[Ted] Real Networks finally has a business model that works. Look what the company's done in the past year:
- Built out its technology stack: DRM support, Web services, recommendations. I first became re-interested in Real when I heard they had ported Windows DRM to Linux. And then they announced Web 2.0 access to their music catalog. At that point, I knew that this company was driven by technology. The close partnership with Microsoft means Real can take protected content out onto every digital platform -- MP3 players, mobile phones, set-top boxes, you name it.
- Beefed up its content: music, games, video. More music, more games, more video, more ringtones is what makes Real so compelling to a hardware manufacturer. Real's acquisition of WiderThan for $350 million gives it a bigger portfolio and a real share of the mobile entertainment back office.
- Brought in a massive capital infusion. Real's settlement and deal with Microsoft put $761 million in the treasury. Why go public to raise capital when Microsoft is willing to pay? This is cheap money that Real is using to finance its expansion.
- Developed into new distribution channels: MSN, Microsoft Messenger, Sonos, SanDisk, SK Telecom, Verizon, T-Mobile. With every deal, Real is acquiring customers and a paths to market. Sonos, for example, invented whole house audio and is now found in Best Buy, Circuit City, and Tweeter. And now Sonos comes bundled with all of Real's music. Bose should be wondering why it didn't invent this market. And now the SanDisk deal makes Real
When the company does finally decide to go public, it will be in a powerful market position with significant annuity revenues.
So what does the success of Real's strategy mean for digital entertainment?
- What it means #1: Business deals, not licensing deals, drive digital entertainment. Microsoft has tried and failed to create a meaningful business on a software API. Unlike with Windows, digital media needs a "business API," not a software API. PlaysForSure? Not. Future deals will come bundled with content, DRM, and technology. In that world, Microsoft is an ingredient, not a brand.
- What it means #2: Technology is critical -- but must be hidden from view. Real gets that digital media requires digital technology. (Others do, too, which is why all those Web 1.0 entrepreneurs are building new startups.) But only a few companies have figured out that the technology must be hidden from view. Apple is one, of course. And now it's clear that a few others -- Sonos, Logitech, Sling Media, and even Microsoft's Zune group -- are getting it.
- What it means #3: Back-office providers must willingly hide their brand from view. You heard it hear first, folks: ingredient suppliers don't have consumer brands. Note to all startups in the ingredient business: give up thinking that you're creating a consumer brand and start focusing on your real customers -- Yahoo!, AOL, Motorola, Cisco, Microsoft, Samsung.
Disagree? Lemme know.
[signed] Ted
Technorati Tags: Forrester, SanDisk, Sonos, Zune, Real, iPod
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