Rob Glaser Is Racing Upstream

In streaming media, his RealNetworks is battling hard to beat Microsoft

As a boy growing up in the middle-class New York suburb of Yonkers, Robert Glaser was a rabid New York Mets fan. His home was just five miles from Yankee Stadium, but Glaser chose to take a one-hour subway ride to Shea Stadium to watch the ragtag Miracle Mets, who shocked the sporting world by winning the 1969 World Series. A numbers whiz who memorized large sections of the 3,000-page Baseball Encyclopedia, the young Glaser could instantly recite the number of bases Bud Harrelson stole or the number of home runs Tommy Agee crushed. When anyone asked what he wanted to be when he grew up, Glaser would say he planned to replace Mets announcer Lindsey Nelson. "Robert always liked the underdog," says his mother, Barbara.

These days, Glaser is the underdog. The 39-year-old software entrepreneur pioneered streaming media--technology that zips audio and video files over the Web and allows people to view and hear them on their PCs. The Internet became a multimedia affair. And Glaser's RealNetworks Inc. (RNWK ) turned into a dot-com darling, rewarding him with a personal fortune of $5 billion when the stock was at its peak in February, 2000. Real turned a modest profit of $6 million in 1999 and nearly doubled its sales during the first half of 2000, but slackening demand for the multimedia software that Real sells to corporate customers and a falloff in advertising on its Web sites have since taken their toll. Revenues slid 24%, to $47.9 million, in the quarter ended June 30, and, since mid-2000, the company has lost $150 million and has seen $14 million in market capitalization evaporate. On July 26, Real laid off 15% of its workforce. Today, Glaser's stock is worth just $380 million.

It could get worse. On Oct. 25, Real's chief rival, Microsoft Corp. (MSFT ), plans to release its new operating system, Windows XP. This is the software powerhouse's most aggressive move ever to supplant RealPlayer--the Real software that can be loaded into PCs--as the leading source for audio and video on the Internet. Click on a Web music file from the Start menu, load a CD, or tune into an online radio station, and Windows Media Player launches to handle the task. Real has cut deals with five of the seven top PC makers to have its playback software included on their computers, but, even when Real is an alternative, Microsoft's media player is easier to find on Windows XP screens and menus.

To Microsoft's critics, this could be an instant replay of the way the software giant vanquished Web-browser pioneer Netscape Communications Corp. Threatened by Netscape, Microsoft bundled its browser with Windows at no cost, gradually taking over the market lead--until Netscape gave up and sold itself to America Online Inc. (AOL ) Microsoft's bundling led federal and state trustbusters to file their landmark antitrust case, and government lawyers are now eyeing how it's handling media player technology. "We're looking very closely, with concerns that Microsoft may be violating the law as it did previously," says Iowa Attorney General Tom Miller, one of the parties to the case. Microsoft's enemies warn that unless the government acts now, the company will have yet another monopoly. "They would have control over the way music is digitized, the way digital music is played, and control over the royalties," says AOL Time Warner Inc. Executive Vice-President Kenneth B. Lerer. "We don't think one player should own the market."

Microsoft scoffs at such an idea. The software giant says it intends to become the No. 1 streaming-media company. But it plans to get there on the back of its technology, not by leveraging its operating system monopoly. "We out-innovated Netscape, and we're out-innovating Real," says Will Poole, vice-president of Microsoft's Windows digital media division. Microsoft's allies expect it to overtake Real eventually. Microsoft has "come in on the back of what Glaser has done. It has made his lead subject to question," says Edgar M. Bronfman Jr., vice-chairman of media giant Vivendi Universal (V ).

For former Microsoft exec Glaser, beating onetime mentor William H. Gates III is a personal quest, not just a professional vocation. He vows that Real won't become the next Netscape. He has faced down the giant before, and he doesn't view the threat from Windows XP as being dramatically different from previous bids by Microsoft to dislodge Real. Add to that the recent appeals court decision--which found Microsoft violated antitrust laws by preventing computer makers from adding its competitors' software to Windows--and Glaser thinks he has more than a fighting chance. "Once the appeals court came down and said you can't create that sort of hammerlock, it changed the dynamics," Glaser says.

