The Full Story Again

Here is the original posting again

This is my personal web site and all opinions here are my responsibility and mine alone.


I want to say at the outset that I am not “anti-Microsoft”. Indeed, I believe that innovation on the Internet can no longer be purely “standards driven”. This is because the scale of the internet makes it impossible to distribute standards without the support of applications. This fact places a new responsibility on the application – the responsibility for deciding what is and what is not a standard. This is decided through a decision to adopt or to not adopt. In this new world Microsoft – because its browser has almost 90% market share – either steps up to allow innovation or innovation doesn’t happen. It’s as simple as that. I place no value-judgment here. It is just a fact. So to be anti-Microsoft is almost to be anti-innovation. Having said that, if Microsoft refuses to innovate then innovation itself will not happen. So neither am I “pro-Microsoft”. I am pro-innovation.

Microsoft is no longer just an application developer building on its own platform. The .NET process and Visual Studio .NET both demonstrate good vision and an awareness of the responsibility to build tools and applications on top of the Internet as a Platform. Adding features to this Platform is essential to progress. Microsoft clearly understands the need for authentication services and real time messaging services as Platform services. The vision that this embodies is right albeit limited.

Sadly, many employees at Microsoft have grown up in a company used to building applications. Product Managers who build wholly owned apps and tools have great difficulty embracing any vision that includes non-owned infrastructure. The internal war at Microsoft is between those who want to work in wholly owned environments like the application, the server, the enterprise – where it is possible to have full control; and those who understand the need for Microsoft to build infrastructure like .NET. The latter group seem to have lost if this story is to be believed.

Last Tuesday Microsoft informed me that it was not renewing RealNames Corporation’s contract to resolve Keywords in the IE browser. When the current contract comes to an end on 28 June 2002 the service will be terminated.

I am no longer an employee of RealNames. Along with 79 others I was terminated on Friday 10 May, 5 years after starting the company.

I am sure that Microsoft will do an excellent job of misinforming the public about the reasons for this decision and so I want to put the record straight.

During the past 2 years Microsoft was GIVEN 20% of RealNames stock and $15m in cash guarantees during 2000-2001 (more than 100% of our revenue that year). We were due to pay another $25m in guarantees during 2001-2002 (more than 200% of our revenue that year) but with the bursting of the bubble (and thus no IPO) the second years payment was converted to a note. The note came due on May 2nd 2002.

RealNames proposed continuing the relationship and offered Microsoft the following:

1. $5m now as payment against the note.

2. $5m between July 1 2002 and June 30 2003 or 15% of revenues – the greater of. 3. Microsoft’s rev share to be able to reach 40% in steps if our revenues grew sufficiently. The guarantees for the first 5 years of a new deal were $5m, $6m, $7m, $8m and $9m.

We valued a 5 year deal – if Microsoft would execute on all of the opportunities – at $200m to Microsoft. Far more than the guarantees. At their current PE of 40 that is worth about $2.4 billion post tax in a $100m year 5.

VeriSign had just committed to a plan to give every com, net and org customer 5 free promotional Keywords for 30 days. This would have resulted in widespread awareness and great revenue boost.

RealNames was succeeding. We had 3 quarters of growth behind us, we broke even on a cash flow basis in Q1 – for the first time. Usage was growing (500m resolutions in Q1).

The justification we were given by MSN was:

1. It isn’t about money. Even if you paid we would not renew.

2. We do not believe in “Naming”, we believe in search. This is because we control search 100% whereas we could never control naming. Some of us believe search results are a better experience than navigation through naming. Sure we agree that the URL and the DNS are broken, but to fix it is a big job with no clear reward for Microsoft.

3. The recent public discussion indicates that .NET initiatives which take the form of architecture are greeted with hostility if delivered by Microsoft. So, we could never own this. If it worked, and we liked it we still wouldn’t do it. Therefore the plan to put 120m free Keywords out there is our worst nightmare. It would be “out of control”.

