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Rob Glaser Is Racing Upstream

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DQI Bureau
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As a boy growing up in a middle-class New York suburb, Robert Glaser was a

rabid New York Mets fan. A numbers whiz who memorized large sections of the

3,000-page Baseball Encyclopedia, 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.

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Robert

Denis Glaser
  • Born: January 16, 1962, in New York City

  • Education: Yale University, BA and MA in economics, BS in

    computer science, all in 1983

  • Career highlights: Joined Microsoft in 1983, rising to

    oversee Microsoft Word, a popular word processor. Also launched the

    company’s multimedia business. Left Microsoft in 1993 and a year

    later launched Progressive Networks (renamed RealNetworks), the

    pioneer of audio and video over the Web

  • His first streaming media on the Net: In 1995, RealNetworks

    broadcast the first live event over the Web–a baseball game between

    the Seattle Mariners and the New York Yankees

  • Politics: A hard-core lefty. At Yale, Glaser penned a

    political column called "What’s Left" for the college

    newspaper. When he set up RealNetworks, he decided that 5% of the

    company’s profits would go to charity. He has since earmarked the

    money for social causes

  • Musical tastes: Favors alternative rock bands, such as Foo

    Fighters and the Posies. The band that has touched him the most:

    Nirvana. "It has an undercurrent of raw emotion, wrapped with

    this cynical indifference," he says. His music collection fills

    about 10 gigabytes of computer storage

  • Baseball: Got hooked on baseball in 1969 watching the Miracle

    Mets win the World Series. "Baseball is like any religion: It

    tugs at you through life," Glaser says. He’s now part-owner of

    the Seattle Mariners

  • Bowling: Glaser wasn’t much of an athlete growing up. He

    did excel at bowling and as a teen once rolled a 231. Last year, he

    built a two-lane alley in Real’s basement. He joined with former

    Microsoft colleagues to buy the Professional Bowlers Association

  • Family: Married his second wife, Sarah, last summer

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 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 and a falloff in advertising on its websites 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 with chief rival, Microsoft planning 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.

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To Microsoft’s critics, this could be an instant replay of the way the

software giant vanquished Web-browser pioneer Netscape Communications.

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. 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 executive VP Kenneth 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.

For former Microsoft executive Glaser, beating onetime mentor William 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.

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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 websites to switch to Microsoft’s technology. "Real is the

dominant force in streaming media," says a Jupiter Media Metrix analyst.

"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. 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 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 and we’re

cautious about it," they say.

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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.

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 Broadcast.com 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.

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His behavior has contributed to a high turnover rate among Real’s

management team. Recently, the company hired its third COO in four years, and it

is searching for its third CFO. 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-CTO Philip Rosedale, now the chief

executive of San Francisco’s Linden Labs, who still keeps in touch with Real

managers.

Glaser is an unusual mix of capitalist and liberal do-gooder. 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.

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At times, it is an uneasy coexistence. 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.

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, NY, a K-12 school with a

humanistic curriculum.

Glaser’s academics carried him to Yale in 1979. Glaser graduated with three

degrees: a BA in computer science, another in economics, and a master’s in

economics.

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Real

Headaches
RealNetworks is

the leading provider of software for audio and video delivery via the Net,

with 215 million consumers signed on and more than 400,000 streaming-media

computers within companies
  • The Challenge:



    Slackening Demand



    His dot-com customers are failing, and old-line media companies

    are cutting back. Real’s first-half software sales slid 15%
  • Glaser’s Strategy



    He hopes to ride out the slowdown with $341 million in cash. When

    demand returns, he aims to be top dog
  • The Prospects



    Solid. Glaser is making a long-term bet. With his deep pockets and

    market-leading technology, Real is positioned well
  • The Challenge:



    Microsoft



    The software giant includes its own media software with each copy

    of Windows. And it’s catching up, technology-wise
  • Glaser’s Strategy



    Real has deals with five of the top seven computer makers to

    include its software on their machines. Plus, AOL uses the technology
  • The Prospects



    Holding on. Real’s player is ubiquitous. But as long as

    Microsoft’s monopoly is unchecked, Real will strain to stay ahead
  • The Challenge:



    Shrinking Ad Dollars



    The Web ad business is bleak. Like that of most other Web powers,

    Real’s ad revenue has tanked, falling more than 60% last quarter
  • Glaser’s Strategy



    He’s relying less on banner ads. Instead, he’s creating new

    formats, gussied up with audio and video, hoping advertisers will pay

    more
  • The Prospects



    Dicey. No matter what kind of ads he crafts, budgets for online ad

    buying are weak, and that won’t change



    soon
  • The Challenge:



    New Businesses




    With revenues tanking and facing pressure from Microsoft, Glaser must
    find new businesses and sources of revenue to keep growing
  • Glaser’s Strategy



    He’s launching subscription services such as GoldPass, which

    lets people tune into baseball games, and MusicNet, an online music

    service
  • The Prospects



    Good Start. GoldPass is starting well, with 300,000 subscribers,

    but nobody knows if consumers will pay for music

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, 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. 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.

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. 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.

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 Hatch 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, 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

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 in BusinessWeek. Copyright 2001 by The McGraw-Hill Companies, Inc

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