Microsoft, Yahoo to Link IM Networks

UPDATED Microsoft and Yahoo announced on Wednesday a blockbuster interoperability deal that will reshape the landscape of the fragmented instant messaging market. The companies will connect their IM networks so users on each can communicate with one another using text and voice chat free of charge.

Starting in the second quarter of 2006, customers of both services will be able to see their friends' online presence, share emoticons, and add new contacts from either Yahoo! Messenger or MSN Messenger to their buddy list.

The agreement marks the first time major players in the highly-competitive IM industry have officially partnered up to enable cross-network communication. Interoperability has always been a hot topic among instant messaging providers, but had never yielded a compromise.

In 1999, Microsoft connected its MSN Messenger client to AOL's AIM network - without authorization. The move let to a cat-and-mouse game of AOL cutting off its new competitor and MSN re-establishing communication with each update. Microsoft eventually gave up and focused on improving its client.

Such disparate messaging networks led to the creation of third party clients with the ability to connect to each simultaneously. AOL and others were initially critical of applications like Trillian, but eventually backed down and ceased efforts to block the newcomers.

"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," said Microsoft CEO Steve Ballmer in a statement.

"This is truly a turning point for the IM industry," added Yahoo CEO Terry Semel, "and we believe our agreement with Microsoft will help usher in a new era of IP communications."

Yahoo and Microsoft will now command upwards of 44 percent of the market, according to research firm Radicati Group, putting new pressure on market leader AOL, which holds around 56 percent market share with AIM and ICQ. And according to recent comScore Media Metrix numbers, MSN Messenger and Yahoo! Messenger together reach 33.5 million unique users each month, more than the 23 million running AIM.

But competing with AOL is likely not the primary reason Microsoft and Yahoo have linked up. The new threat to the IM heavyweights comes from voice chat and upstarts such as Skype that have taken the communications industry by storm. Google, meanwhile, recently launched a communications client called Google Talk that focuses on simple PC-to-PC calling.

Still, a source at Yahoo expressed concern about the new partnership to BetaNews, hypothesizing that interoperability will only serve to strengthen Microsoft's position in the market.

Recently, IM software clients have evolved to link consumers to other services beyond just chat - from blogs to search. And if users are able to message contacts on Yahoo through the MSN client bundled with Windows, it could hamper Yahoo's efforts to reach more eyeballs.

Microsoft is also reported to be in talks with Time Warner, and a deal to open the door between MSN Messenger and AIM has been rumored. However, nothing concrete has come from the discussions thus far.

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