Is Real losing the video war?

But the analysts are far from switching their bets. Speaking at the Streaming Media '98 conference, Forrester analyst Seema Williams said that while RealNetworks' RealMedia servers are losing market share to Microsoft's rival NetShow technology, expertise will pay off in the end.

According to Williams, about a third of surveyed companies are now using Microsoft's NetShow servers, whereas a few months ago NetShow had barely made a dent in the market. "Microsoft has made surprising gains in this market," he said.

RealNetworks makes servers and players for what is known as streaming media, a way of distributing audiovisual programming over the Internet without taking up much bandwidth.

The Forrester study, which covered 42 Internet companies, focused on streaming media servers -- the software on which companies make money. Users get the player software for free.

The study showed that RealNetworks' RealMedia servers are still used by about two-thirds of the companies surveyed. Other streaming media server types, such as Apple's QuickTime, accounted for less than 10 per cent of the market.

RealNetworks CEO Rob Glaser has been outspoken in his criticism of Microsoft's tactics in recent months -- claiming before the Senate Judiciary Committee that Microsoft's NetShow player was designed to disable the RealPlayer.

Forrester sees the streaming-media market splitting into two parts: Casual providers, who offer a bit of media here and there to spruce up their sites; and heavy providers, who rely on the technology for their day-to-day businesses.

Microsoft is expected to make gains among casual providers, since its media servers are bundled with other Microsoft products. But RealNetworks could take the lion's share of the more heavy-duty media companies, Forrester says, partly because it offers an outsourcing service.

"RealNetworks might just turn out to be the winner there," Williams said. "They have a hosting package, which is turning out to be pretty important."

Gary Schultz, president of Multimedia Research Group, agreed that the high-end market could bring Real significant income. "A lot of dollars are being spent there, especially for business uses," he said.

Forrester's study showed that a significant number of providers turned to a hosting service instead of serving their own media.

RealNetworks could also outmanoeuvre the competition by leveraging its audiovisual expertise. "Unlike most software, this medium is subjective -- the user's perceptions of it matter," said John Ryan, principal of Ryan Hankin Kent. "Real might be able to differentiate itself on the basis of superior audiovideo engineering. That is an area in which Microsoft has no expertise, so they'll have to keep acquiring it."

Ryan stopped short of placing his bets on RealNetworks, however.

The Forrester study also found that the majority of streaming-media providers -- almost 80 per cent -- were looking to advertising to help pay for the content. Companies were also using ecommerce and sponsorships as an income base.

Despite its popularity, however, advertising won't be enough to support streaming media growth for long, according to Forrester. The firm expects more companies to turn to subscriptions, something only 7 per cent of providers are currently using, Williams said.