The deal, in which Microsoft will integrate Progressive's RealAudio and RealVideo 4.0 into a future version of its NetShow streaming server, is a move to consolidate the streaming media market around Microsoft's Active Streaming Format (ASF).
"This is to create a basic foundation of compatibility between Microsoft and Progressive Networks," said Paul Maritz, a group vice president at Microsoft.
Under the deal, of which Microsoft did not disclose details, Microsoft will hold a minority, nonvoting interest in the privately held company.
"We see this as a long-term commitment, and our investment reflects that," said Maritz.
Progressive controls roughly 85 percent of the market for streaming audio, said CEO Rob Glaser, a former vice president of multimedia technology at Microsoft who founded Progressive in 1995.
Microsoft will also integrate RealAudio and RealVideo in its Site Server, the Web server package that will be included with Windows NT Server in the near future.
Microsoft already distributes both RealAudio and RealVideo with its Internet Explorer 4.0 Web browser, along with its own NetShow client.
The deal gives Microsoft the technology and market penetration it needs to push its ASF as a standard for the streaming multimedia industry, said analysts. By defining a standard for streaming content, and promulgating it through Progressive's huge installed base, the company can neutralize competitors.
Microsoft and Progressive intend to work together to refine ASF for the next versions of their streaming products. Progressive's own RealMedia format will not going away as result, according to Glaser. Instead Microsoft's DirectShow and DirectDraw APIs will be incorporated into RealMedia.