His is one of only a handful of companies that have taken Microsoft head-on, and it is still winning. In July, more than twice as many home-PC users--29.8 million--used Real's software to watch audio and video over the Web as used Microsoft's rival product, according to Nielsen/NetRatings. Worldwide, 215 million people have registered to use RealPlayer (most of them using basic, free versions of the software), making RealPlayer ubiquitous among Web surfers. More than half of the audio and video files on the Web are in Real's format, making it costly for Web sites to switch to Microsoft's technology. "We've got good content. We've got the most consumers," he says. "Once you've got that kind of network effect, it's deep and fundamental and durable." Most analysts agree. "Real is the dominant force in streaming media," says Jupiter Media Metrix analyst Seamus McAteer. "Don't expect it to roll over."

Still, Glaser knows Microsoft can eventually outdo him if he has to fight it out on the PC desktop. So he's coming up with new offerings that take Real out of the direct line of fire. "The way you beat Bobby Fisher is you don't play chess," Glaser says. A new RealPlayer due out this fall blends Real's media-playback technology with its RealJukebox, a program that stores and finds favorite music and video files. At the same time, Glaser is trying to turn Real into a media delivery company. Last fall, he introduced GoldPass, a subscription service that gives users a souped-up media player as well as access to a wide selection of music, round-the-clock videos from CBS's Big Brother reality show, and live baseball broadcasts. Already, more than 300,000 customers pay $9.95 a month for the service.

This fall, he'll launch MusicNet, an online music subscription service that will use Real's technology to provide access to the music catalogs of its three partners, AOL Time Warner, EMI Group, and Bertelsmann. It's a huge opportunity. Jupiter Media Metrix Inc. expects subscription music sales to climb from $29 million this year to $789 million in 2004. But analysts don't expect Real to pocket a big payoff anytime soon. "This is a grand experiment," says CIBC World Markets analyst John Corcoran. "We're cautious about it."

Undeterred, Glaser envisions a time when consumers will be able to surf a sea of channels on the Web, picking through television programs, movies, and music to enjoy whatever they want, whenever they want it. While the slow adoption of broadband connections to the home has delayed the fulfillment of his vision, Glaser plans to have Real's technology providing the foundation when such connections are as common as cable TV is today. "I have the chance to help create something that could become one of the most important phenomena of the next generation," he says. As a bonus, he could be remembered as one of the few who took on Microsoft and won.

For Glaser, anything short of total victory would be a failure. "We come to win. That's a core value in the culture," he says. Mark Cuban, co-founder of Web media pioneer Inc. and owner of the Dallas Mavericks, says: "It's a zero-sum game for Rob. He either wins or he loses everything." That attitude helps explain Glaser's edgy relationship with Microsoft Chairman Gates. During his 10 years at Microsoft, Glaser prospered under Gates's tutelage. Now, even though some friends say Glaser still seeks Gates's approval, he's determined to show the Microsoft chief who's boss in the streaming media realm. And he's not afraid to criticize Gates. "I don't think I'd take an antitrust class from him," Glaser quips.

Yet Glaser's toughest adversary may be himself. He is a demanding taskmaster, and when he's not pleased with results, frustration sometimes boils over into angry outbursts. "Rob's an absolute genius," says one senior executive who left because of Glaser's behavior. "But he's an incredibly difficult person to work with." Not infrequently, Glaser belittles workers with streams of profanity when they don't meet their goals. And on a couple of occasions he has thrown full Diet Coke cans in the direction of subordinates to express his displeasure. His behavior has contributed to a high turnover rate among Real's management team. Recently, the company hired its third chief operating officer in four years, and it is searching for its third chief financial officer. In 1997, Real's directors were so concerned about turnover that they brought in a management consultant who worked with Glaser to tone down his behavior.

Glaser says the meetings helped. These days, he tries to be more sensitive to the effect he has on subordinates. Jim Breyer, a Real director and a venture capitalist with Accel Partners, says Glaser's management style has improved: "He's a better CEO today than he was five years ago." But it is not clear that Glaser has changed substantially. Current and former Real executives say outbursts are still commonplace. "Real has a dysfunctional internal culture because of Rob," says ex-Chief Technology Officer Philip Rosedale, now the chief executive of San Francisco's Linden Labs, who still keeps in touch with Real managers.

