September 25, 2003 5:50 PM PDT

Shutting of MSN chat rooms may open up IM

By deciding to shutter free chat rooms, Microsoft has highlighted global problems with spammers and pornographers. But analysts say there may also be benefits for the software giant, which is trying to shunt customers to paid services across its network.

Microsoft said this week that MSN users should switch over to its free MSN Messenger instant messaging service as a replacement for the chat rooms, which are scheduled to close down in 28 countries on Oct. 14. The decision excludes the United States and Canada.

Microsoft stands to benefit in several ways from the move, for example, by reducing expenses related to maintaining and policing free Web chat rooms and by raising the prominence of MSN Messenger in the affected regions: Europe, Asia, Africa and parts of Latin America. That in turn could help boost revenue when Microsoft begins to charge for IM, something analysts say is just a matter of time.

"Even though MSN Messenger is not a paid service, it's the leading edge of where Microsoft wants to go with paid services," said Rob Helm, an analyst at Directions on Microsoft, an independent market researcher.

Like rival IM services from America Online and Yahoo, MSN Messenger has attracted millions of people around the world who communicate with other buddies on its network. Although these services are free, they give providers another vehicle for advertising and, more important, keep people using other services in their networks.

But the importance of IM for Microsoft goes beyond that. Later this year, Microsoft is expected to launch Live Communications Server (LCS), which it plans to sell to companies that want IM packaged with security and archiving features. Much in the way that e-mail is managed by corporate IT departments, companies will want IM that they can control, Microsoft and other tech giants believe.

LCS will initially offer IM, but executives plan on integrating Internet phone calling and videoconferencing into the software as well. Eventually, Microsoft hopes the product will let companies buy one product to manage all their real-time communications.

"It makes sense in that Microsoft is forcing people into a product path, whereas (on MSN chat) they're simply on a service path," said Michael Osterman, president of Osterman Research, which follows corporate IM trends.

Microsoft expects to allow LCS customers to chat with their MSN Messenger buddies. Thus, the greater MSN Messenger's population, the more useful LCS will be.

Still, pushing chat-room users to IM will be an effective step to rid its network of the Web's darker side. MSN Messenger allows people to chat with up to 15 others, offering them a private platform for discussion that is hard for uninvited guests to find.

Furthermore, MSN will maintain chat rooms in the United States and Canada, but it said it will only allow subscribers to participate.

"The core reasoning behind this was they wanted to make the environment better for their paying customers," said Michael Gartenber, an analyst at Jupiter Research. "If you're paying Microsoft every month for MSN, you don't want to be harassed by spammers and pornographers."

MSN chat rooms affected by the change will be shut down Oct. 14. That's a day before the deadline for third-party IM services such as Trillian to strike a licensing agreement with Microsoft to prevent the possibility of their being blocked. Oct. 15 also marks the deadline for people using older Messenger versions to upgrade to 5.0 or higher.

"MSN Messenger, our free instant messaging service, provides the most innovative chatting options and enables people to have greater control over the people with whom they communicate," Lisa Gurry, group product manager for MSN, said in an e-mail statement.

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talkin
hiya ppl wats up wit ever1
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