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October 12, 2005

Battle lines in instant messaging?

Today, Yahoo! and Microsoft came to an agreement to let their instant messaging networks interoperate. Widely prevalent analysis has it that by doing so they are taking aim at AOL, who has the largest market share in instant messaging in the United States. With their networks put together, Yahoo! and Microsoft will have more users than AOL's network -- a clear challenge to IM's biggest player at the moment, AOL.

But is something else going on here? This year has shown unprecedented investment by Internet companies into the realm of instant messaging. Yahoo! has introduced voice capabilities into its IM client. Google entered the instant messaging market with its offering, Google Talk. Google Talk debuted with Jabber, an open IM protocol that promised eventual interoperability between the walled-off instant messaging networks of the time. Google Talk is currently in its infancy, but it could prove to be a force to reckon with for Yahoo! and Microsoft if some of the other projects executed by Google are any indication.

This interoperability move by Yahoo! and Microsoft comes at a time when significant units in both companies are in head to head competition with Google in the area of online advertising through their portals. In bringing their IM networks together they have effectively united against their common rival, Google. By interoperating between themselves, they have stolen some of the thunder of Google Talk, the upstart that promised network interoperability. It also opens up the path to future cooperation between these two companies in initiatives to contain Google. This alliance is essentially the instant messaging equivalent of the Google-Sun partnership announced two weeks ago. I wouldn't be surprised if Yahoo! and Microsoft decided to go steady in other future initiatives.

It would of course be foolish to think that the Microsoft-Yahoo! partnership isn't taking aim at AOL because the overt purpose of their alliance is to dwarf the single largest player in instant messaging (moreover, given the significant contribution of AOL to Google's ad revenue -- AOL is the only named third party in Google's filings with the SEC -- targeting AOL's market share may strangle one of Google's major revenue streams after all). However, under the radars of many observers, alliances have formed and battle lines have been drawn on both sides. It should make for a very interesting battle between the upstart and the established players for the hearts and minds of Internet users.

Posted by Vishy at October 12, 2005 11:11 PM

Comments

Speaking of Google and AOL.... perhaps a partial acquisition is in the air..?

http://news.bbc.co.uk/2/hi/business/4337022.stm

Posted by: Stephen at October 13, 2005 04:25 AM

Yes -- and this is all because of Google's self-preservation instinct. Google and Microsoft seem to be in a war to get AOL. AOL in turn seems to have prettied itself up from its past reputation of being the kiss of death for Time Warner. Google may not buy out AOL just yet (they are asking for a minority stake), but they may at least end up getting into a bidding war and ratcheting up the price Microsoft would have to pay for them.

Posted by: Vishy at October 13, 2005 08:34 PM