Updated from 10:47 a.m. A deal between a pair of instant messaging also-rans should make it easier for Microsoft ( MSFT) chief Steve Ballmer to get a hold of his Yahoo! ( YHOO) counterpart Terry Semel. The world's largest software company and the most visited Internet site announced an agreement Wednesday to let users of their free communications services talk to one another. That means that Ballmer and Semel will be able to communicate over their respective company's networks by either instant message or computer-to-computer phone calls. They even will be able to include emoticons, graphic depictions of smiley faces or frowns, in their instant messages. "The industry's first interoperability agreement between two distinct leading global consumer IM providers will give MSN Messenger and Yahoo! Messenger users the ability to interact with each other, forming what is expected to be the largest consumer IM community in the world, estimated to be more than 275 million strong," the companies said in a press release. What united Microsoft and Yahoo! is a desire to spread the use of instant messaging technology, which now allows people to communicate only with friends and colleagues who have downloaded the same software that they use. They were also worried about heightened competition from Google ( GOOG), according to technology analysts. Until now, Microsoft and Yahoo used instant-messaging as a way to lure people to their services and have resisted calls to allow other companies access to their networks. "I am surprised that it took this long," said Charles Glovin, an analyst with Forrester Research, in an interview. "This is something that I and other people who look at the IM market expected a long time ago." The alliance, which had been rumored, places pressure on Time Warner's ( TWX) America Online unit. Its Instant Messenger program leads the market with 42 million users. AOL, which first offered instant messaging in 1996, uses the service as a way to encourage people to see its other offerings, including its AOL.Com portal. But the company has generally been seen as resistant to making
various instant messaging programs work together. AOL, which will still have more users in the U.S. once the instant messaging systems of Microsoft and Yahoo! are combined, declined to comment. The company was the first to make instant messaging available widely. "AOL taught the world about instant messaging," said David Card, an analyst with Jupiter Research. "These guys were late to the party." Billionaire investor Carl Icahn, who is pressuring the world's largest media company to buy back $20 billion in stock and to spin off its cable unit, has criticized Time Warner's management for failing to stem a decline in subscribers at AOL. Still, the impact of the Microsoft-Yahoo! alliance may be muted, since Microsoft has been talking to AOL about combining their Internet operations in a joint venture. Enabling MSN and Yahoo users to communicate with one another won't be easy, which is why the companies aren't rushing to roll out the service, according to executives from Microsoft and Yahoo! who spoke to the media Wednesday in a conference call. The companies want to make sure that they combine their services without any technical glitches. "We actually have to be careful and cautious on how we roll this out," said Blake Iving, corporate vice president at MSN, during the conference call. "It's a lot of work to get this thing actually working." Instant messaging is continuing to grow in popularity and is expected to reach 1.2 billion accounts in 2009, up 38% from 867 million this year, according to the market research firm Radicati Group. It estimates that about 12.5 billion IMs are sent daily. IM's impact even spurred Google to start offering its own instant messaging service, called Google Talk, in August. The Internet companies try to use their instant messaging systems as a way to attract users to their sites where they do make money such as search. "Instant messaging is not a significant revenue source for any of these companies," said Forrester Research's Glovin. "Those are the part of their businesses that are under threat from Gooogle." Internet-based telephone service also is going to become increasingly important, accounting for 74% of all corporate telephone lines, according to Radicati. Yahoo! offers Internet-based phone and high-speed service through a venture with SBC ( SBC). Microsoft acquired a small startup in August whose technology lets users make calls over the Internet.
Yahoo!, based in Sunnyvale, Calif., had 123 million unique visitors in September, according to a research report by Merrill Lynch, quoting data from comScore MediaMetrix. Time Warner's properties, which include AOL, had 119 million, followed by Microsoft with 115 million and Google with 88 million, Merrill Lynch said. "Yahoo!, MSN and Google are maintaining their share of page views," the Merrill Lynch report says. "However, eBay ( EBAY) and Time Warner's properties, which are substantially AOL sites, continue to post page view declines."