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 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

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Keith Teare

Keith Teare is a Silicon Valley based, UK born, entrepreneur. He was involved at the founding of Accelerated Digital Ventures, Archimedes.Studio, RealNames and EasyNet. He was also founding shareholder in TechCrunch. He is US Managing Partner at ADV.