So far as I can see this is a classic case of “not invented here”. Microsoft dislike the product because they cannot control it. As this is likely to be the situation wherever infrastructure [which is by definition shared] is involved it also implies Microsoft is stepping back from its .NET commitments to build infrastructure.

In this case the widespread use of the browser and its absolute requirement for our system means that Microsoft’s decision has resulted in innovation being stopped. The only naming technology in the world capable of allowing non-ASCII characters to be used as web addresses is being killed at birth – before it succeeds and becomes “out of control”. A small private company is being denied an audience – not because of money – but because of fear of losing control. If Microsoft wants to become a major player in internet platform technologies it will have to overcome this fear. What is shared cannot be controlled.

As a former very vocal supporter of Microsoft (see http://www.realnames.com/body/pressreleases/pr_060700.asp) I am bitterly disappointed by the lack of vision I encountered. I truly hope that the Chief Architect – Bill Gates – and the CEO – Steve Ballmer – are aware of the narrowness of the vision – the defence of search and the URL [ASCII based naming] against a truly global and multi-lingual naming platform with built in directory services. If they are not then a crime has happened under their noses.

Naturally I’m pretty unhappy about this.

Microsoft seems to be playing the role of the referee who decides whether any innovations succeed .

Microsoft only seems comfortable at the application level where they have control, not at the infrastructure level – and this ultimately keeps many innovations from happening.

Because of this they’ve just brought innovation in internet naming to a grinding halt – and the internet *really* needs innovation in naming.

RealNames will not be the only victim – there’s a whole ecosystem that stretches all around the world that Microsoft is turning off. CNNIC in China, Forval in Japan and other companies in Belgium, Holland, France, Finland, Sweden, Denmark and Norway. There are more than 100 registrars of Keywords and they in turn have thousands of resellers. There are more than 100,000 customers including many well known ones like IBM, Xerox [who made RealNames partner of the year last year], EBay, Mattel – who have Keywords on every Barbie Box, and many more.

Now, Bill Bliss – who runs MSN Search and was until recently in charge of the RealNames relationship, has in the last few weeks been moved to “Natural Language Platforms” and is charged with developing a variant of our system. The browser is now back under Microsoft’s control and it is possible that – having learned much from RealNames – it will develop its own version of our resolution service.

7:01:29 AM

Coursey Show on CNet

I was on Anchordesk Radio with David Coursey. He was very nice. I think it went great.

Here is the intro:

In the second part of the show, we look at the RealNames mess. RealNames has gone out of business because Microsoft would not renew its contract, and David talks to Keith Teare, their former CEO.

 Listen to AnchorDesk 

or

go to the Anchordesk Radio web site

4:41:35 PM

Linux Show

I will be on the Linux Show tonight. Here are the details. I think I’m gonna get roasted for my favorable opinions about Microsoft and my view that Microsoft needs to step up to infrastructure services.

Lets see grin

Upcoming…
Tonight Live: Microsoft Commits Corporate Murder and Codeweaving WINE >> on The Linux Show
Tuesday, May 14th, 2002

from the home of Wayne’s World, Aurora IL
Tonight LIVE on www.thelinuxshow.com

At 6pm pt, 7pm mt, 8pm ct, and 9pm et…. Kevin Hill, Jeff Gerhardt, Doc Searls (Linux Journal), Arne Flones and Russ Pavlicek; have another strange and wonderful show lined up tonight on The Linux Show!!

In Segment One – Hot News: We will be covering the hot news that effects the Linux and open Source communities over the last few weeks. In particular we will discuss the Real Names saga (can we say we told them so), and how Microsoft once again let a company develop a market for them, then knifed them to death. Tonight we coin a new term for Microsoft’s predatory behavior, “Corparicide”. Check out http://www.teare.com/ for comments and details from former Real Names CEO Keith Teare. Keith will be joining us for the news segment(probably a bit extended tonight). People keep on saying we are spending too much time talking about Microsoft, but hey folks, look at what they are doing. DOJ WAKE UP!!!!!

