May 13, 2002 4:00 AM PDT

Cries to open up IM have quieted

Calls for opening instant messaging services are fading as the three biggest providers wage a protracted war for market share.


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Two years ago, Internet heavyweights routinely criticized America Online for refusing to allow competitors to communicate with its AOL Instant Messenger (AIM) system. AOL, then trying to win regulatory approval in its acquisition of Time Warner, was labeled a bully and criticized for perpetuating a closed network, to the detriment of consumers.

Today, the nature of the debate has shifted and the voices have been tempered--largely due to the successes of AOL's biggest challengers.

The most vocal critic, Microsoft, has shown signs of closing AOL's lead, helped in part by the folding of its instant messaging application into its Windows operating system. Web portal Yahoo, which joined Microsoft in its criticism of AOL, has also watched its Yahoo Messenger service surge in popularity and has embedded it throughout many of its Web services.

"As long as there is no interoperability, it protects these companies from things like churn," said Jupiter Media Metrix analyst Michael Gartenberg, referring to the rate at which people leave a service. "These types of barriers are the things that these companies like."

However, there is one compelling reason to expect that the landscape won't remain balkanized: money. Backers of interoperability say developing common standards is a necessary step to creating the first real revenue-making opportunities for IM.

Technologists and many corporations also insist that instant messaging will go the way of e-mail and the telephone, where communication is unhindered by proprietary systems.

But for now, the biggest IM providers are not clamoring for a resolution to a problem that has done little to slow adoption of their services among consumers.

AOL remains the market leader, claiming some 150 million registered users for its AIM service, including both subscribers from its proprietary online service and those who signed up for the free service over the Web. In addition, AOL claims 120 million registered users of the ICQ instant messenger, which it owns.

Microsoft said it has 46 million registered users, while Yahoo refuses to disclose its figures.

Other data suggest that AOL's lead is not as secure as it seems, however. For example, since October, all three companies have seen their instant messaging services post double-digit gains in active, at-work users in the United States, according to Internet measurement company Jupiter Media Metrix. Microsoft's MSN Messenger showed the largest gain, with a 33 percent increase between October 2001 and March 2002 to a total of 6.8 million users. Yahoo Messenger added 24 percent more users, for a total of 4.5 million, during that period. AIM grew 22 percent, to 7.5 million users.

(Jupiter's numbers do not include international usage and include only active users; company-stated numbers from Microsoft and AOL include all global registered users of their respective services at both home and work.)

Complicating the market share battle is the fact that many consumers now use instant messaging services from multiple providers, communicating with friends and acquaintances on two or more services simultaneously. Proponents of interoperability consider this a nuisance because people have to juggle many different conversations at once. But that hasn't always put off users.

Jeffrey Wu, a junior at Boston College, uses AIM and ICQ, both owned by AOL Time Warner. He chats with friends from Taiwan on ICQ but keeps AIM powered up on his PC as a link to his friends around the United States.

Wu doesn't consider it a burden using two different IM systems at once. After a while, he says, it doesn't matter which service he's using as long as he can find other buddies online.

"Honestly, I don't think it's a big deal with me because it seems like the whole IM thing is really easy to use already," he said. "It's not a big deal if you have ICQ or AIM open. It's just a little box that pops up and you just minimize it when you don't talk to that person."

The proliferation of multiple services has created an opportunity for software such as Trillian, which offers a single interface for accessing several IM applications at the same time. AOL tried to shut out Trillian users earlier this year, but hostilities have since faded. Trillian says its service has worked without a hitch for the past two months. According to Jupiter, the company had 300,000 active, at-work users in the United States in March.

Trillian offers what's known as client-side interoperability. It does not solve any of the deeper issues related to data sharing between rival IM services that would allow people to see when buddies using a different service are online and available for a chat. Known as "presence," this feature stems from proprietary technology on the servers that run AOL's closed system.

Opening the network to competitors would involve significant complications for security and performance, according to AOL, a factor that has slowed the quest for interoperability.

"In terms of server-to-server interoperability, it's proved a harder nut to crack for the entire industry," said AOL spokeswoman Kathy McKiernan. "Nobody has come up with a workable solution that addresses the technical issues involved."

Last week, Apple Computer announced that its iChat product will allow iMac users to connect to AIM buddies. But an AOL spokesman said the deal did not include server-to-server interoperability.

Instant cash?
The IM world in recent months has been further splintered by the emergence of a growing corporate market. Companies have been reluctant to embrace IM in the office and in some cases have enacted policies banning the use of products such as ICQ, AIM, MSN Messenger and Yahoo Messenger due to security concerns.

A number of secure IM services, including Communicator and IBM's Lotus Sametime, have stepped into the gap, seeking to charge companies for proprietary technology that provides verification, chat-monitoring and archiving functions.

"As long as there is no interoperability, it protects these companies from things like churn. These types of barriers are the things that these companies like."
--Michael Gartenberg, analyst, Jupiter Media Metrix
AOL has also been trying to position itself in this area. Last year it signed a deal with Sametime to conduct the first interoperability trials for its AIM service. It has also sought to beef up security for its AIM product, inking a deal Friday with VeriSign to provide encrypted chat as part of a service to be marketed as "Enterprise AIM."

Such services could serve as a push for interoperability as businesses such as brokerages seek to offer IM services to customers--for example, the ability to place instant "buy" and "sell" orders for stocks.

