Kara Swisher

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BoomTown's 1998 Rob Glaser Profile: A Web Pioneer Does a Delicate Dance With Microsoft

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BoomTown did an interview last night with outgoing RealNetworks (RNWK) CEO Rob Glaser after the announcement yesterday of his departure from the company he founded and led for 16 years.

That will be posted later today, but here is a profile of Glaser I wrote after spending time with him in Seattle, when I was covering the Internet for The Wall Street Journal.

It’s from Feb. 12, 1998–yes, that means Rob and I are genuine Web antiques–and focuses on Glaser’s decidedly complicated relationship with his former employer, Microsoft (MSFT).

As you will see, it comes from a much different era of the Internet, when Microsoft was much scarier, RealNetworks represented innovation and the medium was still in its infancy. My favorite line is a description of Glaser as “radiating so much intensity that his face resembles a clenched fist.”

Here it is:

Rob Glaser learned the software business as one of Bill Gates’s most aggressive proteges at Microsoft Corp. So he knows all too well the anguishing strategic decision that most software entrepreneurs inevitably confront: Go head-to-head against Mr. Gates and risk annihilation. Or cooperate with him–and risk annihilation.

Now an Internet entrepreneur himself, Mr. Glaser thinks he has another strategy: A delicate dance with Microsoft that combines a little bit of competition and a little bit of cooperation.

His newly public company, RealNetworks Inc., popularized the use of realtime audio and video on the Internet’s World Wide Web. It already has more than 18 million registered users of its free “streaming” software for receiving multimedia over the Net. It also has a rapidly growing business selling server software for transmitting audio and video to Website operators.

But it stands squarely in the path of the strategy that has drawn Microsoft into trouble with antitrust regulators: Emulating innovative products, integrating them into its operating systems and then giving them away free. RealNetworks’ daunting task is to prove it can do a better job of outmaneuvering Microsoft than Netscape Communications Inc., the browser pioneer whose market share and profitability have been devastated by Microsoft’s integration strategy.

Mr. Glaser insists he and the software giant can coexist. “I learned an amazing amount from Bill,” he says, speaking in staccato bursts and radiating so much intensity that his face resembles a clenched fist. “We knew we could either compete head-on like Netscape or do something a lot more interesting.”

His strategy is known internally as “coopetition.” Out of mistrust, Netscape two years ago rejected an unsolicited offer from Microsoft to become a partner and investor. But Mr. Glaser approached his former colleagues last summer seeking just such an alliance. In July, he sold a nonvoting 10% stake to Microsoft for $30 million, and licensed RealNetworks’ technology to the software giant for another $30 million. Microsoft also agreed to bundle RealNetworks’ software with Internet Explorer.

In making the deal, Mr. Glaser helped himself to Microsoft’s cash and prestige and calculated that Microsoft wouldn’t consider streaming technology to be as strategic to its future as the browser.

“What we were trying to do in the partnership is to set it up so that our success would not disadvantage their core business,” Mr. Glaser says. “Microsoft is a very paranoid company and so we have tried to create an environment where while they might be covetous of some of our success, analytically they would not fear it.”

The deal gave Mr. Gates the opportunity, if he so desired, to clone RealNetworks’ products during the period when they were licensed to Microsoft. “There’s no question they could use our own technology to become extremely vigorous competitors and try to put us out of business,” says James Breyer, a director and member of Accel Partners, a venture-capital firm that helped finance RealNetworks.

So Mr. Glaser needs to stay ahead of Microsoft by rapidly improving his software, accumulating enough customers to become the standard for sending audio and video over the Internet and diversifying into related businesses.

Last month, for example, he announced an agreement with one of Microsoft’s archrivals, Sun Microsystems Inc., to finetune his software to perform better on Sun’s popular Internet servers than on Windows-based servers.

“They are neither friend nor foe, but Microsoft is most certainly the environment we live in,” says Mr. Glaser, now 36 years old. “It’s how we work within that environment that will make all the difference.”

Mr. Glaser’s own personality seems suited to the relationship’s contradictions. He has been a committed liberal since his days at Yale University, where he wrote a column called “What’s Left” for the student newspaper. He initially named his company Progressive Networks to reflect his politics. And he donated 700,000 RealNetworks shares to causes related to freedom of speech and environmental issues after the public offering, and promises to contribute 5% of the company’s future profits as well.

But he became a notoriously hardcharging and sometimes arrogant manager after he joined Microsoft in 1983, at the age of 21. Some colleagues dubbed him a “screamer.” When deadlines approached for projects, several former colleagues at Microsoft say he became increasingly revved-up, downing one Diet Coke after another and erupting at even tiny mistakes. “My intensity sometimes manifested itself in less positive ways,” Mr. Glaser concedes.