Please join us on the show, and check our IRC Chat(irc.thelinuxshow.com #linuxshow).
Remember tune in at 6pm pt, 7pm mt, 8pm ct, and 9pm et. NOTE: we are now on Daylight Saving Time in the US.
Catch the Linux show at www.thelinuxshow.com

4:33:09 PM

Jessica Email

Another very thoughtful email

Keith,


I just want to tell you how sorry I am that Microsoft chose not to renew the contract.  You were doing important global work to make the Internet easier to use and if they were smart, Microsoft would have “embraced and extended” your vision as their own.

I’m happy to hear that Asian companies are in touch with them to make clear the ramifications of shutting down the service.  And that VeriSign is now focused on the issue of how to resolve their IDNs.  Perhaps something positive can still be salvaged from the situation.

I was pleased to see Esther and Stuart’s support of your work and the fair reporting on the topic.  After reading through your statement, I also want to applaud your taking the high road of informing rather than outright condemning Microsoft’s actions. Placing the dispute in the realm of control of the infrastructure and a possible backing away from the .NET open commitment is, I think, accurate, and may be beneficial to the industry and Microsoft itself as it considers the proper role for the company to play moving forward.  Your words are thoughtful and concerned, rather than petty, and do justice to the higher issues.

I believe in the RealNames mission and in your vision.  I’m sad that just as the company was on the verge of sustained success, everything was shutdown.  Hopefully, in the way you have handled the news, you have caused people to think seriously about the action and some good may yet come of it.

I look forward to hearing you on CNET at noon.  Good luck!
Jessica

12:38:49 PM  

Commentary

I just noticed this

Thoughtful summary.

2002-05-14: Freedom to Innovate?

The Permanent Link to This Will Be: here

Lurking behind the legal case that is now Unsettling States v. Microsoft has always been a whispered sotto voce claim by Microsoft that competition–in the market for PC operating systems, for office productivity suites, for browsers–is a bad thing. Technological innovation needs a single, strong, dominant, monopolistic firm to set the standard, and to tell the industry when it is time for the standard to change. Whenever I make this (possibly true, possibly false) point, I refer to UNIX-on-micros in the 1980s, when an operating system technologically superior to MS-DOS went nowhere because the lack of a dominant standard-setter prevented growth and allowed the emergence of enough small incompatibilities to fragment the market and discourage applications development (which led John Doerr to once say that I knew nothing about UNIX in the 1980s, applications development, or software markets.)

I have never been able to evaluate this argument satisfactorily. But last week something happened to one of its biggest boosters. Keith Teare, CEO of Real Names, who had favored the maintenance of Microsoft’s monopoly in web browsers as pro-consumer because “without Microsoft [to set the standard, and make sure that Real Names’s products are included in the standard set of browser capabilities] it could take years to deliver [Real Names’s] Internet Keywords globally.” With Microsoft as monopolist standard-setter that had “embraced our open standards-based architecture in March 2000 because it makes perfect sense for consumers to use Internet Keywords within MSN and Internet Explorer,” Teare was looking forward to a rapid real-time test of whether internet users would prefer Real Names’s way of finding things on the Internet to the (badly broken) URL-based way.

But while Real Names’s information technologies were impressive, and while it did seem that Real Names had a chance to catch on, it turns out that it will never get that market test. Last week Microsoft decided to remove support for Real Names’s products from its web browser, Internet Explorer. Since Real Names’s way of naming web sites requires the permission and help of the browser manufacturer to work, and since Microsoft appears to have decided that Real Names’s success would diminish Microsoft’s share of some future market in Internet searching, Real Names is now gone.

Note that if the market for web browsers were not monopolistic but competitive–if Microsoft’s share of the market were not 80% plus, but were 40%–Real Names would be in a much better position. No one would dare pull support from a promising and potentially very useful technology out of the fear that it would become “the next big thing,” and that one’s browser would lose market share because it did not support what turned out to be something browsers really wanted. But with other browser shares below 20%, the normal discipline a competitive market exercises on firms that think about pulling capabilities–making their products less useful–just does not apply.

