Interviews with Digital Media Thought Leaders

Lessons from a Digital Media Pioneer

Podcast Audio | Posted by Phil Leigh on January 23, 2010

Standard Podcast [7:13m]: Play Now | Play in Popup | Download

Phil Leigh

Like the lost adventurer Carnehan from Rudyard Kipling’s The Man Who Would be King, RealNetworks crept back into the news with the recent resignation of its CEO and Founder, Rob Glaser. Also like Carnehan Real hardly resembled the robust $12 billion market value industry leader it was at the turn of the Century having since dropped 95% in stock price. While Carnehan had an amazing story to tell, at least Glaser has an edifying one.

Real broke the sound barrier on the Web by bringing streaming audio in 1995. Two years later it incorporated video into the RealPlayer. Glaser had worked ten years at Microsoft before leaving to form the company. Like most applications software vendors, Real considered Microsoft as its ultimate competitor and focused nearly all effort against Redmond foe. The strategy was to prosper in Microsoft’s ecosystem, like Adobe, and avoid destruction, unlike Netscape. When Real was an industry leader, Apple were hardly on the competitive radar screen.

Before Rob entered the computer business, the successful companies were vertically integrated. They made their own hardware and software. Examples include IBM, Digital Equipment, and even Apple. The paragon was IBM which delivered hardware with a proprietary operating system and pre-installed the applications software. Customer satisfaction was high because IBM controlled all elements required to perform the assigned task.

When Rob joined Microsoft from college the successful business model had rotated 90 degrees to the horizontal. IBM had chosen to use Microsoft’s operating system which could also be licensed to anyone. Additionally, IBM did not manufacture the chip set for its Personal Computer. Consequently, any company with the requisite skills could make computers that were “clones” of the IBM model. Third party developers started to invent applications to make such computers do useful work. Examples include spread sheets, word processing, and presentation software. Naturally they targeted the biggest platform which was the Microsoft operating system and the Intel microprocessor.

It looked like the landscape would remain unchanged forever. But Rob learned that nothing is forever. In order to tap the market potential of radio, records, movies, and television, it was necessary that Digital Media applications impose (1) a minimum of friction and (2) significant advantages. In the Microsoft ecosystem, lots of companies had part of the solution, but none had all of it. Furthermore, each supplier strived to make his component indispensible in order to avoid becoming a marginally profitable Microserf.

Such internecine conflicts put the advantage back to the integrated suppliers. For example, Apple’s first iPod was nearly frictionless because it used its own software and the unit also provided most consumers the material advantage of being able to carry their entire music collections in their pocket. While many of the Wintel faithful predicted that a swarm of competitors would ultimately displace the iPod, it never happened. The consumer experience on the integrated Apple platform remained superior.

Rob’s adventure provides important implications.

First, it’s complicated to evolve from a horizontal structure like Microsoft, Google, and Real, to a vertical one like Apple. Until standards come into place, the horizontal model will remain disadvantaged.

This is why the potential emergence of a powerful Android ecosystem is so important to Google and most any Apple competitor. Google’s most powerful weapon in this context would be the development of a platform that assures the smooth integration of cloud capabilities into the Android operating system. A good starting point is Google maps, which is one of the most popular functions on the iPhone.

Even CATV operators must come to understand that they are horizontal companies in terms of Internet applications. Thus, it’s going to be difficult to establish a service like “TV Everywhere” that’s intended to offer Internet access for television shows only to subscribers of CATV and satellite systems.

Second, it’s also difficult to fit all the pieces together within one company. Confessedly, Apple has done it twice and Amazon seems to be on the success path with Kindle, but many have failed. Examples include the GO pen-based computer and WebTV.

Third, the Digital Media performance bar is higher than the bar for office productivity software. Put another way, consumers will measure the friction in computerized Media applications against the ease-of-use standards of television, radio, and CD music appliances. In contrast, office workers are more tolerant of learning curve frustrations.

Fourth, the pace of Digital Media growth has been as much about acceptable business models as it has been technology. Established content providers want assurances that Digital Media initiatives generate incremental revenue. Until they get such assurances they tend to do nothing, but that has two consequences.

One is that it creates a black market which first became obvious ten years ago with the original Napster. A second is that it leaves a vacuum for content providers who have not been admitted into the established fraternities and sororities. For example, a reporter for the New York Times describes how he watches a lot of YouTube, College Humor, and other Web-only programs on his television after connecting the TV to a MacMini.