June 4, 2001 11:15 AM PDT
Microsoft targets AOL with Windows Messenger
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As earlier reported, the software, dubbed Windows Messenger, is Microsoft's effort to bundle other communications technologies with Internet instant messaging and to gain an advantage over rival AOL Time Warner.
The release also coincides with negotiations between the two companies to include AOL software in the Windows XP operating system and to extend AOL's use of Microsoft's Internet Explorer Web browser. The talks, which include other issues, resumed again over the weekend after breaking down on Friday in an indication that the sides remain far apart.
Microsoft already provides some of the messaging features--such as chatting, file sharing, Internet phone calling and teleconferencing--with its MSN Messenger service when used with NetMeeting or in association with services from Net2Phone and other companies.
But for the first time, Windows Messenger will be tightly integrated with the operating system, which could give Microsoft's offering an edge over AOL's more popular service. The linking of the products echoes Microsoft's integration of Internet Explorer with Windows 95.
Bundling Internet Explorer with the OS helped Microsoft win the browser battle with Netscape Communications and spurred the U.S. government to charge the company with violating antitrust laws. A federal judge ruled last year that Microsoft abused its monopoly in the operating system market to thwart competition in other areas. Microsoft, which argued that it broke no laws in adding new features to the OS, appealed the decision; a ruling is expected any day.
In a research report on Monday, Merrill Lynch analyst Henry Blodget downplayed the near-term impact of the AOL-Microsoft negotiations and the bundling issue, but said that in the long term they could be important to AOL.
"Windows XP effectively embeds many components of the online service directly into the operating system," Blodget wrote. "It would obviously not help AOL over the long term if these features gained a significant amount of traction."
Until now, Microsoft has focused its online communications efforts on instant text messaging, where the company has been engaged in a contest to win customers from AOL Time Warner. The Internet and media giant has played hardball, blocking Microsoft and other rivals from connecting their Internet messaging users to the AOL Instant Messenger (AIM) service.
By adding phone calling, videoconferencing and other features, Microsoft is looking to redefine the category, said Peter O'Kelly, an analyst with Patricia Seybold Group. But he cautioned, "People might assume this is all about competing with AOL, but there is much more to it."
With Windows Messenger, Microsoft is taking many technologies it already offers and is pulling them together into one product, similar to its approach with the Outlook e-mail program. When Microsoft introduced Outlook about five years ago, many other companies offered e-mail, contact or calendar applications, but none had pulled them together.
"You could have gathered the different pieces together yourself, but Microsoft wrapped everything together with Outlook," O'Kelly said. "Windows Messenger is definitely similar."
Shawn Sanford, Microsoft's group product manager for Windows, elaborated: "Today we have a lot of disparate communication technologies, whether that be instant messaging, telephony or video with NetMeeting. This is the unification of all of these different communication technologies into one single client."
Tale of two messengers
By folding advanced messaging technology into Windows, Microsoft raises a number of issues, and one of the most important is the specter of antitrust. A Washington, D.C., appeals court could rule soon on Microsoft's antitrust case. If, as is widely expected, the Court of Appeals sides with Microsoft, "they would be free to put pretty much anything they want into the operating system," said Bob Lande, an antitrust professor with the University of Baltimore Law School.
Another important distinction that may drive off trustbusters is Microsoft's approach to messaging. While the company will fold its newer messaging technology into the operating system, existing customers will not be forced to buy Windows XP to get an instant messenger.
"MSN Messenger is an incredibly popular technology that we will continue to innovate on, and it's really focused on the text instant messaging, along with some voice," Microsoft's Sanford said.
Another difference is how Microsoft will position Windows Messenger--that is, as a technology that other companies can use to build their own products and services.
"This is a platform technology," Sanford said. "People can actually go and write services on top of this or take the technology in Windows XP and put it in their applications."
One example of where this could be used is Internet gaming, Sanford said. Internet gaming is often complicated to set up, requiring players to know one another's Internet Protocol (IP) address and to work out a fixed time to play. But Windows Messenger would notify the gamers when other players were online and simplify the connection process using .Net or other servers.
Some of the biggest technological differences between MSN Messenger and Windows Messenger have to do with telephony and video. The new messaging client, for example, greatly reduces the echo associated with Internet phone calls made without headsets, analysts say.
"This is Microsoft saying that each PC can be used as a voice-communication device," said Guernsey Research analyst Chris LeTocq. "If they can get phone-quality voice, if they can hit the quality barrier, you essentially have a phone replacement."
But how far Microsoft will go with the telephony aspect is uncertain. The software giant earlier this year capped the length of Internet phone calls made using MSN Messenger.
Another change is how the telephony or video responds to different types of connections, whether dial-up or broadband. Windows Messenger detects the speed of the connection and automatically loads the correct audio or video codecs needed to deliver the data.
Videoconferencing quality is greatly improved over NetMeeting, O'Kelly said. Besides seeing the person on the other end, the caller also appears in a small window.
Despite the advances, Windows Messenger does have some shortcomings, such as the inability to do videoconferencing with multiple PCs.
Solving the identity crisis
Windows Messenger also has ties to HailStorm, another key element of Microsoft's .Net strategy. HailStorm uses Microsoft's Passport authentication service to deliver content and services to a variety of devices, including handhelds, cell phones and PCs. With HailStorm, Microsoft hopes to move away from free Internet content to a paid services model.
So far, instant messaging has been an integral part of HailStorm services. American Express, which uses Passport to authenticate some credit card purchases, relies on MSN Messenger to warn customers of suspicious purchases. Antivirus maker McAfee.com will use HailStorm to deliver online protection services and to dispatch virus warnings using instant messaging.
The ultimate goal of instant messaging is for Microsoft, AOL Time Warner and other companies to give people global identities that can be used for additional paid services based on screen names, said Gartner analyst Michael Silver.
"In terms of their competition with AOL to supplant their instant messenger, this is a good strategy for Microsoft," Silver said.
The popularity of instant messaging is undisputed, with AOL Time Warner's ICQ messenger passing the 100-million customer mark in early May. Microsoft claims 32 million MSN Messenger users. But until now, the profit potential from those users has been unclear.
Turning messaging into a technology around which Microsoft and other companies can build Windows-based products or services could finally lead to big profits down the road, "particularly for .Net," O'Kelly said. "This would also be a compelling reason for buying Windows XP."
To ensure that Windows Messenger has mass appeal, Microsoft has made the product compliant with the Session Initiation Protocol (SIP) advocated by the Internet Engineering Task Force. SIP is a framework for establishing, maintaining and ending Internet multimedia conferences and phone calls.
Windows Messenger's larger appeal may be the ease with which people will be able to communicate, particularly for telephony initially and video later on, LeTocq said.
"It's all peer-to-peer," he said. "What happens on the back end is that it's a bit like Napster. So you're talking directly to the IP address of the other person."
As with music-swapping service Napster, Microsoft's servers act as a conduit connecting two users directly. Companies can deliver Windows Messenger services over a corporate intranet using Exchange server; Microsoft will offer them through its .Net servers over the Internet.
Long term, Microsoft plans to extend Windows Messenger to other devices, such as those based on Pocket PC, as part of .Net.