Is Rob Glaser For Real? He's already the big man of streaming media. Now RealNetworks is stretching into new businesses--its customers'. Could Glaser's ambitions be his undoing?
By Amy Kover

(FORTUNE Magazine) – Rob Glaser is a fast talker. He may not be your stereotypical entertainment-industry fast talker--the Hollywood-agent type who charms you with a deluge of pretty, vacant words. No, the CEO of RealNetworks is incapable of such subtlety. Instead, he beats you over the head with concepts--big concepts--and then peppers you with obscure references and tangential observations till your brain stops working, all within a few moments of conversation.

The day I met Glaser he bounded into the room and immediately slammed an article about Napster's legal battle onto the table in front of me. "Did you see this?" he demanded. "This case just proves how dynamic the business of intellectual property distribution is. We're really at the frontier." He then launched into a warp-speed monologue about the convergence of media and technology, the legal complexities of copyrights, and some sort of allusion to the Italian Renaissance. Barely sitting down, Glaser brought it all back to his work at RealNetworks. "That's the best thing about my job," he concluded. "I can bring a set of disciplines together and then watch them interact in a new way." Bam!

Glaser runs RealNetworks in this frenetic, overreaching manner. Maybe his style helped him face down the risk he took back in 1994, when he left a fat-cat job at Microsoft to found RealNetworks and pioneer streaming media--the technology that lets PC users play audio and video clips from the Internet. And in the same relentless way that Los Angeles has ingested Southern California, Glaser has been expanding RealNetworks' reach into every nook and cranny of the digital-media terrain.

As a result, Real is smack in the middle of the hottest consumer trend in technology--digital music. Real firmly dominates the $900 million streaming-media business. Over 85% of the streaming content on the Web comes in Real's format. The company has at least four revenue sources, ranging from digital-media players to content-delivery networks. Its sales have grown 135% a year, reaching $131 million in 1999, when Real managed the undot-commy feat of turning a $7 million profit.

So no one can dispute that Glaser's moxie has helped make Real the gold standard of the industry. But Glaser operates on an operatic scale, and if his ambitious plan has a flaw, it's that his success may bear the seeds of his undoing. By trying to infiltrate every niche of digital media, he runs the risk of encroaching on the business of his best customers. Meanwhile, Microsoft, Glaser's alma mater and now his largest competitor, is working hard to lure those prized customers away. Most techies rate Microsoft's streaming-media player as better than Real's, which some find clunky and awkward to use. And a few years down the road, Napster-like networks that let users reach into one another's hard drives to share music and video might render Real obsolete. So the "real" question is: Does Glaser have what it takes to secure his title as Master of Digital Media?

If you're wondering how RealNetworks makes any money at all, you're not alone. Chances are, all you know about the company is that you downloaded the RealPlayer onto your desktop once when, say, you were dying to hear a clip of Madonna's "American Pie" while surfing on CDnow's Website. And chances are you got that RealPlayer absolutely free. Real also gives away its RealJukebox, a software program that stores and plays downloadable files like MP3s, the popular digital music format.

Yet hidden among the giveaways are all sorts of money siphons. First off, more than 1% of the people who download the RealPlayer--about 135 million so far, with 200,000 new users every day--actually buy a souped-up version known as the RealPlayerPlus. At $29.99 a pop, Real has raked in about $40 million from that tiny sliver of users. Real also makes money from the Websites whose songs you listen to. CDnow pushes you to download a RealPlayer because it uses streaming-media technology designed by Real to send a song your way any time you click on a title you want to hear. In return, CDnow pays Real roughly $80,000 for the capability of delivering 2,000 simultaneous streams from each of its media servers, and more for maintenance and upgrades. CDnow is not alone. About 600,000 Websites use Real to deliver their audio and video content, accounting for about a quarter of Real's revenues.

When you finish surfing, the song might be over, but that RealPlayer is on your desktop for good. Here is where Glaser's "virtuous cycle" comes into play. The more people who have a RealPlayer on their desktop, the more content providers will opt to use Real's streaming-media technology. And the more Madonna music available in Real's format, the more likely people are to download a RealPlayer. "Content is an important driving force," explains Chief Financial Officer Paul Bialek. "People don't just say, 'Gee, I'm going to download a RealPlayer.'"

