RealNetworks is a horizontally integrated company, making it vulnerable to the operating system and hardware limitations imposed by other companies. Because of this, costs rise from negotiating hardware compatibilities.
The iPod effect has a powerful negative push on RealNetworks' music distribution service, Rhapsody; iPod users tend not to use music programs other than iTunes because such programs can't upload directly to the iPod.
The company's flagship software, RealPlayer, has lost much of its past market share; software revenues went down over the past year. While RealNetworks' strategy has shifted in the past years, the same trends that lost RealPlayer its prominence (the Windows Vista effect, vertical integration of competition) have the potential to damage revenues from Rhapsody and other RealNetworks products. Flash Video became quickly the "de facto standard" for streaming and progressive downloading (e.g: YouTube), it has being integrated in many Operating Systems, Browsers and the UI can be easily customized, all features not offered seamlessly by Real Networks.