Glaser is not easy to typecast. He's as likely to charm as to fly off the handle. A co-owner of the Seattle Mariners, he often invites colleagues to join him in his seats behind the team's dugout. He built a bowling alley in the basement of Real's Seattle headquarters--and opened it up for employees to use evenings and weekends. He and his second wife, Sarah, invite pals to their downtown Seattle penthouse for all-night card games. Glaser loves alternative music. He worshiped "grunge" rocker Kurt Cobain, who committed suicide in 1994. When Glaser gets excited--whether it's about technology or music--he launches into a rapid, stream-of-consciousness delivery that sometimes leaves listeners scratching their heads.

Glaser is an unusual mix of capitalist and liberal do-gooder. "His politics are usually to the left of Che Guevera," kids Real director Bruce Jacobsen. In fact, Real began its life as Progressive Networks, a company that hoped to deliver socially conscious programming over the Web. The company's focus shifted when it became apparent that the streaming-media technology that it had pioneered could become a nifty business on its own. But Glaser wrote into the company's prospectus that 5% of its future profits would go to charities.

At times, it is an uneasy coexistence. "He has a continuing need to demonstrate to businesspeople that he's hard-nosed and to progressives that he cares," says college friend and Progressive co-founder David Halperin. Take recent layoffs. During his student days at Yale University, Glaser had sided with unionized workers in their disputes with the administration. Yet now he is the boss, and he decided he had to do what was best for shareholders. "The responsible thing to do from a stewardship standpoint given the financial condition was to make layoffs," Glaser says. "But I didn't sleep well knowing we had to do it."

Glaser was raised from the cradle to care about social issues. His father ran a small printing business in Yonkers, and his mother was a social worker. His parents were political activists. As a 12-year-old, he handed out leaflets supporting the United Farm Workers' grape boycott. His parents sent him to the Ethical Culture Fieldston School in Riverdale, N.Y., a K-12 school with a humanistic curriculum. "It was not an entirely typical environment," Glaser says.

The young Glaser loved baseball but wasn't very good at it. So what Glaser lacked in athletic ability, he made up for in smarts. He was particularly good with numbers. His parents got him the stats-laden Baseball Encyclopedia. "It's probably the way I got into computers and math," Glaser says. He excelled at school and started learning about computers when he was in first grade.

Glaser's academics carried him to Yale in 1979. Immediately, he fell in with the left-wing crowd. The government had just revived a requirement for young people to register with the Selective Service system, but Glaser refused. He participated in anti-draft and disarmament demonstrations and penned a column for the university paper called "What's Left."

But if he was a lefty by day, he was a geek by night. "Rob had a double life," says college friend Halperin. "At night, he'd sneak off to a computer lab, where a whole different thing was going on." Glaser was hammering away, building a tiny computer-games company. By his senior year, when most students didn't even have a computer, Glaser paid to get a data line into his dorm room so he could dial into Yale's network and get onto online bulletin boards. Glaser graduated with three degrees: a BA in computer science, another in economics, and a master's in economics.

True to form, he took the career path less traveled. After graduation, he considered going to graduate school, working for tech-industry graybeard Hewlett-Packard Co. (HWP ), or signing on with a little-known software company in Seattle called Microsoft. His friends never expected him to choose Microsoft, but Glaser told them about MS-DOS, the software program Microsoft made to run every PC. Every time a personal computer is sold, Microsoft makes money, Glaser said. "He saw how important it could be," college friend Peter Rubin says. At the same time, he told friends that he hoped that he could help progressives get access to technology--the means of production in the Information Age. Glaser packed his Toyota and headed west.

Glaser was the archetypal Microsoft employee: supersmart and hyperaggressive. He took to the Darwinian school of corporate survival. In fact, some Microsofties say he was too aggressive, even for Microsoft. "Everyone at Microsoft thought he was very, very bright, but no one wanted to work with him," says a former colleague, who recalls phone calls in the wee hours from Glaser demanding status reports. Even so, Glaser quickly became a star. He worked on Microsoft Word, moved to the company's networking group, and eventually became vice-president of the multimedia systems group.

After a decade at Microsoft, Glaser was ready to build a company of his own. In the fall of 1993, he hooked up with his college pal Halperin. The pair dreamed big and came up with an idea of creating a culturally progressive media company--something of a cross between MTV and the Public Broadcasting System. But it quickly became clear that it was their technology, not their plan for a new media company, that would get funding from investors.

