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RealNames and Microsoft

Sat, May 11, 2002; by Dave Winer.

I just got off the phone with Keith Teare, the former CEO of RealNames. He sent an email explaining that the company will shut down on Monday, and sent a pointer to his personal site, where he explains how that happened. Here's the story in Teare's own words.

RealNames and Microsoft, by Keith Teare 

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 not failing. 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 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".

A picture named ballmerTeareMedium.gifSo 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, 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.

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 likely that - having learned much from RealNames - it will develop its own version of our resolution service.

Here are a number of documents that I am releasing personally:

1. A scribes notes of the meeting between Microsoft and RealNames, held in Redmond on Tuesday 7 May 2002.

2. An 88 page PDF file with RealNames proposal to Microsoft and supporting documents.

3. RealNames official release on the issue.

4. My statement at the time of the Microsoft/DoJ trial decision. Just to indicate that I am not an opponent of Microsoft historically.

5. An analysis of the quality of Keywords sold since RealNames moved to a channel model in 2001. This document refutes the idea that since RealNames moved to a channel model the quality of Keywords has declined. Better than 94% of all resolutions - which have themselves grown by 300% in the time - are from human adjudicated Keywords (Keywords Plus and Test bed Keywords). Almost no Keywords have been rescinded by Microsoft.

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