RealNames shut down operations Monday and laid off 83 employees. The company said it would be liquidating its assets and "making every effort to maximize their value for the benefit of (RealNames') creditors and shareholders."
Documents published on the Web site of former RealNames CEO Keith Teare say the company owed Microsoft $25 million, due Friday, and that it was in no position to pay. RealNames suggested that the software giant renew its contract so RealNames could try to build up business to repay its loan, but Microsoft declined, the site says.
Microsoft would not comment on the contract terms, citing the contract's confidentiality agreement.
The software giant, which owns 20 percent of RealNames stock, had a contract to offer the Redwood City, Calif.-based company's keyword service through its Internet Explorer browser. Keywords are words and phrases that can be used to search databases and the Internet.
RealNames' service allowed companies to buy keywords. When people typed those keywords into a Web browser's address bar, they would be taken directly to a particular Web site. For example, typing the word "census" would take a person directly to the U.S. Census Bureau Web site.
RealNames said its service will operate until June 30, the last day of the Microsoft contract. The news first appeared in The Wall Street Journal and The Washington Post.
Pointing to results
Microsoft spokesman Matt Pilla said "user experience" was the driving force behind the company's decision to end the RealNames relationship.
He specifically faulted the way RealNames handled "generic" keywords.
"If you typed in 'San Francisco real estate' it (took) you to 'Real Fast loans' or something like that. It was becoming something that wasn't intuitive for many customers," said Pilla. "It became difficult for us because we were attempting to check into these mistakes, and we received a lot of complaints from customers."
But Teare said Monday that Microsoft was being "disingenuous."
"The real issue is...they do not believe in naming as platform; they believe search is the way people should find things on the Internet," he said. "And because they have 100 percent of control over search, they get 100 percent of the revenue."
He argued that Microsoft should not make its decision regarding the future of RealNames' technology based solely on business concerns. Teare said he believes that because Microsoft "dominates the Internet from the point of view of users," it in effect has a duty to encourage new technology.
"Most users interact with Internet protocols through Microsoft applications. If those applications do not integrate standards, then effectively those standards may as well not exist," he said. "Whether Microsoft accepts the responsibility or not, it is able to make a decision for or against innovation."
A VeriSign representative said Monday that the Web address provider, which also owns a stake in RealNames, had been talking to the keyword company about its contract situation and had been made aware of the decision last week. Last October, the pair signed a deal that allowed RealNames to offer its service to Internet registrars.
"We regret that we're no longer going to be able to continue distribution and support of RealNames' service," spokeswoman Cheryl Regan said. "As of today, we're no longer taking registration in keywords."
Losing the tough fight
RealNames has struggled to gain a foothold among Internet surfers. Although the company says it completes 170 million "keyword resolutions" per month, Net users have a habit of just typing in full URLs. The company also has faced competition from other products that help surfers try to get to online destinations quickly.
Still, Teare had seen brighter prospects for the company he founded, calling keywords "the next-generation naming system." But the loss of RealNames' key distributor, he said, made it difficult to keep the business going in its current form.
"Despite our success, taking the step to shut down the company has become necessary," Teare said in a statement. "Microsoft's decision not to renew our distribution contract makes maintaining the company untenable."
The former CEO's site says RealNames proposed paying Microsoft $5 million upfront and either $5 million or 15 percent of revenue by June 2003. RealNames also proposed turning over up to 40 percent of its future revenue to Microsoft, he said.
Teare says on his site that Microsoft made its decision last Tuesday and employees were let go Friday. The site provides a host of documents, including notes from a May 7 meeting between the two companies, an 88-page PDF file with RealNames' proposal to Microsoft, white papers and technical documents.