pool." Instead, the effort, which has evolved into the Mozilla.org project, hit considerable roadblocks, and Microsoft overtook Netscape in market share.

News.com's John Borland contributed to this report.