From the beginning, Glaser knew that Microsoft would ultimately be his enemy. But he tried to buy time. Real cut a deal with Microsoft to distribute its RealAudio Player with every copy of Internet Explorer in 1996. Within a year, Microsoft was beginning to recognize the potential of streaming media and plunked down $75 million to buy Real competitor VXtreme Inc. Glaser quickly persuaded Microsoft to pay $30 million to license Real's audio and video technology and embed it in the Windows Media Player alongside its own technology. Eventually, Glaser thought, Microsoft would attack. But the longer he held off the assault, the better chance Real had to survive it. "Rob got the better of Bill," says David B. Yoffie, a professor at Harvard Business School.

By the summer of 1998, though, it was a shooting war. Glaser was getting reports that the latest version of Windows Media Player was automatically replacing or disabling Real's playback software. Just weeks earlier, the government filed its antitrust case against Microsoft. Now, foes such as Senator Orrin G. Hatch (R-Utah) were eager to uncover more Microsoft transgressions. Hatch pressed Glaser to testify at a Senate Judiciary Committee hearing.

It was perhaps the most difficult decision of Glaser's life. While at Microsoft, he had found a kindred spirit in founder Gates. The Microsoft chairman hosted the bachelor party for Glaser's first wedding. So when their business relationship went sour, Glaser offered to talk things over with Gates before he was to testify before Congress--hoping Microsoft would make changes that would eliminate the technical problems with Real's software. After a few brief e-mail exchanges, Gates shot him down. "I've decided that it doesn't make sense for us to meet. I'm not very familiar with our relationship," Gates wrote.

Glaser was devastated. "I really wanted to resolve this situation privately and amicably. And I lamented they weren't able to," Glaser says. Two weeks later, he put on a gray suit, marched up to Capitol Hill, and said to a packed hearing room: "Microsoft is taking actions that create obstacles to the freedom and openness of the Internet." Microsoft denied the allegations, claiming the problems were caused by a bug in Real's software.

Glaser's relations with Gates and Microsoft never recovered. Glaser tries to shrug off the break. He acknowledges that he once looked up to Gates--"the way you look at someone when you're 21 and they're 27 is that they seem like Methuselah to you." But he insists that he's over it. "I think I look at the world pretty differently now," he says. His friends, though, aren't so sure. "Rob respects Bill almost more than anybody in the world--even now," says college chum Rubin. While Glaser has since aligned himself with the anti-Microsoft faction led by AOL and Sun Microsystems Inc., people who know him well say he still wishes he could regain Gates's approval.

With the imminent arrival of Windows XP, Glaser's relationship with Microsoft is once again in the spotlight. This time, Glaser has the government squarely behind him as the battle commences. Glaser says that since the appellate court ruling, computer makers have become more open to installing Real's software on their PCs, although Real hasn't inked any new deals yet.

Those agreements will be critical for Glaser to prevent momentum swinging over to Microsoft. And this would be a particularly inopportune time for Real to lose its grip on the market. The potential for delivering video and music on the Web has just begun to be realized. But broadband has been slow to develop, and that has stunted Real's growth. "They've got the best surfboard, and they're great surfers. But they're still waiting for the wave to come in," says Lehman Brothers Inc. analyst Michael Stanek. That won't happen for at least two or three years, which gives Microsoft more time to gain strength.

All the more reason for Glaser to forge into new businesses. Fortunately for him, he has a knack for spotting opportunities before others do. With GoldPass, he has built a rapidly growing subscription business on the Web. And it was Glaser who had the idea--and the skills--to broker the deal with three fiercely competitive recording labels to launch MusicNet, potentially one of the most promising new Net businesses. "Rob was so smart that he could bridge the different interests," says Thomas Middelhoff, CEO of Bertelsmann, one of the partners.

The odds may be stacked against Glaser. With the economy foundering and Microsoft breathing down his neck, he's facing his biggest challenge to date. If worse comes to worst, he could follow the Netscape strategy and turn to AOL to buy the company, but Glaser doesn't expect to need a bailout. Like his boyhood heroes, the Mets, he thrives when competitors underestimate him. And Glaser just might be able to pull off a bit of a miracle, too.

By Jay Greene

With Steve Hamm in New York and Jack Ewing in Frankfurt

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