Dan Bricklin’s proposed solution is for Microsoft to be an altruistic technology leader, doing what is right to maximize innovation and user welfare rather than what Microsoft believes will earn its shareholders the most profits: He hopes that “Microsoft will make amends for this by completely opening up an API for address resolution in a way that does not leave themselves as a bottleneck nor as a toll taker. This is fundamental to the Internet advancing. Microsoft has a duty as the leading company in the client-side world (with officially a monopoly whether they like it or not) to do things that are in the world’s maximal interest even if it’s not in their specific maximal interest.”

My–economist’s–reaction is, “When pigs fly.” That economist’s reaction is not entirely fair. After all, no matter what Microsoft’s other shareholders are in the game for, Bill Gates is in the game not to earn more money so that he can buy more things, but for some other purpose. I don’t know whether Bill Gates is playing to gain bragging rights by piling up the highest billionaire score or to be the person who shapes the future by bringing the world into the information age, but if Bill Gates is playing the second game then appeals to him to have Microsoft act in the public interest may succeed.

But my economist’s reaction is that Microsoft is much more likely to focus its energy on doing things that are in the world’s maximal interest–things that make its products as useful and valuable as possible–if it fears the market: if it thinks that failure to make its products as useful and valuable as possible will lead to its disappearance, and that success at making its products as useful and valuable as possible will lead to organizational success, organizational expansion, large bonuses, and lots of in-the-money stock options.

But how to preserve competition and create effective market discipline when all the economics–high fixed costs, effectively zero marginal costs, demand-side economies of use, network effects, upstream and downstream interdependence, the advantages held by whatever firm becomes the standard-setter–pushes for natural monopoly? If you do preserve competition, how to keep it focused on innovation rather than on the creation of small incompatibilities that segment the market and rob the economy of network effects and economies of scale? And does preserving competition mean that you rob successful firms of the profits that were their spur to innovate in the first place?

These are hard and deep questions. Two years ago Real Names’s CEO Keith Teare thought that they had simple answers: keep Microsoft in shape to keep maintaining its monopoly no matter what the violations of antitrust law that it had as a matter of fact committed: “It seems to us that the American dream of working hard and prospering is being called into question by the treatment Microsoft is receiving. I came to the United States because I believed it supports entrepreneurs and I still believe that America wants entrepreneurs to succeed. And although the government and the court seem to be sending an opposite message, I do not believe that ordinary Americans should allow one of the country’s most successful entrepreneurs to be effectively neutralized because he was ‘too successful’.”

Today Real Names’s ex-CEO Keith Teare sees things somewhat differently: his “…naming technology… is being killed at birth – before it succeeds and becomes “out of control”. A small private company is being denied an audience–not because of money–but because of [Microsoft’s] fear of losing control…. I am bitterly disappointed by the lack of vision… the defence of search and the URL against a truly global and multi-lingual naming platform with built in directory services…. Naturally I’m pretty unhappy about this. Microsoft seems to be playing the role of the referee who decides whether any innovations succeed … they’ve just brought innovation in internet naming to a grinding halt – and the internet *really* needs innovation in naming. RealNames will not be the only victim – there’s a whole ecosystem that stretches all around the world that Microsoft is turning off. CNNIC in China, Forval in Japan and other companies in Belgium, Holland, France, Finland, Sweden, Denmark and Norway. There are more than 100 registrars of Keywords and they in turn have thousands of resellers. There are more than 100,000 customers…”

Coursey Piece

David Coursey was very kind about me personally, but not so kind about RealNames. I think he needs to know more. RealNames had a 98% gross margin and the ability to get to a 30% plus operating margin. Anyhow … you can’t have everybody agree with you so here is his viewpoint. I’ll be on his CNet Radio Show at 12.15pm Pacific so I can put him right then grin. Gotta love Coursey.
8:33:24 AM

Computerwire Article

I don’t necessarily agree with the headline but this is a really good article – worth showing in full. From ComputerWire

 

RealNames Shuts Down On ‘Control-Hungry’ Microsoft Snub

Section: 01. Top Stories

By Kevin Murphy

RealNames Corp, the provider of alternative web addressing systems, is winding down and has laid off all its staff, after Microsoft Corp, its key partner and major creditor, refused to renew a pivotal contract.

