In public, RealNetworks boasts about its leadership in streaming software and dismisses talk of losing any of its business. At the same time, however, it is rapidly transforming itself into a very different company, one that goes beyond its software products and further into multimedia Web services.

Even as RealNetworks plays down its rivalry with Microsoft, it is reinventing itself for a day when it may no longer be able to compete as effectively in the streaming software market. Last November, RealNetworks launched a Web site offering a guide to streaming media on the Internet and quickly established itself as one of the top destinations for online entertainment content.

The company and its supporters say this is a natural evolution of its business, which began with the sale of its PC audio players and revenues from corporate servers needed to stream content to the desktop through the Internet. But others explain the changes in darker terms, saying RealNetworks is redirecting its course as an exit strategy because it recognizes that Microsoft and Windows will eventually cut into its core software business.

"Long term, Microsoft wins the format war. Digital media is one of four or five areas that Bill Gates has identified as key to his company's future," said Peter White, president of Wavo, which provides digital broadcasting services for Virgin's Jamcast site and which recently licensed a branded version of RealJukebox. "It has more R&D dollars to spend, and its format already offers superior quality."

That is all the more reason for the creation of the Real Broadcast Network, part of Glaser's master plan for a one-stop services shop where all content companies can go to stream their material. Simultaneously, the company will expand its RealNetworks.com portal to compete more directly with sites operated by Web music companies such as RioPort, EMusic and MP3.com.

The total package, RealNetworks says, will enable it to remain competitive with Microsoft in the long run.

But here again, comparisons to Netscape are irresistible. As it began to lose market share to Microsoft in browsers, Netscape declared its intention to expand its business beyond software with its Web portal Netcenter.

"I think that both Netscape and RealNetworks have had to modify their direction," said one streaming media executive who spoke under the condition of anonymity. "I don't think their original game plan was, 'We have to go to advertising.'"

Success in services, the final component of the new RealNetworks after its software and portal operations, also faces uncertain prospects. That market has already been targeted by a wide range of companies from different sectors of the high-tech industry, including Exodus, Broadcast.com and even chipmaker Intel.

"The big question is: To what extent can the RealNetworks brand be repositioned as a media brand, and if you've got a portal for streaming content, you will have to promote all that streaming content," said another Web media industry executive who spoke under the condition of anonymity.

That could be a problem for some potential customers of RealNetworks' Web services that might view the company as a competitor in the distribution of content. This is another reason for companies to keep closer ties with Microsoft.

"They're not in the business with a Windows network entity that is competing with me," said Stew Chapin, vice president of marketing at Activate.net, a Web broadcast hosting company. "There's no one hidden behind the curtains that I worry about there."

Such innocent interpretations draw smiles from those familiar with Microsoft's history who are always wary about the software giant's motives.

Brian Kenner, chief technical officer of Intervu, believes that Microsoft views RealNetworks in the same light as it did Netscape for one reason: to protect Windows.

"RealNetworks is in Microsoft's business. They're building multimedia software for the desktop PC. In essence, Microsoft owns every single application on the PC, and I would consider the multimedia player an integral part of the PC," he said. "I think it's not surprising that Microsoft is out there hoping to get in there and take that ground back. The entire computer is based on multimedia now."

Kenner believes that RealNetworks may have learned Netscape's lessons well. "They're unlike Netscape, which really should have been able to dominate if it had been wired right and brought everyone to the portal. But they learned too late about how important that end-user relationship was. I don't think RealNetworks is making that mistake."

Others see more confusion in the company's direction, which could dilute its effectiveness if it veers too far from its original course.

"The more Real starts to incorporate Microsoft into their products, you then become concerned about what is Real's strategy," said David Goldberg, chief executive of Launch, a music site that uses Windows Media technology for its own branded player. "The more Real accommodates Microsoft's technology, the more they become more like Broadcast.com or try to become a media company."  

News.com's Jim Hu contributed to this report.

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