“Like Microsoft, Rob was smart, young, perhaps a little hard to take, and convinced he was absolutely right about a lot of stuff,” recalls Mike Slade, a friend of Mr. Glaser’s at Microsoft who now runs an Internet publishing company, Starwave Corp. “But that was what was rewarded at the company and everything was going too fast there for a lot of management training.”

The pace did take its toll. Even though Mr. Glaser rose to become vice president of multimedia systems and one of Mr. Gates’s favorites, his last years at Microsoft were rocky. Some at the company point to an internal power struggle with Microsoft’s head of technology, Nathan Myhrvold. “They both wanted to be Bill’s boy genius and visionary for the company,” says a colleague. “Obviously, Nathan won.”

Mr. Glaser dismisses tales of infighting, blaming his departure on a diminishing feeling of “joy” in his work. “I began to think that Bill had the best job of all,” he says. In 1993, at the age of 31, he resigned, with about $15 million of stock in his pocket.

His retirement didn’t last long. Soon after, he saw a version of the Mosaic browser, the first graphical interface software for navigating the Web. He had an epiphany, he says, realizing that the Internet could eventually become a major purveyor of audio and video.

Mr. Glaser sank about $1 million of his own money into a start-up that would first produce software for compressing and transmitting sound. With additional funding from friends, such as Lotus founder Mitch Kapor, RealAudio 1.0 quickly made its debut in April 1995.

RealAudio was greeted with more than a little disdain from the Internet elite because it was a tinny and unsatisfying experience for most users. But it gave the Internet a voice, and Mr. Glaser kept plugging away, improving fidelity and striking deals with more content providers to use it on their Web sites. The hook: Free player software for consumers.

He is attempting to repeat the process with RealVideo. It currently provides small, jerky moving pictures but will, he believes, someday transform the Internet as data transmission speeds increase. In a recent demo of the player, Mr. Glaser selected a music video by the languid singer Jewel, he joked, “because she doesn’t move around too much.”

Meanwhile, Microsoft has been developing its own Media Player and NetShow streaming software, partly with technology acquired by purchasing VXtreme, a RealNetworks competitor.

The Microsoft products are now free. But the company may decide to charge for the latest version of NetShow coming out this year, which would be good for RealNetworks. Meanwhile, Microsoft will continue to bundle RealNetworks’ player software with the Microsoft browser, also good for RealNetworks. And the day after RealNetworks’ Sun deal, Microsoft announced an agreement to make its own Media Player compatible with RealNetworks’ server software, yet another positive development for RealNetworks.

“The user only wants it to work,” says Rich Tong, a Microsoft marketing vice president. “So it is good business to work with RealNetworks to set standards for compatibility and expand the market for all of us.”

Skeptics assert that RealNetworks has forged only a temporary truce with Microsoft. Like Netscape, it must continually confront the challenge of trying to make money on technology that Microsoft gives away. RealNetworks charges $29.95 for an enhanced version of the player it gives away free, and $695 and up for its most powerful server software.

Some large companies are snapping the products up. Mercedes Benz, Eastman Kodak and Lockheed Martin are buying RealNetworks’ latest software, RealSystem 5.0, to bring their internal networks to life. Boeing Co., for example, uses RealNetworks’ software to communicate with employees world-wide and conduct training sessions. A variety of media concerns such as Metro-Goldwyn-Mayer, the Public Broadcasting System, AOL, Fox News’s 24-hour newsfeed and Paramount Pictures use it as well.

Mr. Glaser recently cut a deal with Macromedia Inc., the largest provider of animation-editing software, to transmit animated material over the Internet. RealNetworks is also operating multimedia Web sites for other companies, and has a joint venture with MCI Communications Corp. to create a broadcast network on the Web.

All these initiatives are running up big bills. Earlier this month, RealNetworks reported that revenue more than doubled for 1997, to $32.7 million from $14 million the year before. But heavy research and development spending tripled losses to $11.2 million, or 40 cents a share, from $3.8 million, or 14 cents a share. The company’s high costs, plus the looming threat of Microsoft, have depressed the stock, which hovers at around $16 a share, only slightly above the $12.50 a share it opened at when it went public in November.

But Mr. Glaser exudes confidence. His intense personality seems calmer these days. Once divorced, he now has a steady girlfriend and is traveling more frequently, including a summer trip to New Zealand, Australia and French Polynesia, where he made the decision to take RealNetworks public. His 13.5 million shares are worth $218.5 million. And he thinks he has Microsoft figured out. “People in Silicon Valley see things unnecessarily in black and white: You either hate Microsoft or you are a vassal of them. I am saying there is a third way.”


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