Commentary: Hell Freezes Over -- Real & Microsoft to Collaborate

On October 11, Microsoft and RealNetworks announced a deal to set aside their legal differences and agreed to work together on a broad product front. While the agreement looks like a smart move for Real and Microsoft’s overall business, in the long run it may in fact limit technology innovation.

Rob Glaser and Bill Gates announced the three-part deal in a joint press event. It resolves the companies’ former antitrust disputes based on a $460 million up-front cash payment by Microsoft to Real; it calls for wide-ranging digital music and games collaboration between the parties; and it requires Microsoft to pay Real $301 million in cash as well as provide services over 18 months in support of Real’s product development, distribution, and promotional activities.

For most observers, the idea that Microsoft and RealNetworks would one day work together and collaborate on consumer services and content was unimaginable. Most of us who have been watching these two companies battle one another on the technology front for nearly ten years thought this day would never come. While the alliance makes sense for both companies vis-a-vis their consumer services business--Real will benefit from distributing its games to the Xbox and promoting their music service through MSN, while Microsoft gains from enhancing MSN’s search functionality as well as from a co-branded MSN music service--there is a good chance that both companies’ technology development will suffer.

One of the biggest catalysts of technical innovation in the streaming industry was that Microsoft and Real were always battling each other, trying to be the most recent to the market with a new player or server platform that had better codecs, stability, scalability, and user features. For many years, the two companies worked feverishly to one-up each other with a better solution. It got messy at times and, like many rivalries, both became personal and caused legal ramifications. But you can’t deny the results. During this era of fierce competition, streaming media platforms saw their greatest leaps forward, with improvements in both quality and ease of use. Now you have to wonder how much of that will continue.

While this deal looks great to the press, there are many in both camps—understandably more so at Microsoft--who are very unhappy. Yes, it may make sense in the long term for the consumer side of the business for both companies, but some employees have said privately that this deal really makes them care much less about the technology that they are working on.

Most people think of Real as a content company that spends most of its time building its music and content business, while Microsoft is the one that focuses on rolling out new features and functionality in its player platform. But the fact remains that the technology is still the underlying foundation of both of these businesses. To a degree, lack of technology innovation can result in a lack of business growth.

To both the industry and the world at large, Microsoft’s settlement gives the impression of an admission of guilt, one that many Microsoft employees find frustrating knowing that the antitrust dispute will not go to trial and therefore neither side will argue its case. None of us on the outside know all the facts of the case, and so it’s unfair to guess who would have won in court. But any time one company pays a large sum of money to another, it does imply--correctly or not--an admission of guilt. For many employees at Microsoft, that’s a hard perceived admission to swallow, whether they believe it’s true or not.

For the average business user, the deal doesn’t change much in the way of streaming media adoption. For those companies or service providers who work to deploy streaming media based services and solutions, it’s business as usual. Real all but gave up on the enterprise and business verticals in favor of the content side of the business many years ago. Microsoft’s streaming media technology still dominates the enterprise, government, and broadcast verticals with other platforms fighting for a relatively small share of the enterprise market. It’s really the media and entertainment vertical that Microsoft and Real are fighting over.

Businesses evolve and change; that’s just a fact of doing business. A good business’s direction, focus, and models change based on the opportunities presented in the market place. It should surprise no one that everyone wants a piece of the consumer market to be able to create, consume, and deliver compelling content to users on a global scale. It’s a very exciting time for any content-based business based on the fact that streaming, downloads, wireless, IPTV, and other intersecting technologies all have the potential to deliver content in many ways to any IP-connected device. The ultimate goal always has been global distribution of content to any device capable of receiving it.

I just hope that, as a result of this deal, the two largest companies in the space don't cease providing the kind of technical innovation that has taken streaming media to the point where it is now--an underlying foundation of technologies enabling applications to be built on top of them. All we can do is wait and see.

Dan Rayburn is Executive Vice President of StreamingMedia.com. He can be reached at dan@streamingmedia.com