Microsoft Acquires VoIP Firm

Microsoft (MSFT) said late Tuesday it added to its portfolio a small San Francisco start-up whose technology lets users make phone calls over the Internet.

The privately held company, Teleo, launched its voice-over-Internet protocol, or VoIP, service in February targeting mobile professionals who rely primarily on email and cell phones for communications.

Founded in 2003, Teleo designed its service and software to be closely integrated with Microsoft Outlook and Internet Explorer. Teleo allows users to make calls by simply clicking on a number on their screen, whether it's in an address book or on a Web site.

Microsoft plans to integrate Teleo's technology into its MSN portal and MSN messenger service, which already includes a VoIP feature, and ultimately expects to deliver new VoIP consumer applications in future releases of MSN services.

Teleo's technology also will be integrated in MSN Search, for example, allowing a user to place a call directly to a restaurant located in an Internet search, Goldman Sachs analyst Rick Sherlund wrote in a note Wednesday. Such capability is aimed head-on at search rivals Google(GOOG) and Yahoo!(YHOO).

"Competitors Google and Yahoo! as well as Microsoft are increasingly linking Internet technologies for search and communication to capture a greater share of users' time on the desktop," Sherlund noted.

Google, for instance, launched its competing messenger service Google Talk last week with a computer-based VoIP solution that's also tied to Google's Gmail email product. But unlike Google Talk, Teleo is not strictly limited to computer-to-computer based communication, and instead lets customers use their cell phone, regular phone or PC to make and receive VoIP calls.

Longer term, Sherlund said he expects the Teleo technology also to supplement the next version of Microsoft's Office software suite and perhaps even Xbox game console.