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Microsoft, Real set stage for streaming media fight

Market leader RealNetworks and determined challenger Microsoft offer technology advances and key strategic differences in their battle for the streaming media market.

Capping a three-day industry gathering, market leader RealNetworks and determined challenger Microsoft offered technology advances and key strategic differences in their long-standing battle for the streaming media market.

In remarks to the Streaming Media West '99 conference in San Jose, Calif., RealNetworks chief executive Rob Glaser this morning reiterated Real's commitment to a hybrid identity as both a technology and media firm, outlining what he described as a streaming media "ecosystem" that provides technology for providers and consumers as well as content services and aggregation to connect them.

"The Real.com Network is pulling together all the ways consumers can access content," Glaser said. "We're adding new capabilities to make it easier to find content...we're doing what we can to drive your business model and are going to keep doing more and more of this."

Glaser's vision for Real as a content aggregator stands in stark contrast to the conference's opening comments by Microsoft chief executive Bill Gates, who on Tuesday said Microsoft would not focus on streaming media content aggregation.

"Our goal in this is not to be a media company ourselves," or the publisher of information, said Gates, but to provide the infrastructure that lets content companies provide streamed multimedia.

Content aggregation poses a tricky balancing act for Microsoft and Real. Many see the richest future rewards of the streaming media industry coming from content aggregation and distribution, rather than client and server software sales. But software companies run the risk of alienating content developers and driving them away from their technology if they appear to be muscling in on their turf.

Analysts took a skeptical view of Microsoft's claims, pointing to the company's numerous content ventures on the Web, which range from travel site Expedia to local content guide Sidewalk. This week Microsoft launched a content site specifically for broadband streaming media content at WindowsMedia.com.

"Microsoft is definitely trying to be a media company," said NetRatings analyst Allen Weiner. "I would disagree that that's not a core business; we're going to see more and more revenue from that end of the business."

But Kevin Unangst, lead product manager for the streaming media division at Microsoft, disputed Weiner's statement.

"Unlike other companies, we are not going to be a media company here," he said. "First and foremost, Microsoft is a technology company--a software company--that does best when we make technologies that help other companies succeed. We know that we can't do it all, and we don't do it all."

Unangst contrasted the WindowsMedia.com site with Real's new portal, saying it is purely a means of directing users to content providers as opposed to a comprehensive strategy of hosting and encoding content and managing the infrastructure.

"That's a dramatically different approach to working with our partners," Unangst said. "That's why they like working with us."

Meanwhile, Weiner said there are "tremendous marketing challenges" in Real's decision to embrace content aggregation.

Others seconded the notion that straddling the technology-media fence is fraught with hazards.

"If you're trying to compete on base technology with Microsoft, but all your money is coming from providing the service, what is your company about--content aggregation or building the best streaming technology?" asked David Dines, analyst with Aberdeen Group. "It's going to be harder. It's a different business model, and you need to be good at different things. That's my concern: Can they pull it off and be effective at both?"

Representatives from Real maintained that the company's content efforts are off to a successful start. Glaser said that in the first four weeks, its portal site generated more than 40 million leads to content partners.

"The statistics are showing that we are striking the right balance," Andrew Wright, general manager of new products for Real, said in an interview after the keynote. "The question isn't whether we do one or the other--that's not the right model. We have to create air for everybody."

As the two companies hammer out their content strategies, the conference gave them the opportunity to showcase new technologies. Glaser devoted this morning's keynote to demonstrating new interactive animation capabilities, as well as new methods for advertisers to reach streaming media consumers with ads that show up before a stream or at some point in the middle of it.

"We are now in the phase of making sure there are the right set of business models," said Glaser, mentioning subscription fees, pay-per-view and advertising models, as well as scenarios in which companies stream content for marketing purposes rather than for direct revenue.

Glaser demonstrated RealServer 7.0 Advertising Extension, which lets advertisers place streaming ads anywhere within an online broadcast--bringing the Internet one step closer to network television. He also showed off RealPresenter 7.0, a system that company representatives said delivers a marked improvement in server capacity. In addition, Glaser showcased the RealPresenter G2, a plug-in that will allow companies to stream slide presentations on the Internet.

