May 29, 2003 4:37 PM PDT

AOL, Microsoft to talk about IM

As part of their major truce announced Thursday, AOL Time Warner and Microsoft pledged to discuss making their instant messenger products talk to each other.

The promised cooperation comes after years of IM acrimony between the two tech giants. But it's not clear the talks will end IM turf wars--the companies did not provide a specific time line for allowing their rival services to communicate.

Analyst Genelle Hung of market research firm The Radicati Group said the companies may just be trying to seem friendly on the IM front. Both Microsoft and AOL Time Warner depend on their IM products to hold on to customers, she said. "I'm a little skeptical about so-called 'interoperability.' I don't think they would be willing to relinquish control," Hung said.

AOL Time Warner and Microsoft said they'd discuss IM interoperability as part of a broader agreement between the two media powerhouses to collaborate on digital media initiatives and settle pending litigation. Microsoft is paying $750 million to AOL Time Warner as part of the pact, and the two companies will drop the pending litigation, including an antitrust complaint filed by AOL Time Warner's Netscape Communications unit in January 2002 against Microsoft. AOL also agreed to a seven-year, royalty-free license of Microsoft's Internet Explorer browser.

In the instant messaging arena, the companies said they "have agreed to explore ways to establish interoperability between AOL and MSN Instant Messenger networks in a manner that will protect consumer privacy, security and network performance."

In a conference call, though, Microsoft Chairman Bill Gates said the companies have not committed to a schedule for getting their products to communicate. "We've created an overall framework for us to have a very focused discussion on IM interoperability," Gates said. "No time frame has been set for that."

If AOL and Microsoft are serious about interoperability, the result would end years of nasty, brutish, below-the-belt fighting between the two giants.

The companies have been at odds since the summer of 1999 when Microsoft launched its own Web-based client called MSN Messenger. At the time, most IM users used AOL-owned products, either AOL Instant Messenger or ICQ.

Although Microsoft and AOL have not reached an accord on interoperability, AOL has partnered with Apple to produce the AIM-compatible iChat for Macintosh users. It is not clear if the Microsoft deal will have any impact on that arrangement. Apple on Thursday declined to comment on the AOL-Microsoft settlement.

Microsoft wasn't shy about its entry into the IM ring. Its software let MSN users communicate directly with AIM users, which incensed AOL and prompted the company to block MSN users. AOL called it a hack. Microsoft claimed it was defending consumer rights.

In the end, Microsoft backed down, but not for long. The following year, while AOL defended its merger with Time Warner in front of regulators, Microsoft brought back its experience in 1999 as proof that AOL was playing unfair. Gates himself phoned the then-chairman of the Federal Communications Commission to express his concerns at AOL's IM dominance. The FCC's merger approval required AOL to limit its IM capabilities or be forced to interoperate with competitors.

After the FCC ruling, something unexpected happened. The companies that complained about AOL's IM dominance began to gain traction. By 2002, the calls by MSN and Yahoo for IM interoperability had died down. That's because IM interoperability sparked Net users to download multiple clients to talk to their contacts, allowing AOL, MSN and Yahoo to essentially share loyal customers. User numbers for MSN and Yahoo also skyrocketed.

Taking note of MSN's and Yahoo's gains, AOL in April filed a petition to the FCC asking the commission to lift the restrictions imposed on it in 2001. So far, no decision has been made.

Meanwhile, IM technology has become an increasingly important tool in the workplace. The Radicati Group estimates that the total number of corporate IM accounts will exceed 52 million in 2003, growing to 290 million by 2007.

Analyst Hung said that if Microsoft and AOL genuinely plan to get their IM products to talk with each other, it may be part of a strategy to "squish the smaller competitors."

 

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