June 28, 2002 4:00 AM PDT

Can IM giants win corporate clients?

Instant messaging slipped quietly into the workplace at Lehman Brothers last fall.

After terrorists destroyed the World Trade Center on Sept. 11, the Wall Street brokerage turned a blind eye when employees took up AOL Instant Messenger (AIM) to stay in touch with co-workers and family. The crisis left the company's employees scattered across the city, and the program's simple "buddy lists"--which show when others are online and available to chat--proved too powerful and comforting to shut down.

These days, however, Lehman is questioning how much longer the service should stay. At stake is not so much the future of instant messaging at Lehman, but rather America Online's role as a provider of it.

Companies "want security, they want archiving, they want control over who's in and out of community, and they want the ability to set rules of community," asserts Gary Reifman, product manager at Communicator, a little-known IM provider being courted by at least eight Wall Street firms, including Lehman.

Corporations aren't the only ones confronting the dilemma of instant messaging in the workplace. IM giants including AOL, the world's largest, are facing a difficult balancing act as they try to turn technology first developed for consumers into a paid service for businesses.

AOL, Microsoft and Yahoo have attracted millions of people with free IM services, which allow them to swap text messages and files in real time to other IM buddies. Now all three are struggling to offer corporate applications that won't leave behind the teeming masses.

At stake are a host of potential business uses for instant messaging that can reach beyond closed corporate walls--from customer service to instant purchasing and marketing. But these efforts to court both sides of the corporate firewall are falling flat and could delay acceptance of the biggest IM providers in corporations, which are gravitating toward closed messaging networks.

The trend could make it more difficult for the IM leaders to use their vast customer rolls as bargaining chips as they step into the race to create paid services.

According to a poll released earlier this year by Osterman Research of Black Diamond, Wash., a third of companies surveyed were "neutral" about adding instant messaging into their networks, while 23 percent blocked IM communication outright.

"We found that a lot of organizations simply block instant messaging traffic, primarily for security reasons," said Michael Osterman, president and founder of Osterman Research. "They don't have bandwidth to deploy truly secure IM now, so instead they're just going to block them."

Having it both ways
Many companies have recognized that instant messaging is an important tool for communicating with other employees or clients. But companies, especially in the financial world, aren't so happy about using popular consumer IM services that let their employees chat with the rest of the unruly Internet.

That perception will be one of the major hurdles in the ambitions of the Big Three messaging providers, which are in various stages of packaging IM services to sell to large corporations. It's an area they all want to dominate, since they could charge companies to use services that have always been free to the public Net.

"This is a very complex scenario, and people who are just providing IM inside the firewall are playing King Canute, standing on the edge of the beach and trying to ensure the tide won't come in."
--David Gee, vice president of portal solutions, Yahoo
But corporate network administrators, fearful of the lack of security in IM software, are not sold on the idea of opening their networks to public instant messengers.

Although the number of IM viruses floating around the Internet is minuscule compared with the number of e-mail viruses, companies don't want to take any chances. Network administrators can envision the day when someone may develop a malicious virus that could be injected into a corporate network through a hole pierced open by a messaging client.

"I think it's a problem waiting to happen," Osterman said.

AOL, Microsoft and Yahoo--the owners of the biggest IM services--want it both ways. They will offer security and encrypted internal chats but remain steadfast in their belief that communication with the rest of their IM users is essential.

The leaders have been unquestionably successful in luring Internet users onto their services. Instant messaging has become one of the most popular applications on the Internet and has been described as a communications system rivaling the telephone.

The only problem is how to make money off it. AOL, Microsoft and Yahoo have millions upon millions of IM users, many of whom use several services simultaneously, since none of them can talk to each other. Some services flash small advertising banners, while others, such as Yahoo Messenger, allow people to download custom backgrounds created by partners. Yet forcing people to pay for instant messaging is considered market suicide, akin to forcing people to pay for sending e-mail.

Making their move
That's where corporate IM comes in. The Big Three want to extend their dominance in consumer instant messaging into the corporate environment, and the ball has begun to roll.

Microsoft, for one, is developing intranet IM software to fill the business hole even as it searches for a broader, fee-based consumer strategy keyed to its .Net initiative. In the meantime, Microsoft plans to introduce software that big companies can use to set up instant messaging and in-house communications over internal networks instead of the Internet.

"An example would be that within Microsoft, if I wanted to talk with someone through a video, say, on the PC, or in an instant message conversation, I wouldn't have to go to the Internet," Jim Allchin, Microsoft's senior vice president for Windows, said in testimony last month during the company's antitrust trial. "And (admittedly), I'm working on some new technology that lets me do this."

"We're used to using the AOL product. But the second most important driver of this is the compliance department, which is regulated by the SEC."
--Wall Street employee
Sources expect Microsoft to tap Groove Networks, the peer-to-peer software company founded by Lotus Notes creator Ray Ozzie, for at least some of the internal communications technology mentioned by Allchin. Microsoft invested $51 million in the company last fall.

AOL is also pursuing the corporate market, having recently created a division devoted to selling its Internet software to businesses. Called AOL Strategic Business Solutions, the division will package various Internet server software products from its Netscape unit to sell to corporate customers. The primary product in this division will be a corporate version of its instant messenger, called "Enterprise AIM," and will use technology from VeriSign to provide encrypted chat.

Still, the AOL Time Warner division is averse to leaving corporate users shut out from the rest of its massive consumer network, where size is considered a key competitive advantage.

"We think that corporate users should have the ability to send encrypted instant messages when needed," said Marty Gordon, an AOL spokesman. "At the same time, they should be able to exchange unencrypted messages with the broader AIM user base. Enterprise AIM will allow our customers to do both."

As for Yahoo, the company has yet to announce an IM product for its corporate customers. It already has a division that sells Internet software to corporate customers that lets them create their own internal Web portals. Yahoo charges these companies for each employee who uses the internal portal.

With its initial grip on corporations, adding an IM product would not be a great stretch of the imagination for Yahoo. But like AOL, providing messaging technology that doesn't communicate with its broader audience would counter the momentum of popular usage.

"This is a very complex scenario, and people who are just providing IM inside the firewall are playing King Canute, standing on the edge of the beach and trying to ensure the tide won't come in," said David Gee, vice president of portal solutions at Yahoo.

Gee added that corporations that try to limit their IM universe will discover that many of their customers will be Yahoo Messenger users who won't be able to communicate with them.

Playing by the rules
Short-term blindness or not, corporations are not clamoring for open IM, especially in a controlled environment such as the financial world.

Equities desks at companies like Lehman, for example, are regulated by the Securities and Exchange Commission, which requires that conversations be recorded by internal compliance departments--a major stumbling block for adoption of current consumer IM services.

Communicator charges $50 per person per year for its service. Unlike companies offering consumer IM, Communicator is not gunning for scale. Instead of sheer bulk, it aims to conform to the rules set within the industry it serves. In the financial industry, that means allowing internal accountability cops to monitor all correspondences with clients and developing technology that allows brokers to know they're really talking to clients.

The financial industry is unique given its level of regulation and its information-sensitive nature. But its decision to adopt a technology that adapted specifically to its needed limitations could portend how difficult it will be for AOL and Yahoo to gain inroads into other industries fearful of opening themselves up to the rest of the Internet.

"AOL's an incumbent. It's on everyone's desk, and we're used to using the AOL product," said one Wall Street employee who has been testing Communicator's Hub IM in recent months. "But the second most important driver of this is the compliance department, which is regulated by the SEC."

News.com's Mike Ricciuti contributed to this report.

 

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