has been the 800-pound gorilla of instant messaging. The other game in town,
, couldn't put a dent in AOL's messaging hegemony, which today claims more than 80% market share in desktop chatter.
So the world's largest media giant, with its tremendous head start in instant messaging on the Internet, seemed poisted to achieve natural dominance over the slow-to-start, but emerging arena of wireless messaging. Instead, AOL is suddenly on defensive as wireless carriers are starting to implement instant messaging.
A little more than a week ago, Microsoft got deeper into the mobile-messaging arena after inking deals with six major European carriers that ensure that MSN Messenger messages will be interoperable among handsets at the carriers.
In the U.S., it signed a landmark partnership deal with
to provide a variety of content and services from its portal, MSN, which includes connecting desktop users to mobile phones, as well as a broader scope of carrier server-side software that someday most likely will offer Verizon users other features. That deal comes on the heels of Microsoft's global partnership with VoiceStream parent company
to provide software and services to the myriad carriers the company owns around the world.
"It's still very early in the U.S. right now," said AOL Vice President Lex Felker. "My hope is to maintain
market share as things begin to grow."
Investors still gambling on the wireless sector will need to watch carefully what happens, as analysts, carriers and handset manufacturers are hoping overall text messaging -- and instant messaging in particular -- will become the major catalyst for driving data usage growth.
It also may become one of AOL's best shots at generating some much-needed revenue, especially if wireless messaging in the U.S. ever reaches the volume of desktop messages, its executives say. AOL gets an undisclosed share of revenues based on the number of messages sent.
"Mobile instant messaging is a potential way for instant messaging providers to finally monetize instant messaging," said US Bancorp Piper Jaffrey analyst Bill Crawford. Although AOL's Felker is quick to downplay any near-term top-line boost: "I wouldn't call it a major revenue driver" for now, he said.
That's not to say that AOL hasn't staked a major foothold: The company claims between 25% to 30% of the estimated 500,000 to 1 million text messages sent per month through wireless in the U.S., depending on whom you ask, through some sort of AOL-branded medium. AOL's IM is available on four of the six major national wireless carriers in the U.S., and it has painstakingly negotiated three-way deals between carriers and handset manufacturers
to have some versions of its software built directly into handsets to make it easier for consumers to tap directly into AOL's services.
But AOL has discovered that the somewhat cushy rules that applied in an online world no longer stand in wireless. And AOL's flirtations with extending its dominance beyond its proprietary desktop software largely have given way to fiscal reality. Those initiatives, from AOL Anywhere, to the Communicator (a joint product with
Research in Motion
), to a deal with
, are far less visible now.
Someone Else's Garden
AOL's foray into the wireless sector may be its most likely bet to reap near-term rewards. Instant messaging, after all, never brought in much revenue save the negligible advertising fees on desktop IM windows.
But as AOL dipped its toe into the telephone business, it discovered yet another sobering reality -- it was traipsing through someone else's garden and meeting some no-trespassing signs.
"For AOL to get access to the
wireless consumer, they need to work with carriers," said Crawford. "Now, the carriers as gatekeepers for mobility have more power than instant messaging providers are used to dealing with."
Desktop IM users can access more than one service at any given time. And AOL kept its users close, refusing to let other IM programs operate with its proprietary service. In the mobile arena, however, users are more likely to be locked into whatever services the carrier has signed up for. And wireless carriers want their customers to remember their relationship is with them, not with AOL.
"In the U.S., there's at least the speculation that AOL is a big player with huge intentions for customer ownership," Felker said. "It's a double-edged sword in term of carriers' perspective. But all we're trying to do is bring the product to the mobile operator's customers, to let them leverage our plan to create new experiences.
"So far it's worked out," he added.
Naturally, carriers stand to benefit the most from the coming battle, as they hope to offset dramatically declining subscriber growth by boosting average revenue per subscriber, or ARPU, through offering wireless data services such as instant messaging. But carriers may see AOL and its teeming throngs of chatterers only as a stopgap, analysts say.
"The carriers want
with consumers now to benefit from them," said Yankee Group wireless services analyst Linda Barrabee, who noted that carriers are testing their data-friendly wireless networks and aren't looking yet to fill them with content and services. "But going forward, I foresee
carriers looking for ways to build their own solutions. They don't want to lose the customer relationship to AOL."
It's already proving to be true.
, one of AOL's staunchest supporters, is going to great lengths to protect its coveted billing and marketing relationship with subscribers on its mMode wireless data service. The billing process remains in AT&T's control, said AT&T Wireless spokesman Jeremy Pemble.
AT&T uses a third-party billing technology provider called Qpass, which essentially lets mMode subscribers be billed directly on the phone bill, rather than get a separate bill from individual content providers. (AOL's services on mMode are free of charge for now, aside from the data usage charge on AT&T's network.)
Going against AOL's genetic directives of dominating the gateways, wireless carriers also are loath to allow any one data service dominate its pipes. "Our philosophy is to broaden out to the bases of the land-line favorites," Pemble said. "Clearly, it's about providing customers with choice."
Analysts cautioned against overly optimistic talk about AOL's move to embed its software into devices, says AOL. Barrabee said few devices were available with such features prepackaged. To date, there is the Nokia 3390 and Samsung's recently launched SGH-r225M through VoiceStream.
is launching a Java version of AOL's software on its phones, which are made by Motorola.
Handset manufacturers partially support the argument that there is some measure of guardedness when it comes to mention of AOL. Nokia spokesman Keith Nowak said deals to include AOL software on Nokia phones were negotiated through the carriers and not the manufacturers, and do not reflect the company's biases for one service over another.
"The more players you have in the more areas, the better for everyone," he said.