Is Microsoft a Threat to RealNetworks?

Earlier this week, Microsoft stirred up the online video and audio marketplace mix by introducing its Windows Media Player 7 software.

The preview version of the software titan’s free player, which will be released later this year, provides software for downloading digital content from Web sites as well as capabilities for creating playlists.

Echoes of an Earlier War

RealNetworks currently holds about 80 percent of the online video and audio market, a share that has not changed substantially since the company was founded in 1995.

Though RealNetworks also offers a free RealPlayer, many consumers purchase the enhanced version for downloading music, books and videos sold on the Web. If Microsoft’s new product performs as well, or better, consumers will be less likely to pay for something they can get for free, and the RealPlayer may go the way of the dinosaur.

In fact, some observers believe that Microsoft is poised to blow past RealNetworks in much the same way it obliterated the once-dominant Netscape Web browser with its free Internet Explorer.

Which Format Will Prevail?

Despite the potential for disaster, RealNetworks does not appear to be losing any sleep over Microsoft’s rumored plans — at least not officially.

“It’s a product that’s a couple of generations behind us,” Rob Grady, product manager for RealNetworks’ consumer division told the Associated Press. “It’s like Microsoft is saying: ‘Me too.'”

Another factor that tempers the Microsoft threat is the company’s long-running legal battle over monopoly issues. When Microsoft took on Netscape a few years ago, it was not in the middle of a contentious antitrust trial and on the verge of being broken into pieces.

Real Headaches

Nevertheless, RealNetworks has had some troubles of its own that could make it more vulnerable to a Microsoft assault.

In November, RealNetworks, Inc. admitted that its software had been secretly gathering and transmitting personal information about its 13.5 million registered users’ listening habits.

Even though the Seattle, Washington-based company immediately issued a software patch that enabled its RealJukebox users to block the program from sending back personal data to the company, privacy advocates had a field day in the press.

Only Tracking Copyright Infringement?

While some observers suggested that such tracking could have been used by RealNetworks to combat copyright violations, a RealNetworks spokesman claimed the company was only seeking an accurate user count.

Nonetheless, organizations such as TRUSTe and the Electronic Frontier Foundation both expressed concerns over RealNetworks’ obvious privacy infringements.

In a move that may hail things to come, RealNetworks brought a suit against startup Streambox last December for an alleged violation of the Digital Millennium Copyright Act.

This clash merely hints at the potential for legal wrangling — with costs that will surely mushroom — as the battle for the lucrative online video and audio market heats up.

Sizing Up the Advantages

There is no doubt that Microsoft is wealthy enough to supply all the funds for product development, advertising, distribution and legal advice that might conceivably be needed for an aggressive campaign against RealNetworks.

Still, RealNetworks has the same critical advantage that America Online had when Bill Gates and Company made an unsuccessful bid to eclipse it — millions of registered users.

Furthermore, there is also the possibility that RealNetworks could align itself with AOL or some other media giant that might welcome the opportunity to thwart yet another Microsoft attempt to dominate a market.

In the end, it seems to me that RealNetworks will prevail, even if it means getting a little help from a friend.

I also predict that Microsoft will be forced to adopt RealNetworks’ format — albeit reluctantly — if it hopes to stay in the game at all.