Transcript 01-Class08-realnetworks

RealNetworks Revenue Model
Revenue
Product sales
Advertising
Description
Example
Sell or license physical or
Sell and license streaming
information-based product
media products
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
GUEST SPEAKER
Thursday, February 1
Wayne Myamoto
Systems Engineering Manager
Cisco Systems
Topic:
“New Internet Technologies”
“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
MARKETING:
TRADITIONAL MODEL
C
C
P
Content
Channel
C
C
C
ELECTRONIC COMMUNITIES:
NEW MODEL
P
P
Content
Content
C
P
Channel
C
Content
P
Content
C
C
Fuente: Hoffman, Novack & Chatterjee 1995
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)
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
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.
Follow-Up
June 98
Microsoft partner with broadcast.com
July 98
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 98
Microsoft announced:
“Though the companies have achieved some initial
interoperability, RealNetworks and Microsoft have
decided to accelerate their innovations and improvements in different directions.”
Microsoft to pull out $140 Million+ from RealNetworks
Follow-Up
April 2000
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
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
RNWK History and Financial Impact
Launch of
Real.com
RealAudio Made
compatible with MS
WebTV
Split
Shares fall 16% on
speculation that Yahoo
will stop using software
Split
Shares climb 12% after record 111% jump in Q4
revenues
Includes MS
Windows Media in
versions of music
player software
Key Success Factors
Technology
Distribution
Relationships
Technology
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Changing the standard--core competence
Proprietary streaming technology
Targeted audio technology vs. video
Timing
Piggy-backed advertising and Internet craze
Beta testers
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)
Relationships
• Quality, Reliability, and Speed
– Value, trust, and convenience
• Reputation
• Targeted larger customer base (non-techies)
• Brand
• Loyalty - decreased acquisition costs
• Partnerships--> Advertising/ Content
Real Networks, Inc.
Content
Real Broadcast Networks
Context
Infrastructure
Streaming Software
Microsoft Licensing Agreement
Technology
•Licenses
Distribution
•Channels
Relationships
•Customers
Key Risk Factors
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Disruptive Technology
Channel Conflicts
Decreased Distribution Capability
Getting “Leap Frogged”
Resource Allocation
Competitive Dynamics
– Microsoft’s response
Trade-offs in
RealNetworks’ Strategy
Pros
Cons
• Diversification of
Risk
• Full-Integration
• Competition with
Customers
• Spread too Thin
• Microsoft Could
Take Advantage of
License Agreement
The “Harvest” Decision
Advantages
- Access to short- & long-term capital
- Future offerings to fund growth
- Establish market value
Public
offering
Outright
sale
Disadvantages
- Lose of operating confidentiality
- Cost of public auditing, reporting
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
Merger,
acquisition - Access to resources required to grow - Synergies do not materialize
- Increase scale, scope and market share - Clash of cultures, operations, or system
or
partnership - Management continues to be involved - Lack of freedom to operate the company
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…)