IM giants drop some barriers to peace

After years of mudslinging, Microsoft, America Online and Yahoo on Thursday made a surprising overture toward peace in the instant-messaging wars.

The companies announced that later this year Microsoft's Live Communications Server (LCS), which offers instant messaging for corporate users, will connect with AOL Instant Messenger, Yahoo Messenger and its own MSN Messenger.

However, the three public IM clients will still not connect with one another for public users. Instead, it means corporations that use LCS will allow employees to chat with the Big Three public IM services as well.

"In order for enterprise instant messaging to move forward, this is what must happen," said Dennis Karlinsky, Microsoft's lead product manager for LCS.

Microsoft will pay AOL and Yahoo a royalty for connecting to LCS. The companies declined to elaborate on whether these payments will be based on the number of LCS users connecting to AOL and Yahoo.

The connections will be based on direct links between LCS and AOL and Yahoo's IM servers, which means LCS users will see their Yahoo, AOL and MSN buddy lists appear when they log on and be able to instant message their contacts. LCS users will not get the same features as the public AOL or Yahoo clients, such as unique emoticons or gaming perks.

The IM connectivity with AOL and Yahoo will launch on a trial basis at the end of the year when LCS 2005 launches, and then launch officially during the first half of next year, Karlinsky said.

The agreement breaks a long-standing gridlock among the three companies over the future of IM. The companies, along with other players in the industry, have long advocated enterprise sales as a persuasive incentive to establish connectivity deals, since employees would need to chat with contacts outside their internal networks. Industry executives had said that allowing communication would depend on the right economics and the right business model.

After years of bickering on IM interoperability, the LCS agreement may mark the beginning of a welcome recognition of the value of separating client software from networks and services, said Lou Latham, an analyst at Gartner.

"It really is quite remarkable that all three of them came together," he said. "Early on, I was not entirely convinced they were even going to be able to convince the people at MSN to do it."

Microsoft sells LCS to corporate clients, but it also offers MSN Messenger as a free download to compete with AOL and Yahoo. The divisions are separate.

Redmond's great leap forward
The promise of IM has prompted technology's heavy hitters, including IBM and Sun Microsystems, to step into the ring. Microsoft has taken an aggressive strategy of using LCS to step into not only enterprise IM, but also real-time communications through voice and video.

LCS has become a cornerstone of Microsoft's efforts to expand its Office line beyond a mere collection of productivity applications. By integrating LCS into Office, Microsoft hopes to imbue a variety of applications--especially its Outlook e-mail software--with "presence," or the ability to intelligently route communications based on a worker's location or availability.

Presence works by using information in people's applications to know their whereabouts. For example, if Outlook's calendar shows a person in a meeting, it can route voice calls to that person's cell phone. Or, if someone sends an IM to a user, the software can then prompt a Net phone call and record a voice message.

LCS may be the first step toward enabling what analysts call a "secure cloud" for exchanging data between different systems to make presence work.

"It's the technological problem of actually publishing my presence information outside the firewall into a secure cloud so someone else can see it--that's going to take a leap of faith," IDC analyst Robert Mahowald said earlier this year. "It's going to need some kind of honest, trusted broker in the middle."

The IM nucleus
Getting presence to work begins with IM. A cross between phone and e-mail, IM lets people exchange text messages in real-time on their PCs. Millions of Web users communicate on IM, but the top three networks let people communicate only with other people on their services. That means AIM users cannot chat with Yahoo or MSN users, and vice versa.

In recent years IM has found its way organically into companies outside the control of internal technology departments. But in certain regulated industries, such as finance and health care, insecure IM networks were quickly shut down by IT departments fearing compliance violations. Heeding these concerns, all three companies began selling versions of their IM clients targeting corporate customers, offering heightened security and compliance features.

But the companies soon discovered that what works in the free Web is difficult to replicate behind the corporate firewall.

Last month, Yahoo confirmed that it scrapped its enterprise instant-messaging business and said it would pour its resources into its popular public service. Days later, AOL announced it would discontinue selling AIM to enterprise customers and instead offer business features to AIM users. AOL would also continue licensing out connectivity to enterprise partners such as Reuters Messaging and now Microsoft.

"Ultimately, that's not our core competency," Brad Garlinghouse, Yahoo vice president of communications products, said about enterprise sales. "We look at the Microsoft relationship as a part of a holistic approach to the enterprise desktop."

Millions of users, closed networks
Connecting with Microsoft's LCS marks a significant turnaround in IM's otherwise contentious history, which has been pockmarked by brawls that reached the upper echelons of the federal government.

AOL and Microsoft in particular sparked the war when in 1999 MSN Messenger launched with the ability to communicate with AIM, then the largest IM network by a long shot. The companies engaged in a volley of blocks and workarounds until Microsoft eventually backed down, but not without attracting negative publicity for AOL.

The scuffle came back to haunt AOL. During the government's review of the ill-fated AOL-Time Warner merger in 2000, Microsoft, and to a lesser extent Yahoo, lobbied Congress and regulators that AOL's actions in 1999 were unfair and indicative of its strong-armed tactics. Even Bill Gates lobbied the Federal Communications Commission, voicing concerns that AOL was backtracking on promises for IM interoperability.

Meanwhile, after regulators tethered AIM as part of the merger's approval, MSN and Yahoo watched their own IM clients gain new users month after month. Eventually, these calls for interoperability quieted, as companies realized that building proprietary networks was more beneficial than harmful. Web users began downloading multiple clients and running them simultaneously to communicate with their contacts, allowing all three to thrive.

Trying to break through these walls, third-party software such as Trillian have flourished by combining various buddy lists into one common interface. While the software does not allow IM services to interoperate, it has grown in popularity by letting people organize their Yahoo, AOL and MSN clients under one skin.

IM services have since taken their own steps to block Trillian. MSN and Yahoo--the same companies that lobbied against AOL--have shut out Trillian users from communicating with their services. Yahoo claimed these third-party aggregators allowed IM spammers to thrive, but admitted that IM spam (also known as "spim") remains a whisper of a problem.