Seattle’s tech industry may be known for heavyweights such as Amazon.com and Microsoft. But the DNA of another company has had a surprising impact on the Seattle startup ecosystem, populating dozens of new ventures and producing some of the region’s most notable entrepreneurial success stories.

That company is RealNetworks.

OK, I know what you’re thinking. RealNetworks? Are they still around?

Yep, they are.  And while the pioneer in online audio and video is struggling to find relevancy in 2012, its impact across the broader Seattle tech community is worth pointing out and may provide some clues as to what the region needs in order to create the next generation of entrepreneurial companies. (And, surprisingly, it’s not always hugely successful outcomes).

Now, before you call me crazy, just hear me out.

I’ve been floating the theory of RealNetworks’ impact on the Seattle startup community to a number of venture capitalists, lawyers, entrepreneurs and bankers over the past few months, testing the thesis and encouraging debate. Each time I bring up RealNetworks, people laugh, discounting its impact.

Then, I hit them with this line: RealNetworks alumni have produced more important startups in Seattle than Amazon.com alumni.

That tends to get people’s attention. After all, you’d think that Amazon.com — founded in the same year as RealNetworks — would have produced far more successful spin outs. But, despite an employee count that is now roughly 50 times bigger than RealNetworks, I’m hard-pressed to name one hugely successful Amazon spin-out that’s rooted here in Seattle. Twilio is perhaps the most successful, though former Amazon employee Jeff Lawson relocated the company to the Bay Area shortly after it was founded. A host of smaller companies led by ex-Amazon.com employees are on the rise — such as Lockerz, Opscode and EnergySavvy. But the cast is relatively small.

In fact, Amazon.com may be having a reverse effect on the startup ecosystem. As it hunts for top-notch talent, it has been more of an importer than an exporter of startup talent (see examples of Dave Schappell’s crew at TeachStreet and Logan Bowers’ team at Quorus in recent months).

That’s not the case with RealNetworks whose roots can be seen all over the place in Seattle startups.

Isilon's Sujal Patel

Consider this: The most successful venture-backed company to emerge in Seattle in the past 10 years — Isilon Systems — was founded by ex-RealNetworks engineers Sujal Patel and Paul Mikesell. Sold to EMC for $2.25 billion, the online storage company continues to grow like gangbusters in Seattle’s Pioneer Square neighborhood.

But it doesn’t stop there.

Big Fish Games — one of the region’s most established gaming companies with revenue of $180 million last year — was created by former RealNetworks’ gaming exec Paul Thelen. His boss at Real, Andrew Wright, sold Smilebox last year to IncrediMail for up to $40 million.

A number of other entrepreneurs — Derrick Morton of Flowplay, Kelly Smith of Zapd/Inkd; Dan Shapiro of Ontela/Sparkbuy; Mike Metzger of PayScale; Brad Hefta-Gaub of Korrio; Josh Hug of Beamit Mobile; Virl Hill of Jumala and others — trace their histories to RealNetworks.

Beyond that, RealNetworks has spun off one of the top digital music companies. Rhapsody now boasts more than one million subscribers, and reported first quarter revenue of $35 million. There aren’t many Internet companies in this city producing that kind of revenue, surpassing even Zillow’s quarterly total.

Why did RealNetworks spawn so many startups?

There are certainly a number theories worth exploring as Seattle considers methods on how to bolster its technology ecosystem, a debate that’s been raging in recent weeks. During its heyday, RealNetworks developed a hard-charging entrepreneurial culture driven by founder Rob Glaser.

An ex-Microsoft executive, Glaser recruited smart people and encouraged them to push the envelope. But his style didn’t always mesh with others, causing some to leave the company. That churn, coupled with a slumping stock price, had to play a role in the entrepreneurial seeds being planted. The fact that RealNetworks never became a huge tech titan on the order of Microsoft or Amazon, which could lock in employees with huge salaries and, at least in the case of Amazon a rising stock price, also should be considered.

But that’s just part of the story.

Rob Glaser (Photo: Tyler Sipe)

To get more perspective, I asked Glaser — an active Seattle angel investor who remains chairman of RealNetworks  — for his thoughts. Glaser, who is now involved in a new Seattle and San Francisco startup called Sidecar, said he’s proud of the fact that so many entrepreneurs have emerged from RealNetworks.

“I think it is fair to say that we’ve probably punched above our weight in terms of entrepreneurs who have roots in our company,” said Glaser.

Multi-generational startup lineages are common in Silicon Valley, going back to the days of Fairchild Semiconductor. But Glaser said that culture does not exist in Seattle.

Boeing didn’t really create an entrepreneurial culture at the aerospace giant, nor did Microsoft to the level one might think.

“It was a small cohort of us that went literally right from Microsoft to a major entrepreneurial success,” said Glaser, also pointing to Valve Software co-founder Gabe Newell.