Last month, Communicator said it signed multiyear, multimillion-dollar contracts to license its Communicator Hub IM service to Salomon Smith Barney, J.P. Morgan Chase, Merrill Lynch, Credit Suisse First Boston, Goldman Sachs, Lehman Brothers, Morgan Stanley and UBS Warburg.

One force that could push interoperability could arise in the wireless arena. Mobile phone companies are already trying to find ways to put a text messaging service dubbed SMS (Short Message Service) in consumers' hands.

Although SMS is not technically Internet-based messaging, it opens an attractive avenue for companies like AOL, Microsoft and Yahoo to offer messaging services to mobile phone companies. Phone companies typically charge people for sending messages and share revenue with Web companies.

"It's not about whether AOL, Yahoo and MSN prove to the public they can work with one another, but when and how their IM services are tied into SMS messaging," said Jeff Pulver, who organizes conferences in presence and instant messaging technology.

Such products promise an enormous incentive to IM providers in the form of billable services. Consumer IM for now is basically free, with companies such as Yahoo and AOL experimenting with advertising as the their primary source of revenue.

Still, while some steps have been made, interoperability remains on the sidelines.

To date, the closest the industry has come to a server-to-server interoperability standard is the adoption of SIP, short for Session Initiation Protocol. Co-authored by Microsoft, Cisco Systems and Dynamicsoft, SIP is a protocol commonly found in IP phones that allows two end-points on the Internet to exchange information about content. This information is not limited to text messages but can also include multimedia sessions, such as voice or video.

Despite the slow advances toward interoperability, Microsoft said standards are at the core of its IM strategy.

"There's no conceivable way that these systems will exist without product innovation that will translate into revenue," said Bob Visse, director of marketing for MSN. "The only way to get there is to have an interoperable solution that works for all these companies."

Already, AOL and Microsoft have begun testing and implementing various uses of SIP in their products. AOL in August 2001 began testing ways to communicate with Sametime--software made by IBM's Lotus division--using a SIP-based IM application called SIMPLE. Microsoft has already incorporated SIP as the protocol used in Windows Messenger, an instant messaging and conferencing application in its latest operating system, Windows XP.

Jon Peterson, co-chairman of the SIMPLE working group of the Internet Engineering Task Force, the standards body overseeing IM interoperability, said he was "very pleased" with the way AOL and Microsoft have gravitated toward using SIMPLE. But he noted that the companies are still divergent about how the protocol will be used on their systems.

"Clearly, people who run these services want some degree of ownership of the customer," Peterson said. "Anything that will relinquish the service provider's ability to acquire customers is obviously going to be problematic."

Walled gardens
Indeed, ownership of the customer is the single reason why AOL, Microsoft and Yahoo have kept their public stance on interoperability relatively quiet in the past year.

For AOL's competitors, especially Microsoft and Yahoo, recent customer gains have given their services considerable traction. While Microsoft argued aggressively in favor of forcing AOL to open its instant messaging network as a condition to the online giant's merger with Time Warner, it had already begun developing its plan to turn instant messaging into a central application for Windows XP.

"There's no conceivable way that these systems will exist without product innovation that will translate into revenue."
--Bob Visse, director of marketing, MSN
Versions of XP now come bundled with Windows Messenger, which can communicate with its Web-based counterpart, MSN Messenger, and has been touted by Microsoft executives as a catalyst for XP sales. Now every time people buy a new PC, they will get Windows Messenger as the default IM service, along with other Web- and operating system-based applications such as Windows Media Player and Internet Explorer.

At the same time, instant messaging has become increasingly important to Microsoft's overall .Net initiative, which aims to make all of the company's software and services available through the Web to any type of computing device, handheld organizer or cellular phone with the company's Passport security technology. The initiative is one way Microsoft hopes to maintain the dominance of Windows as the world moves beyond the traditional desktop PC for its technological needs.

Moreover, Microsoft intends to charge for this service, making it a major test to determine whether people will be willing to pay to use the Web. All online companies are watching the experiment closely for clues to their own future now that advertising revenue alone has proven insufficient to sustain many businesses.

"Microsoft has its fingers all over this," said Robert Mahowald, a senior research analyst at IDC. "It's got the consumer portal, it's got Exchange IM and Windows XP messaging, which at this point we don't know if their new users come from businesses or consumers. They've got all the bases covered."

Yahoo has also been taking more steps to make money with its IM service, primarily through advertising. The company has been touting its IMVironments feature, which allows a marketer, such as a film studio, to create graphical promotions that people can load into their messaging windows.

For the Web portal, instant messaging is a way for Yahoo to keep its fickle visitors on its services. Messenger is tied into many other applications and allows the company to sell advertising on it as well.

Geoff Ralston, Yahoo's senior vice president of communications, acknowledged that the industry's progress toward interoperability has not followed its expected timeline. Ralston said Yahoo is working with standards bodies to support an interoperability system, but he was hesitant to name any specific measures the company supports.

Ralston emphasized that progress for interoperability resides with the leaders of the pack.

"It's important that interoperability conversations need to take place among the big three, because those are the community of users that far outweigh any other community," he said. "Any other interoperability is secondary."

IDC's Mahowald, however, dismissed the notion. Getting the three biggest Internet giants, all of them fierce competitors, to shake hands and hammer out an agreement seems unlikely to happen anytime soon.

"That is in my mind a pie in the sky, because Microsoft and AOL famously do not get along, and each has significant enough plans with what to do with its user base," Mahowald said.

See more CNET content tagged:
America Online Inc., interoperability, instant messenger, AOL Instant Messenger, Time Warner Inc.

 

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