According to RealNames CEO Keith Teare, his firm’s demise highlights the confusion within Microsoft as the company attempts to evolve its application-centric culture into a web services future based on providing infrastructure it cannot control.

RealNames’ service allowed web users to navigate directly to a site, or a page within a site, by typing keywords, such as “IBM WebSphere” or “Ford Explorer”. Under the deal with Microsoft, users could do this by typing the keywords directly into the Internet Explorer browser address bar, not needing to know the URL.

Teare said there are two reasons Microsoft chose not to renew this relationship, effectively ending the life of the company. First: “Microsoft said they do not believe in naming and navigation, they believe in search.” Second: “If they couldn’t own it, then they had no interest in helping it become successful.”

Teare said he believes the evolution of the internet into a services-based infrastructure, as embodied in .NET, scares Microsoft. The applications-oriented nature of Microsoft gives it a lot of control over its products, and architecture-oriented services do not.

“Microsoft dislikes the product because they cannot control it,” Teare said in a frank statement posted to his personal web site yesterday. “As this is likely to be the situation wherever infrastructure (which is by definition shared) is involved, it also implies Microsoft is stepping back from its .NET commitments to build infrastructure.”

“A small private company is being denied an audience,” said Teare. “Not because of money, but because of fear of losing control. If Microsoft wants to become a major player in internet platform technologies it will have to overcome this fear. What is shared cannot be controlled.”

Microsoft said its decision not to renew the contract was a quality of service issue, based on the twin factors of accuracy and, to a lesser extent, speed.

“We had several user experience issues,” said Microsoft spokesperson Matt Pilla. “RealNames was originally selling major brand keywords, such as Ford… but that limited their business model. Once they began to sell generic keywords we had user experience issues.” He said users would type search keywords into IE and would be routed by RealNames to sites they were not intending to visit.

Teare denied RealNames was taking such registrations, and said part of the contract allowed Microsoft to veto any registrations it did take. Microsoft had not vetoed any keyword in nine months, he said. Pilla said it was a manpower issue, that MSN did not have the resources to monitor all keyword registrations.

It’s possible Microsoft could buy RealNames’ assets and launch the service in-house. This would solve any control issues the company may or may not have, and would give it the equivalent of an AOL Keyword system, MSN Keywords maybe, to better campaign against rival AOL Time Warner Inc in the online services market.

According to Teare, Microsoft’s new Natural Language Platforms division, headed by former MSN Search chief Bill Bliss, is working on “a variant of [RealNames] system”. He said Microsoft may use RealNames’ experience to craft the system, but admitted it would probably be a “superset” of what RealNames offered.

Teare says Microsoft denies it wants the assets, and Microsoft’s spokesperson declined to comment on the company’s intentions. Pilla said the firm has no specific plans for its own keywords system at this time.

According to Teare, the contract between the two companies was for two years, and was signed March 2000. RealNames gave Microsoft 20% of its equity, initially valued at $80m, and promised to pay $40m over the life of the deal, $15m in the first year and $25m in the second, for the rights to offer its keyword services directly through IE.

Because RealNames was a young business with tiny revenue, the idea was to pay Microsoft from cash raised in an IPO. But the deal was signed the week before the dot-com crash shook the Nasdaq, and RealNames indefinitely postponed the offering. It paid the $15m from cash raised in a private round, and could not afford the $25m payment.

With IE integration gone, RealNames could have conceivably carried on with the business, albeit severely handicapped, using browser plug-ins (actually its original, pre-2000 business model). “We could have done that,” Teare told ComputerWire. “But Microsoft, as our creditor, would have had to have written off the [$25m] debt.”