Real enhances the effect by pushing content from its own Website. The centerpiece of is a cluster of search engines designed to help users find the coolest streaming media on the Web. You'll find services like Take5, which highlights five video and audio clips each day. Or you can click on for witty critiques of the latest movies, coupled with trailers. The Website is lucrative too. Last quarter, Real's ad revenues, mostly from the Website, increased by 350%, to more than $14 million. "We've really benefited from being able to show streaming-media ads," says Lucy Mohl, the head of programming for RealNetworks and a former movie critic for NBC. She says surfers are more likely to respond to video than to static banner ads.

So Real is rolling in dough. The problem is that its content business threatens some key customers--the content providers themselves. Real's news guide, after all, isn't that different from's. And's movie critiques are a lot like the ones on Yet and ABC are both major buyers of Real technology.

Microsoft would be only too happy to steal such customers, and it works hard to cast Real as a poacher of their business. No wonder Will Poole, Microsoft's vice president of digital media, keeps saying, "Real is basically just a media company." Some content providers really are worried. One major music-label executive calls Real's content a risk, and a legitimate concern. Michael Downing, who runs Musicbank, a streaming-media music site, is more extreme. He threatens: "If Real starts doing what we do, we'll be [with Microsoft] in Redmond, Wash., that very afternoon."

Glaser has heard all this before. He argues that people like Downing should chill out, because Real doesn't actually produce content but just delivers it. "Real's business is to have a relationship with consumers," he explains. "Hey, part of that relationship is to direct content."

Real is facing a similar tussle with customers that have built so-called content delivery networks, or CDNs, which are designed to help Internet traffic flow more smoothly. Accessing music or videos is often a pain because of heavy congestion in the center of the Net. So companies like Akamai, iBeam, and Digital Island have built CDNs to push content away from the chokepoints to the "edge" of the Net, creating digital libraries that reside on servers dotted around the country--and thus just a short hop from local users. Media companies like MTVi and Universal Music pay CDN operators to move their content around. In turn, CDN builders are big customers of RealNetworks, licensing its streaming technology for their media servers.

But here's the rub: Real has built its very own content delivery network, called Real Broadcast Network. At the moment, RBN is still small and poses little threat to the likes of Akamai. But Real has no intention of remaining a CDN weakling. Last April the company hired Bell Atlantic networking veteran Al Binford to run RBN. And it has signed deals to deliver content for the Weather Channel and ABC Radio Network. If RBN continues to grow, the CDN companies may get ticked off and move all their business to Microsoft--which doesn't compete in the CDN market. As iBeam marketing vice president Tom Gillis puts it, "If Real were a strong competitor, it would be a big issue."

If playing both roles this way seems like tricky stuff, well, Glaser's relationships have always been tough to untangle. The man networks like a fiend, and his business depends on myriad alliances. But his allies should not count on Glaser for undying loyalty, because he's willing to jeopardize a relationship for Real's sake. For instance, he infuriated the big record labels when the RealJukebox allowed people to download music in MP3 format--thereby helping people copy songs without paying any sort of fee. As Steve von der Haar, an analyst with the Yankee Group, observes: "Out of anybody in the Internet business, Rob Glaser's alliance strategy is perhaps the most difficult to read. There are so many layers of subtext. You have to wait six months to really understand what he's trying to do."

Glaser's most richly layered relationship is with Microsoft. Glaser went there right after graduating from Yale in 1983, flourished in the fast-paced environment, and eventually took over the multimedia and consumer-systems business. But after ten years he grew bored. He missed the excitement of a startup, so he left to found what would become RealNetworks. His relationship with Microsoft seemed fine--the software giant even bought a 10% stake in Real in 1997.

Matters soured shortly thereafter: Microsoft sideswiped Real and released a knockoff of Real's streaming-media service. Glaser received the news in bizarre fashion. One night he answered the phone, and an anonymous caller with a British accent hissed, "Tell Rob Glaser that Microsoft is about to buy VXtreme," Real's main competitor at the time. The tip turned out to be on the money.

Microsoft had stomped on many other small competitors with impunity. Not Glaser. He got his revenge in July 1998, when he infamously testified before the Senate Judiciary Committee. He stated that Microsoft's Windows Media Player had a feature designed to disable any version of Real's media players on a PC's hard drive, without giving the user a choice. Investors were so freaked out by Glaser's defiance that Real's stock plummeted by 15% that day. A few months later, Microsoft withdrew its investment. To this day, Glaser contends that testifying against Microsoft was a very tough decision. "I felt it was my civic responsibility," he says. "It wasn't my desire."

