RealNames Shuts Down, Blaming Microsoft

RealNames Corp., a pioneering provider of an alternative to the domain-name
system, said it would shut down, pinning the blame on Microsoft for declining to renew a key contract with the company.

The Redwood City,
Calif.-based company said it laid off its 83 employees and began the process of
liquidating its assets. The move came after Microsoft decided not to renew its
contract with RealNames, which was the exclusive provider of keywords for
the Internet Explorer browser. The function allowed a user to type in
a company name, for instance, instead of trying to remember if its official
Internet address. A Web user looking for General Electric would simply type
the name, instead of

RealNames will cease operations on June 30, two days after its two-year contract with
Microsoft expires. In March 2000, Microsoft made RealNames its exclusive provider of keywords for Internet Explorer in exchange for a 20 percent stake in the company and $40 million. RealNames paid Microsoft $15 million last year, but was unable to pay the $25 million due this month. Instead, RealNames executives went to Microsoft with a deal to continue the relationship, but they were rebuffed.

When RealNames and Microsoft inked the deal in 2000, it was widely seen as an endorsement that RealNames would
become a key player in simplifying the sometimes-mystifying Internet
address system, allowing companies to retain their brand names. In fact,
some spoke of RealNames as a potential
successor to the domain-name system
that had trouble deciding who was
the rightful owner of some domains.

But, according to RealNames founder and CEO Keith Teare, the credibility of
an alliance with Microsoft turned out to be a double-edged sword for the
company, since it effectively tied its fate to the whims of Microsoft.

“The easy answer to say the deal was a mistake, but I think that’s wrong,” he said. “Four-hundred and eighty million people use Explorer. If you’re trying to innovate in Internet naming, you’ve got to get that application to support you; otherwise you have a huge problem of distribution.”

Commenting on his personal Web site, he was more blunt about the effect of Microsoft’s domination of the browser market.

“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,” Teare wrote. 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.”

Microsoft officials blamed flaws in the RealNames system for the decision to
end the contract, citing complaints that people were speculating on
RealNames keywords making some results confusing.

“This was a very difficult decision for the team that managed the relationship with RealNames,” a Microsoft spokesperson said. “It was becoming difficult from the standpoint of the business model and the user experience provided by the RealNames service.”

Teare dismissed the concerns, saying Microsoft revoked only 14 of the 128,000 keywords it sold in the last nine months. “I think the real reasons is that the search environment is where they have 100 percent control,” he said.

Meanwhile, the keywords space is clearing out. The main competitor to the
Microsoft-RealNames system for becoming the industry standard was AOL, which
operates its own keyword system available to its 35 million subscribers.
Users of AOL-owned Netscape’s browser also use the same keyword system.
Earlier this year, Netword, a Gaithersburg, Md.-based company marketing a
similar service to RealNames’, announced it was putting its patented keyword
system up for sale.

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