At RealNetworks, Glaser said that he was trying to find a select group of people who could bring the same type of entrepreneurial energy and creativity that he tried to bring to the company.

“My motto was that (culture) would help us find opportunities both within our business, and sometimes in adjacent businesses,” said Glaser, referring to RealNetworks’ push into the casual games business as one key example. “We looked for that type of talent, specifically…. And we tried to nurture that talent and encourage the talent in a way that I think was effective. Obviously, many companies in the Valley do this.”

Because Amazon.com and Microsoft are so huge, Glaser said that they don’t always produce the talent necessary to pursue entrepreneurial ventures. In many cases, he said those companies are hiring for very specific roles, rather than folks who can float between various businesses and see the big picture.

“When businesses are that big and that multi-faceted and very few people are looking at the whole interconnection of all of those pieces, they don’t typically create the skills or the training necessary for someone to do it themselves,” said Glaser. “When I talk to entrepreneurs — and I had lunch with Sujal (Patel) last week — I feel like a lot of them learned a ton about entrepreneurship about how we tried to engage and work with them inside of RealNetworks.”

Asked if there’s a way to spark more of that entrepreneurial culture in Seattle, Glaser noted that it’s really just an “inherent, organic process” that takes time. He did cite the role of the University of Washington, pointing to the success story of computer scientist Oren Etzioni who founded Netbot, Farecast and Decide.com. But he thinks the UW could do more.

“Stanford has 20 or 50 Oren Etzionis,” said Glaser.

RealNetworks certainly has done its part.

As we debate how to bolster the startup ranks in Seattle, maybe we need to look beyond the walls of Amazon.com and Microsoft for help, and ask ourselves: How do we get more RealNetworks?

Comments

  • http://twitter.com/TroyJMorris Troy Morris

    I did a few stints at RealNetworks and would agree with you, John. Not a week goes by where I don’t cross an Alumni of Real doing something (usually amazing) in the start-up space.

  • http://www.facebook.com/people/Kelly-Smith/573153409 Kelly Smith

    I am very, very fortunate to have Rob as a board member, an investor and mentor.  He’s been called smart.  But tough.  And I’d agree.  But he’s a proven entrepreneur and his insights are almost always on the mark.  I am very proud to be able to continue learn alongside him after all these years.  

  • http://twitter.com/vzh Virl Hill

    Thanks John, I’ll add another reason. The network. We all encourage and help each other. I am incredibly grateful for the support and advice I’ve received (and continue to receive!) from many Real alums. It’s a remarkable group of people.

    • johnhcook

      The RealNetworks ‘mafia’ does seem stronger than most. Other companies where I’ve noticed this over the years: Expedia and Starwave. 

      I am still baffled why more entrepreneurial folks don’t leave Amazon, but that’s a subject for another in-depth column.

      • Gloria Yarovaya

        +1 Money/Amazon vesting schedule?  So true, most of the people I know from Amazon keep telling me how they are going to start a company one day…one day. 

  • http://twitter.com/EricBurgess Eric Burgess

    I’ve heard the same theory about Classmates.com. No, really, I have.

  • Bink Binkerson

    I’m a pseudonymic RN person from the VERY early days in Pioneer Square.   Spent well over a decade there.   Could tell stories good, bad, amazing, depressing.    But the general message of this story is 100% spot on.  In general, incredible, great people.  Will not dwell on the exceptions, who were generally executives.

  • http://www.christopherbudd.com Christopher Budd

    OK, color me skeptical at the start but convinced by the end. Nicely done.

    • http://lianza.org/ Tom Lianza

      I had the same experience!

  • http://www.facebook.com/profile.php?id=690891536 Paul Ingalls

    I think part of the reason so many people spun out to work on their own gig was the intrapreneurial atmosphere at Real.  I spent 7 years there, most of it on the games team with Andrew, and we had a lot of independence within the organization to build the business.  We were given plenty of rope, it was up to us to make a bow instead of a noose.  And Rob was always there to let you know if he was choking…:)  This was great training for running something independently.  Focus while under pressure.  It hones you…

  • http://twitter.com/bwmullins Ben Mullins

    Great article John!

    I left RNWK’s recruiting team in 2005 to Starbucks and a major difference that I observed was that Rob G consistently championed talent acquisition (he would interact with his recruiting staff daily, wanted to know about candidates as a whole person vs niche skill-set, funded a robust campus program which Rob called gathering seed corn…)  Howard S champions his “partners” (ie current SBUX employees) but I rarely if ever heard him mention recruiting or talent acquisition unless asked.  Rob G challenged his staff to participate actively in a culture of recruiting, and we hired exceptional people.  The leader who can create an engaged talent acquisition/recruiting culture coupled with an organizational structure that develops and recognizes its people must surely exist?