Microsoft was not prepared to do that, and RealNames’ board decided to wind the company down, selling off its physical and intellectual property assets and customers, in order to pay the debt. Shareholders, which include Microsoft and VeriSign Inc, are unlikely to see much, if any, of their investment returned.

In terms of possible buyers other than Microsoft – VeriSign and its main rival Register.com Inc are thought to be sniffing around. VeriSign, in particular, faces some problems in its internationalized domain business because of the RealNames closure (see separate story). Register is always looking for ways to expand its product lines.

11:09:17 PM

Asian Names Threatened

And more from the same source:

RealNames Shutdown Threatens Asian Naming Market

Section: 10. Internet

By Kevin Murphy

The closure of RealNames Corp yesterday threatens the ability of Chinese and Japanese speakers to easily address web sites in their own languages. Microsoft Corp’s Asian units are said to be under pressure from local naming authorities to urge their parent to reconsider its position on RealNames’ closure.

RealNames said yesterday it is going out of business because Microsoft Corp will no longer give it the ability to offer its keyword addressing system through the address bar of Internet Explorer (see separate story). It is a little-known fact that RealNames’ systems are also used to resolve so-called internationalized domain names or IDNs.

IDNs are domain names registered in non-ASCII characters, including Asian and some European characters. Because the domain name system is ASCII-based, these names will not resolve into IP addresses when used in a browser or other internet application.

But the software in RealNames’ network of resolvers is based on Unicode, which allows characters in all languages to be represented, and so the company has been resolving IDNs for partner companies for about a year. All .com, .org and .net IDNs use RealNames, as do Japanese .jp names and the China-run CNS keyword system.

RealNames CEO Keith Teare said the end of the Microsoft contract and the company is “detrimental to the whole ecosystem we’ve built up around the world”, including its dozens of international resellers. He said he was aware of moves in China and Japan to approach Microsoft’s local offices to ask the company to reconsider scrapping the deal.

VeriSign spokesperson Cheryl Regan said: “With RealNames going out of business there will be an impact” on IDN resolution. She said that RealNames’ network will continue to resolve IDNs through IE until June 29, and that VeriSign is seeking a “long term solution”. There are several hundred thousand IDNs registered in .com.

Under a deal signed with Japan Registry Service Co Ltd (JPRS) last year, RealNames provides the resolution of all Japanese-character domain names under the .jp country-code top-level domain. With RealNames out of business, JPRS is going to have to find a new way to allow Japanese users to access .jp names come July.

Furthermore, a keyword-based naming system employed by CNNIC, the government-controlled domain registry of China, uses RealNames’ resolvers, and much of its technology. This will also no longer work after the end of June. CNNIC and JPRS could not be reached for comment by press time yesterday.

11:10:10 PM

CNet Radio Interview

Here is an interview broadcast on Cnet Radio. It’s in Real Audio format.
10:52:13 PM  

Email Support

I got hundreds of good will emails today. Here is one that really spoke to me:

Max Swanson [1] sent this email to you through the Radio UserLand [2] community server, re this page [3].

No expectation of a response, but please allow me to express my shock at Microsoft’s behavior. It seems quite arbitrary, but you’ve very likely hit it on the head by saying, “What is shared cannot be controlled.”

As a blind computer user making use of assistive technology which includes speech synthesis, screen-interpreting software and every keyboard command available in Windows and other apps, I feel that a key word scheme could have been of real benefit in tandem with these tools. Who knows? Perhaps a voice-generated set of digitally encoded phonemes could serve as a key word or “real name” via your platform.

Didn’t it occur to M.S. that AOL built its early dominance largely on key words?

I’m just an end-user; so these technical musings may be way off. The main thing is that your efforts have been nulified with such unfeeling dispatch.

All my best to you and your associates, and may your innovative spirit continue to enrich the community.
10:30:37 PM