Search Company RealNames Shutting Doors

The company lays off 80 employees and liquidates its assets after Microsoft decides not to renew RealNames' Keywords contract.

RealNames Corp. shut down its operations this week and is putting the blame squarely on Microsoft Corp.

The Redwood City, Calif., company laid off 80 employees and is liquidating its assets after Microsoft decided not to renew RealNames Keywords contract.

The two companies struck an agreement in March 2000 for Microsoft to use RealNames Keywords technology in the Microsoft Internet Explorer browser. However, Microsoft has chosen not to renew the distribution contract, which ends June 30. On that day, the Keywords service will no longer be available, said RealNames officials.

Instead, Microsoft is planning to use a search scheme, most likely the keyword search technology on which the Redmond, Wash., software giant has applied for a patent.

Microsoft spokesman Matt Pilla said the company was finding that customers "were not getting to the site they were trying to get to [using the Keywords technology], so it became a user experience issue."

He said it became an issue when RealNames moved to a "generic keyword" scheme.

A search of the U.S. Patent & Trademark Offices database resulted in a patent for flexible keyword searching technology submitted by Microsoft in the name of two inventors, David Garber and Adam Feldstein, both Microsoft employees. Microsoft is expected to embed the search engine in its products and services.

The Microsoft patent application said the search engine implements a multilevel search scheme. A first level involves performing a keyword search based on character matching. A second level, performed only if the first level yields no results, is a keyword search based on phonetic representations of a search phrase and of the keyword. A third level, performed when the first and second levels yield no results, is a rough matching search.

In a Weblog on the issue—provided by RealNames officials—company founder and CEO Keith Teare, criticized Microsofts decision. In the new world, he said, "Microsoft—because its browser has almost 90 percent market share—either steps up to allow innovation or it doesnt happen. Its as simple as that."

But Microsofts decision has led to lost jobs, including Teares. The employees were laid off as of May 10, he said.

"I am sure that Microsoft will do an excellent job of misinforming the public about the reasons for this decision, and so I want to put the record straight," he said.

Teare said RealNames envisioned a five-year deal with $200 million going to Microsoft. In addition, he said VeriSign Inc. last fall had committed to a plan to give every .com, .net and .org customer five free promotional Keywords for 30 days. "This would have resulted in widespread awareness and great revenue boost" to RealNames, he said.

In a statement, Teare said: "RealNames has posted three consecutive quarters of revenue growth and reached positive cash flow in the first quarter of 2002, a significant milestone for any private company. Our performance also demonstrates that Keywords will extend naming beyond domain names."

One analyst who wished to remain anonymous said, "Any company that partners with Microsoft has to know there is a good possibility they will be either bought or put out of business."