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NEWS WRAP:Microsoft,Yahoo Instant-Message Deal Targets AOL

Posted by inet - 2005-10-17

The move by Microsoft Corp. and Yahoo Inc. to make their instant messaging programs work together comes just as the popular communications tool is beginning to expand into such fields as video chatting and Internet telephone functions.

But for now at least, the two companies said their partnership announced Wednesday will focus on traditional instant messaging, allowing people with either system to send lightning-fast messages to each other. That is expected to be in place by June 2006.

Eventually, the companies said, they hope to be able to let users make computer-to-computer phone calls as well, but they couldn't say when that would happen.

The partnership could give the companies more power to compete against market leader America Online and perhaps dark horse Google Inc., which launched its own service, Google Talk, in September. In the long run, it may also provide a way to battle companies like Skype Technologies SA, the Internet phone provider being acquired by eBay Inc.

Yahoo Chief Executive Terry Semel called it "a turning point for the IM industry," which has taken years to work out ways for users of rival services to connect to each other.

The companies did not disclose financial terms.

The Yahoo-Microsoft partnership gives the companies nearly as many U.S. users combined as Time Warner Inc.'s (TWX) AOL has in total.

Analysts said the move could put pressure AOL, the most popular service.

"Up until now, AOL has been able to pick and choose its partners, command the royalties it wants," said Robert Mahowald, an analyst with research firm IDC. " They've moved to develop this market at their own pace. This forces them to take a more aggressive stance."

AOL's instant-messaging product, AIM, had 51.5 million unique U.S. users in September, compared with about 27.3 million for MSN Messenger and 21.9 million for Yahoo's Messenger, according to Nielsen/NetRatings.

Instant-messaging services are popular with business users, teens and others because they let people communicate quickly and easily over the Internet, much like a regular conversation. The systems are only expected to grow more popular as they add more sophisticated tools, such as the ability to place calls or have video chats.

Other instant messaging products, such as Trillian, allow people to send and receive messages from multiple IM services.

But none of the top instant messaging systems have communicated directly with each other until now, though promises of "interoperability" have been made for some time. Yahoo, based in Sunnyvale, Calif., and Redmond, Wash.-based Microsoft said that it's one of the top things customers ask for.

Dan Rosensweig, chief operating officer with Yahoo, said in a conference call with analysts and journalists that the deal is the culmination of discussions that have been ongoing "for years."

"IM interoperability is the right thing for our customers, our businesses and the industry as a whole, and Microsoft is delighted to help lead these efforts with Yahoo," Microsoft Chief Executive Steve Ballmer said in the release.

Microsoft has long sought to forge some sort of deal to boost the profile of MSN Messenger. The company also has been in talks with AOL over possible partnerships with Microsoft's MSN online unit, although it's not clear where those talks stand now. Blake Irving, corporate vice president with MSN, would not comment Wednesday on any possible discussions with AOL.

"I think what's really pushing this is Microsoft's ability to see that it's long been playing cat and mouse with AIM and ICQ (another AOL instant messaging service)," Mahowald said. "Microsoft needs to stake its presence in a big way."

Microsoft already has a product that lets business users send and receive messages from Yahoo, AOL and Microsoft's instant messaging systems, but the product does not extend to general consumers.

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