Truth be told, though, Glaser has gotten a lot of mileage for being anti-Microsoft. As Aram Sinnreich of Jupiter Communications points out, "One of Real's biggest selling points is that it's not Microsoft." By the end of November 1998, Real's stock had recovered fully to a split-adjusted $11. While the stock went as high as $96, it now trades around $43.

As investors play wait and see with the stock, Real still enjoys the lead it built as the streaming-media pioneer. For years it outpaced Microsoft in both market share and technology. And it still wins big deals, like the one it signed in July to distribute its software to all of AOL's subscribers. But this advantage may not last forever. Last month, Microsoft introduced the Windows Media Player 7.0. It has a jukebox much like Real's, and its video technology gives a sharper, smoother image. Microsoft includes the Media Player in its Windows operating system for no extra charge, so users don't have to bother downloading it. Microsoft also gives corporate Windows customers use of its streaming-media technology for their Websites--again for no extra charge. "Once companies begin upgrading to Windows 2000, it will make sense to use Microsoft's streaming media," says Jeremy Hinman of MongoMusic, a music Website.

More worrisome, Microsoft appears to be better situated for the future of digital media. More and more people are likely to start downloading music and video to gadgets like cell phones, palm computers, and portable music players. Real has struck some impressive alliances, such as a deal to install a RealPlayer on Nokia phones. But Microsoft's downloadable technology is much more popular in portable devices. "Windows' technology is just better," says Jim Long, CEO of RioPort, a portable-device software maker. Nearly all portable digital-music players can play MP3 files; nine such devices on the market can also use the Windows format; but only one uses Real. As Microsoft's Dave Fester boasts, "MP3 is No. 1, Windows Media is No. 2, and Real is effectively nowhere."

Microsoft also has an edge in digital video. Earlier this year a French videohead named Jerome Rota (or "Gej," as he's known in cybercircles) deciphered the software code of Microsoft's new video technology, now known as DivX, and posted the results on a Russian Website. The new format gives streaming video nearly the same clarity as DVD technology. Large libraries of DivX movies, including popular titles like The Matrix and American Beauty, are already up on hacker sites and available to anyone for nothing. The renegade format threatens to have the same effect on the movie industry as Napster did on music.

Though DivX might sound like a piracy nightmare for Microsoft, the real loser could be Real. The only way to play a DivX movie is with a Windows Media Player. "People have started downloading Windows Media Players just for their DivX files," explains Jordan Greenhall, head of ProjectMayo, a startup rushing to bring out an advanced, legitimate version of DivX. If Greenhall's legal form of DivX takes off, content owners would have an even greater incentive to use Windows Media technology. Real could always make its player compatible with DivX, but Windows would have already made a dent in the market.

While it battles Microsoft on one front, Real must confront the growth of Napster-like file-sharing services on another. Unlike Real's streaming media, which travels through the Internet, peer-to-peer services like Gnutella and Napster allow people to download content directly from someone else's hard drive. Peer-to-peer services don't require a specific type of player. If this technology becomes the accepted way of sharing content, Real will lose an important source of growth: its deals with content owners to give PC users access to music and video. Peer-to-peer networking could make Real a virtual dinosaur.

An adaptable and shrewd strategist, Glaser has faced down challenges before. But as with many charismatic entrepreneurs who have fashioned companies in their own image, the question may be how long he'll want to stick around. He has thrived on fighting the establishment. He wrote a left-wing column in college. He left Microsoft partly because it was getting too big and settled. He originally called his company Progressive Networks, with dreams of building a nonprofit organization to espouse liberal politics over the Internet. In Rob Reid's 1998 book Architects of the Web, Glaser said that things were more interesting "when Microsoft was the David to the IBM Goliath."

Lately, Real has sported some Goliath-like attributes. "Real is definitely the 800-pound gorilla in digital media," says Hinman of MongoMusic. Will Glaser lose interest if RealNetworks gets much bigger? He is intrigued by the question. "During the seven years I was at Microsoft, the number of employees grew from 250 to 15,000," he says. "If this place has 15,000 in seven years, I'd be interested to have this same conversation with you." To get there, he will have to keep talking as fast as he can.