Another added feature is a new collection of "emoticons," some of which are animated. The software also includes more IMVironments, which allow people to download custom backgrounds from advertisers and other Yahoo properties.
"We do believe that our innovation and ability to continue to advance instant messaging services is definitely a driver of our growth," said Lisa Pollock, director of messaging products at Yahoo. She added that offering more multimedia features is giving the company a "leg up" against its two primary competitors, AOL and MSN.
The upgrade signals yet another attempt by Yahoo to differentiate itself from rivals. Yahoo Messenger has a considerably smaller audience than market leaders AOL Instant Messenger and MSN Messenger. In the United States, Yahoo has a 16.7 percent share of work and home subscribers, compared with AOL's 28.3 percent and MSN's 24.1 percent, according to Jupiter Media Metrix.
Striking out from the pack is especially crucial in a market such as instant messaging, which has been built on real-time text communications but has remained free. Because none of the IM services can communicate with one another, users of the service typically download multiple clients to chat with different people. This has helped all IM services continue to show robust growth while keeping analysts in the dark about how well they generate revenue.
Yahoo's Pollock would not specify whether the company would introduce fees to Messenger, nor would she rule anything out.
Yahoo isn't the only instant messaging provider to add Webcam functions to its service. Microsoft's Windows XP operating system was launched last fall with an instant messaging service called Windows Messenger, which includes video conferencing features and is interoperable with its free MSN Messenger software.
Additionally, Jim Allchin, Microsoft's senior vice president for Windows,in May that the company is working on technology to allow video communications be delivered through a corporation's internal network rather than via the Internet.
Although Yahoo has supported Webcam since last summer, this is the first time it has tied a high-speed multimedia feature into instant messaging. In July, 6 million consumers used the Webcam feature on Yahoo Messenger, Pollock said, adding that 18 million people use Webcams on the Internet, citing figures by research firm IDC.
Yahoo's Webcam efforts will be a trial balloon for the industry, but they could become a thorn in the side of AOL.
In January 2001, the Federal Communications Commission approved the merger of America Online and Time Warner but imposedaddressing AOL's dominance in instant messaging. Namely, AOL Time Warner must guarantee IM interoperability before offering high-speed IM services such as videoconferencing. If Yahoo's service takes off, it could pose a dilemma for AOL.
"The problem that AOL has is it's going to be very tough for them to respond to this," said Michael Gartenberg, an analyst at Jupiter Research. "If they respond with a (similar) features set, they will have to offer interoperability."
Indeed, AOL hasfrom its stance on interoperability. Last month, AOL said in a filing to the FCC that developing sever-to-server interoperability would require too much time and too many resources to develop. Instead, it will pursue partnerships with other companies to power their IM efforts.