Many of us have been waiting for this move toward convergence for years. Microsoft (Nasdaq: MSFT) and Yahoo! (Nasdaq: YHOO) announced today that their instant messenger services will finally be compatible with one another. Given some of the rather serious competitive trends at hand, it seems that there was little other choice for these two.
Like my colleague Tim Beyers, who wrote about the business end of instant messengers recently, I have been using IM for years, both for work and social purposes. Anyone who uses IM regularly knows that even though the big names in instant messaging created a great communication tool, it still limits users to talking to one another within the same service.
The lack of interoperability is a familiar complaint amongst IM users, of course. Services like Trillian allowed some Internet-savvy users to jump the hedges that have traditionally come with the IM services, but Trillian often met with some serious roadblocks from Yahoo! and the rest. (Here's just one example.)
Yahoo! Messenger, MSN Messenger, and America Online's AIM, which is provided by Motley Fool Stock Advisor pick Time Warner (NYSE: TWX), are the big names in the space. AIM dominates the market, with a 56% market share, while Microsoft and Yahoo! share the rest of the IM pie, in second and third places, respectively.
It's been a rather serious argument that one of the reasons for AIM's dominance over the years was that people used the messaging client where they had the most buddies. Given AIM's first-mover advantage, that left services like Microsoft's and Yahoo!'s in the dust.
In that vein, of course, it stands to reason that Microsoft's and Yahoo!'s move to play nicely together is a direct challenge to AIM -- it gives folks one more reason to use their service, if they have more friends to choose from, and gives them perhaps one less reason to defect. Meanwhile, all the messenger providers are bringing more and more features to their products in the hopes of encouraging users to come to their services.
However, it's difficult to ignore yet another reality. Google's (Nasdaq: GOOG) getting its hands into everything these days, including instant messaging. That's probably the real reason that Yahoo! and Microsoft would cave. Word has it that Google might be fixing to build an IM client that is open to all services, which would put a serious crimp in the other guys' styles.
Those are some pretty darn good reasons for Yahoo! and Microsoft to team up at this time -- and the list of reasons could go on, including the recent trend of messenger services integrating voice and video. It has taken a while for convergence to come to pass, and we're not quite there yet, considering that Yahoo! and Microsoft won't put the change in place until the second quarter of 2006. Given the competitive landscape, it's likely not surprising that Yahoo! and Microsoft would finally make this move. And it should be interesting to see how the industry evolves from here.
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Alyce Lomax
does not own shares of any of the companies mentioned. She's a longtime AIM user but occasionally fires up Yahoo! Messenger to speak with select people.
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