Aiming for the Top in IMs

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"WDYT"

"ROFL"

Yes, that's an actual online conversation. (Translation: "What do you think?" "Rolling on the floor laughing.") Witness the IM revolution. And who's the king? Motley Fool Stock Advisor pick Time Warner's (NYSE: TWX) AOL, of course. AOL's Instant Messenger has been at the top since it made its debut. But with new gizmos and snazzy functions, Yahoo! (Nasdaq: YHOO) and Google (Nasdaq: GOOG) are racing to catch up.

Yahoo! Messenger, the No. 2 instant-chat service with about 65 million users, has leapt ahead with its new test upgrade, which will allow friends to call each other free on the computer, share photos, and post messages on a personal Web log. The service focuses largely on voice over Internet protocol (VoIP) capabilities, with voice mail and improved voice connections. Although Yahoo tried the service in 1999, it seems that users just weren't ready for it. But now, with VoIP becoming popular, all of the big players are getting in on the action. AOL, unsurprisingly, is also in the process of testing software that combines different communication avenues.

Not far behind, as usual, is Google. According to internetnews.com, the company is reported to be in the process of buying software maker Meetroduction, a social networking provider and electronic people finder. If Google does indeed acquire Meetroduction, it could be a giant of an IM provider. The company already owns Picasa, which has an instant chat program called Hello along with a photo-sharing capability. If Google were to combine Hello with Meetro, it could provide social networking with photos, instant chat, and probably numerous other capabilities -- finding the exact office building where someone works, for example? (Perhaps a bit stalkerish . )

Adding IM functionality to existing programs could enhance how long users spend on a site. Since people spend a limited amount of time searching, having something else to do on a site (such as spending all their time chatting with friends) could drive up site traffic and ad revenue significantly, allowing sites to improve their stickiness quite a bit. The stakes have just gone up, folks.

Read more about Yahoo!, AOL, and Google with these bits o' Folly:

• Blogs Booming?
• Can You Yahoo! Me Later?
• AOL: You've Got VoIP

Shruti Basavaraj is one of the Fool's financial editors. She owns no shares of any company mentioned above.