1. RealNetworks Revenue Model
Revenue Description Example
Product sales Sell or license physical or Sell and license streaming
information-based product media products
Advertising Market other company’s Advertising on website,
products or services carrying special promotions,
Programming content
Subscription fee Charge for regular receipt Selling annual upgrade
of products or information subscription
Commission or Agent, broker, or intermediate Programming customers
Transaction fee charge. Can be a set fee or pay transaction fee based
a % of cost on viewers
Consulting and Charge for services provided Services to design/develop
service fee Set or variable streaming media content
Membership fee Charge to belong to a group None

2. Systems Engineering Manager
GUEST SPEAKER
Thursday, February 1
Wayne Myamoto
Systems Engineering Manager
Cisco Systems
Topic:
“New Internet Technologies”

3. “In Turbulent times, an enterprise has to be managed
to withstand sudden blows and avail itself of sudden
unexpected opportunities. This means that in turbulent
times, the fundamentals have to be managed, and
managed well.”
Peter Drucker

4. MARKETING: TRADITIONAL MODELC C P
Content
Channel C C C

5. ELECTRONIC COMMUNITIES: NEW MODELP P
Con-
tent C
Content
Channel
Content C P P
Con-
tent C C
Fuente: Hoffman, Novack & Chatterjee 1995

6. Consumers’ Needs for Community
Communities of Transactions: facilitate the buying/selling
products/services and provide information related to
transaction (example: virtual vineyards)
Communities of Interest: participants interact extensively with
one another on specific topics (example: GardenWeb)
Communities of Fantasy: where participants create new
environments, personalities, or stories (Example: ESPNet)
Communities of Relationship: participants come together around
certain life experiences that often are intense and can lead to
deep personal connections (Example: the Cancer Forum/CompuServe)

7. Traditional Sources of Economic Value in Electronic Communities
- Charge Usage Fees
- Charge Content Fees
- Revenue from Transactions and Advertising
- Synergies with other part of their business

8. New Roles in Managing Electronic Communities
Executive moderators: Moderate discussion, keep discussions focused,
inject new topics/provocative views,seed discussion with facts/content.
Community merchandisers: Identify attractive goods/services, negotiate
with providers, and market them creatively and unobtrusively.
Executive editor: Develops a programming strategy for community and
manage external providers of content, information, and services.
Archivist: maintains and organizes the content generated over time.
Usage analyst: Studies data on participants’ behavior.
New-product developer: Keep the community fresh/distinct from rivals.

9. Follow-Up June 98 Microsoft partner with broadcast.com
July RealNetworks charged that Microsoft’ WMP had sabotaged
its RealPlayer in the US Senate Judiciary Committee’s hearing
on the Microsoft’s anti-competitive business practices.
Nov Microsoft announced:
“Though the companies have achieved some initial
interoperability, RealNetworks and Microsoft have
decided to accelerate their innovations and impro-
vements in different directions.”
Microsoft to pull out $140 Million+ from RealNetworks

10. Follow-Up
April Microsoft won’t include RealNetworks toolbar in IE 5.0
Yahoo! bought Broadcast.com ($5.7 Billion)
Yesterday Larry Jacobson, former president of Ticketmaster and
former president of FOX Television Network, named
President of RealNetworks.
Product: PC wirelessly sending Internet media to
other consumer devices in a home
Today RealNetworks has 125 Million subscribers
and over 60% of market share

11. The most popular revenue model on the Internet is advertising
REVENUES =
(# Visitors/day) * (# pages viewed/ visit) * (365 days/year) * CPM
In 2000, average CPM price was $60-$150 depending on site’s reach.
Source: Cowen Internet Observer, Jan 2001

12. RNWK History and Financial Impact
Split
RealAudio Made compatible with MS WebTV
Launch of Real.com
Shares fall 16% on speculation that Yahoo will stop using software
Shares climb 12% after record 111% jump in Q4 revenues
Includes MS Windows Media in versions of music player software

13. Key Success Factors
Technology
Distribution
Relationships

14. Technology Changing the standard--core competence
Proprietary streaming technology
Targeted audio technology vs. video
Timing
Piggy-backed advertising and Internet craze
Beta testers

15. Distribution Ensured high quality Consumer readiness
Timing--educated public
Predicted the market well
Thought leadership
Made it easy for customers to use
Gave away client-side software (switching costs)

16. Relationships Quality, Reliability, and Speed Reputation
Value, trust, and convenience
Reputation
Targeted larger customer base (non-techies)
Brand
Loyalty - decreased acquisition costs
Partnerships--> Advertising/ Content

17. Real Networks, Inc. Real Broadcast Networks Content Context
Streaming Software
Infrastructure

18. Microsoft Licensing Agreement
Technology
Licenses
Distribution
Channels
Relationships
Customers

19. Key Risk Factors Disruptive Technology Channel Conflicts
Decreased Distribution Capability
Getting “Leap Frogged”
Resource Allocation
Competitive Dynamics
Microsoft’s response

20. Trade-offs in RealNetworks’ Strategy
Pros
Diversification of Risk
Full-Integration
Cons
Competition with Customers
Spread too Thin
Microsoft Could Take Advantage of License Agreement

21. The “Harvest” Decision
Advantages Disadvantages
- Access to short- & long-term capital - Lose of operating confidentiality
- Future offerings to fund growth - Cost of public auditing, reporting
- Establish market value and shareholder fiduciary responsibility
- Controls to protect shareholders and
and from shareholders
- Image management more serious
- Info controlled to prevent inside trading
- SEC limits timing and amount of stock
insiders may sell
- Founders get money immediately - Key managers/employees needed to keep
- Acquiring company assumes all risks. core employees
- Non-compete clauses limit expenditure
. - If sale through stock exchange, founders
receive a fraction of the purchase price
- Access to resources required to grow - Synergies do not materialize
- Increase scale, scope and market share - Clash of cultures, operations, or system
- Management continues to be involved - Lack of freedom to operate the company
Public
offering
Outright
sale
Merger,
acquisition or
partnership

22. THE PRIMARY OBJECTIVES OF
THE REALNETWORKS, INC. CASE STUDY WERE:
1. TO DESCRIBE INTERNET STREAMING MEDIA, AND ITS
MARKET OPPORTUNITY.
2. TO PROVIDE AN ILLUSTRATION OF A FIRM THAT
IDETIFIED A NEW TECHNOLOGICAL OPPORTUNITY,
AND ISSUES RELATED TO HOW TO PROVIDE VALUE.
3. TO EXPLORE THE CHALLENGES FACE BY MANAGERS IN
DESIGNING, BUILDING, AND GROWING A SUCCESSFUL
INFORMATION AGE BUSINESS.
(COMING UP WITH A GREAT IDEA IS JUST THE FIRST
STEP IN THE PROCESS…)