Skip to main content


(MSFT) - Get Microsoft Corporation Report

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


(GOOG) - Get Alphabet Inc. Class C Report




Scroll to Continue

TheStreet Recommends


"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.

Financial terms of the deal were not disclosed. But with Teleo counting only about 100 beta test customers and 15 developers, Sherlund estimated Wednesday that the deal was valued at well below $100 million. Sherlund has an outperform rating on Microsoft and his firm has done banking with the company.

Microsoft said Teleo executives will continue to work closely with MSN following the acquisition, and a number of Teleo product developers are expected to join the MSN staff.

As for competing with other companies in the VoIP arena, Teleo is most similar to


, Sherlund noted. Skype's software also lets users make calls on the Internet for free if they're within the Skype network and by the minute for landline calls. Teleo also is similar to


, another VoIP provider. But Vonage also requires a phone adapter to connect a telephone to a high-speed Internet connection.

Shares of Microsoft recently declined 8 cents, or 0.3%, to $27.10.