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The firm's technology would do away with awkward URLs, but its controversial business plan melds online, offline ads.
In November 1998, RealNames CEO Keith Teare planned to have Microsoft (MSFT) and Netscape announce on the same day that they would be integrating his company's technology into their Web browsers. Microsoft Senior VP Brad Chase had already committed when Teare reached an agreement with Mike Homer, Netscape's executive VP of sales and marketing. The next week, America Online (AOL) bought Netscape, and the Netscape deal was off.
Eighteen months later, AOL remains a holdout. Microsoft, however, is more committed than ever, and that might be enough to ensure that RealNames will change how people navigate the Internet.
RealNames, based in San Carlos, Calif., markets a technology for using common words instead of URLs to navigate the Web. After a deal in March that gave Microsoft 20 percent of RealNames, the software giant will integrate the company's keywords more deeply into both its Internet Explorer browser and MSN service. With the RealNames address system built into every PC that ships, the current domain-name system of URLs could become invisible to surfers, buried beneath a more user-friendly layer of common name addresses.
Beyond the friendliness, though, is a controversial am bition. RealNames' business plan hinges on the convergence of online and offline advertising; it focuses less on everyday language than on branding. In Teare's vision, common names will be bought. Last weekend, for instance, in movie theaters across the U.S., the trailer for 15 Minutes, an upcoming movi e from Time Warner (TWX) (whose merger with AOL is pending) quoted the RealNames Internet keyword for the movie's Web site, not a URL.
If the branding of cyberspace raises hackles among die -hard Web idealists, consider the implications of a private company achieving near-monopoly control of Web navigation. Teare, who filed in October to take RealNames public, does not rule out a future in which a surfer who types "books" will be taken straight to Amazon.com (AMZN) .
"Monopolies are not bad things unless they are abused," he says. A standard address system, less cumbersome than the current "www.whatever.com," would undoubtedly be a blessing. The question is, would RealNames own that standard?
When someone types a keyword or phrase into the browser address field of Internet Explorer, the request is routed through a RealNames server database and then directly to the URL linked to that keyword. Although RealNames allocates free keywords for a few small personal sites, most keywords will be sold on a yearly subscription basis at the low end ($100 per keyword per year) or licensed to major-brand customers at several hundred thousand dollars per keyword.
On top of the keyword fees, RealNames will get a processing fee for each visitor delivered via its routers. The per-visitor fee will range from 1 cent to 60 cents. Each time Internet Explorer delivers a page to a user who types a keyword, both RealNames and Microsoft will get a cut.
The upshot: For the first time, Microsoft is getting direct, nonadvertising revenue from its expensively developed browser.
Teare says RealNames' commercial focus is simple: meet ing the needs of marketers. "We're giving brand managers a way to spend money really wisely," he says. The Holy Grail for brand marketers is "convergence," in which an offline brand, established in traditional broadcast and print media, transfers online, unmodified. Until now, that's been nearly impossible, hence the plethora of awkward URLs in offline ads.
Arguably, this issue has held back advertising dollars from the Web. Teare plans to tap into a reservoir of unspent ad money, sharing the revenue with his partners, including, along with Microsoft, such search services as AltaVista, Google and Inktomi (INKT) . "There are no losers" in this arrangement, he says.
Nevertheless, even Teare agrees that in an ideal world the Internet keyword system should be a type of public service, but not in the Internet economy. "The Internet is not about to be governed as a public service anytime soon," he says. "Not until there is such a thi ng as a world government, anyway."
Instead, Teare positions his company as a trusted neutral party, committed "not to treat Microsoft better than you would treat Netscape, not to treat the United States better than you would treat Libya" (or as general manager of MSN Search Bill Bliss puts it, a "Switzerland of the Internet").
To that end, the company has established an independent "policy advisory board" to administer the allocation of keywords. The guiding principle will be "user expectations," and unlike in the current domain system, cyber squatting will not be possible.
But can RealNames remain neutral without AOL on board? AOL has its own proprietary keyword system similar to RealNames' except that it covers only its own network. RealNames says it has nearly 2 million keywords already linked to URLs; AOL's universe only contains 15,000. (That movie trailer for 15 Minutes also featured an AOL keyword, in larger type.) In addition, AOL/Netscape's Navigator browser has an address-line keyword system called "smart browsing." The major difference with RealNames is that the Netscape system is free. No one can buy a Navigator keyword.
"It comes down to a difference of money," says Darius Paczuski, director of worldwide search and navigation for Netscape. "It's very hard to do the right thing by the user and make money." While it sounds ideal - user-friendly, ye t not for sale - the failure to build in direct revenue is simply naive as far as Teare is concerned, proof that Netscape's system would never challenge RealNames'. It's too expensive, he says, to maintain a service that's both comprehensive and free.
Despite Microsoft's 20 percent stake in his company, Teare declares his independence from the Redmond, Wash., behemoth and says he expects AOL to sign a deal with RealNames eventually. "I do feel there is an egotistical 'not invented here' reason behind Netscape not currently partnering with us, rather than a rational business reason," he says.
If Teare is right, cyberspace increasingly will become a branded universe. Even though RealNames does not yet sell generic keywords such as "books" or "music," that's next on Teare's agenda. "We're committed to getting there eventually," he says. "We just think it's good citizenship not to do it yet."
He points out that no one objects to the ownership of the number 1-800-Flowers. So why should the Internet keyword "flowers" be any different? If Amazon.com were to fill the airwaves with ads that concluded with "Internet keyword: books," that could justify giving Amazon the word under the "user expectation" criterion.
Shep Bostin, COO of Gaithersburg, Md.-based Netword, which has a technology that rivals RealNames', derisively suggests that with generic keywords for Internet Explorer, Microsoft might need to change its slogan to "Where do we want to tell you to go today?"
To make the system useful to consumers, RealNames seed s its database with well-known brand names, many of which aren't paid for yet. For example, the most-used keyword in the database: Yahoo.com. Millions of users get to Yahoo through Real Names servers even though Yahoo doesn't pay a cent to RealNames. What can Teare, heading a company with about 260 employees and $1 million in revenue for the last six months of 1999, do about that? "We try really hard not to have to," he says, "but ultimately you do get to a point where we switch the free ones off."
Welcome to the future of e-marketing. The losers in this future are not yet clear, but Teare is playing to win.