    A final note, there were very talented recruiters at RNWK including exec recruiter Sandy Gould who went on to Linden Labs and now Disney.  He was a key influencer to c-level and drove much of the successful executive talent acquisition activity from late 90’s through the early stages of Real’s decline as a “player…”

  • Guest

    Very innovative Company for their time.  Great company, great idea!

    Hope they turn things around.

  • Real Fan

    Others: Matt Hulett/Mpire; Chris Maskill & Jeff Schrock/Activate; David Leeds/Tango Card

  • Davecotter

    totally agree with everybody.  Great article John. Everyone has that *one* company or professional experience that changed the way they think…and with RNWK, it was the belief that *anything* is possible.  I’ve heard “change the world” phrase thrown about so many times in the last 15 years….but at RNWK, we did;-)  It was the belief that you can change the world, that it’s your job to change the world, and when surrounded by people of the same mind, it’s intoxicating..you just want another hit;-)   

    Anyway, a few others worth noting that have/are reshaping the Seattle Tech community that are totally worth mentioning:

    * Ian Freed, VP at Amazon that brought us the Kindle.
    * Adam Selipsky, working side-by-side Andy Jassy brought us Amazon Web Services.
    * Eric Liu, Guiding Lights Network (how we should be thinking about Civic Entreprenuship)
    * Len Jordan, now at Madrona funding the next wave of startups.
    * Jeff Ayars, VP Engineering at Groupon
    * Kelly Jo MacArthur, VP IP Acquisitions and Investments at Amazon
    * Michael Schutzler, CEO at LiveMocha
    * Colleen Moffitt, Communiqué Public Relations
    * Marty Roberts. SVP at Comcast
    * Rob Gragy, COO at Wetpaint
    * Rahul Agarwal, Founder and President, Adroit Business Solutions Inc.
    * Philip Rosedale, Second Life and Cafe and Power (2nd life had offices in Seattle)
    * Andrew Wright, Smilebox
    Just to name a few…
     
    As I write this, can’t believe I was in the trenches with such a crew.  Again, great article John, and testament to you, Rob.  What a time.

    Dave Cotter (founder Mpire)

    • johnhcook

      Thanks for the comment Dave and the nice words, and thanks for helping to round out the list. It’s really an impressive list, and an interesting trend. I can’t tell you how often I come across entrepreneurial folks in Seattle with roots to Real.

  • http://www.facebook.com/people/Kelly-Smith/573153409 Kelly Smith

    Don’t forget my good friend Mika Salmi who started AtomFilms and went on to become a Viacom/MTV President!  We started the same month at Real in 1995.  Time. Flies.

  • http://www.hughesmedialawgroup.com/ Joleen Winther Hughes

    Just returned from a business trip abroad to read this excellent article and comments from many of my treasured colleagues.  I joined Real in 1997 as an “intern” in the legal department (law was my second career after working in Seattle music) and for 8 years I was a designated legal advisor to all of the consumer facing businesses.  I am so proud to have been part of the legal and business teams that first enabled the news, music, sports and entertainment media to bring audio and video to the Internet.  Think about this, so cool!

    Real created the first legal digital music service, the first video subscription services, the first promotional video services, the first VOD services, the first casual game service, the list goes on and on.  Had I joined ANY law firm in the country, there would have been no possible opportunity to take the lead on so many strategic and game-changing deals.  I have tried (hopefully successfully) to replicate the high level of service and excellence our Real legal team provided with my firm Hughes Media Law Group, and am proud to have represented so many of the entrepreneurs who have roots at Real.  

  • http://twitter.com/lunarmobiscuit Michael ‘Luni’ Libes

    Real didn’t just help with founders, but with large number of people willing to take a risk at a startup and join in early.  More than a half dozen Real alumni were part of Medio Systems back in its huge growth spurt, including three of the VPs and a pile of the technical staff.

    That is a key element overlooked in these “what makes the hub work” pieces.  It takes quite a lot more than the founder or co-founders to create a successful startup.  To get to millions in revenues requires a few dozen brave soles to not only join a startup, but to join a newly-formed, barely-funded, non-revenue-generating startup.  Amazonians don’t typically do that.  Neither do Microsofties.

  • Jennipher Judge

    Also Kevin Hartz of Herd Freed Hartz, Jeff Payne- Grid Networks..the list goes on an on. I remember the day Sujal Patel Started.. and Brad Gaub had blue hair.. Passion in that group like now other. and Say what you will about Rob Glaser..he was and is a genius and driven. I feel lucky to have fallen into a recruiting role there. so early on..The talent, the fresh talent was unbelievable and that is something we need to remember now when hiring.. talent and knowledge is key but passion is right up there it drives a company. NOTHING was going to stop Progressive Networks (know known as Real Networks) when we came out of the gate..the devs slept at the offices more nights than not, good times that was. tough but good times.

Job Listings on GeekWork