Elsewhere on the advertising front, RealNetworks entered into a partnership with online advertising agency DoubleClick to let Real offer ad services to TV and radio stations interested in increasing sponsorship revenue on the Net.

Glaser also demonstrated a more striking departure from traditional streaming technologies, a product called Utopia. Developed by WebGlide, in which Real took a minority equity investment, the product brings computer animation to the streaming platform.

Glaser played up the small bandwidth requirements of the animation technology and its clarity of detail. The audience responded enthusiastically to the demonstration, cheering a sort of virtual reality tour of an online store with what the company described as "photorealistic detail." Utopia, when launched, will require less than one-twentieth the bandwidth of conventional video, according to the companies.

Real's entry into the realm of 3D Web animation follows a long string of failures by others, including numerous missteps by Microsoft. Bandwidth constraints and weak demand have doomed most 3D Web efforts.

Real's entry into Web animation has the potential to catalyze that evasive market, but the company downplayed its ambitions.

"We're not going out and saying we're getting into the 3D market, because frankly, it doesn't exist," said Real's Wright. "But the streaming market is very healthy, and this can add something to it. Unlike video streaming, you can interact with this, as in [Glaser's] e-commerce demo. It's interactive and lets you have a more sensory experience."

Wright predicted that the advent of animated streaming over the Real platform would have a "dramatic effect" on the streaming model.

Utopia's trial release is scheduled for the first half of the coming year.

Microsoft also unveiled its share of new technological bells and whistles at the conference. On Tuesday, Gates showed off an upcoming version of Windows Media Player that allows users to speed through an event such as a lecture by automatically taking out pauses in speech. It will also feature a revised graphical interface that looks like a television with a brushed metallic face.

Gates also showed how an upcoming version of Windows will have software that makes it easier for users to cut video, adding that Microsoft has doubled to 80 its partners in its Broadband Jumpstart Initiative to speed the development of content for users with speedy Internet connections.

The battle over technology isn't just for the eyeballs and eardrums of consumers, but to lure the most content partners. On that score, Microsoft has been on a winning streak of late. Gates on Tuesday said that 45 companies had picked up Windows Media Player as their streaming media software of choice, including Hewlett-Packard, Texas Instruments and General Instrument.

Some analysts view Real's current move into the content aggregation space as directly analogous to Netscape's reaction after Microsoft moved in on its browser territory.

"Netscape had to figure out other ways to make money because they couldn't make money on the browser with Microsoft giving it away," Aberdeen's Dines said. "Now Real can't make money on software with Microsoft including it in the OS, so Real has to figure out another way to make money."

For Netscape, that other revenue source was the portal Netcenter, which lured America Online to acquire the company. For Real, that other source is the content portal, Dines said.

But Microsoft likely will be more circumspect in its deal-making, since its partnership efforts in the browser war were in large part responsible for earning it the Justice Department antitrust suit that now looks headed for an unfavorable resolution for the company.

In addition to having to partner successfully, both companies will be faced with keeping up with the latest technological innovations and with gauging how fast to abandon lower-bandwidth technologies.

"We know exactly what people have on their desktops, and it's still primarily a 28.8 world," said NetRatings' Weiner, referring to the maximum speed currently available for most dial-up Internet users. "The key for both these companies is to develop content toward the majority and move as that curve changes."

Other battlegrounds for the players will be ease of use and the ability to play video, audio and MP3 streams from a single player, Weiner said.

Although analysts routinely make a point of saying they will never count Microsoft out of any software fight, Weiner said Microsoft's battle against Real will be uphill and steep.

"This is probably going to be the most difficult challenge they've ever faced," he said. "This is not a pure software category. They were great at winning the browser war because that played to strengths in software development. But in this case they really need to have a good understanding of consumer behavior, and that is not exactly matched to their skill set."

News.com's Patricia Jacobus contributed to this report.