Is AOL losing its messaging voice?

Although consumers have flocked to instant messaging by the millions, business customers have remained wary; some have even banned it over security concerns. Still, companies represent one of the most lucrative markets for the technology. Most consumer services are offered for free, but corporations appear willing to pay for IM services that offer the ability to encrypt messages and authenticate the identity of its users, among other things.

AOL plans to release a corporate version of its AOL Instant Messenger (AIM) product, dubbed "Enterprise AIM," by summer. Like Yahoo--one of AOL's chief rivals in the consumer IM market--it will face competitors that have already established beachheads on corporate shores.

"AOL unintentionally has spawned the business IM solution market by more or less taking their sweet time to provide security features in AIM," said James Kobielus, an analyst with research firm Burton Group.

Although AOL, Microsoft and Yahoo have signed millions of subscribers to their instant messengers, the battle has focused primarily on consumer services until now, leaving all of them to play catch-up in the business arena.

Few upstarts have made significant inroads to challenge these three major IM services for consumers. But an army of newcomers is stealing the march in offering instant messaging to corporations, where unauthorized IM use is running rampant--frequently without adequate security safeguards.

This week another start-up stepped into the corporate IM void, promising the ability to communicate with various proprietary IM systems. Based in New York City and funded to the tune of $20 million by Beverly Hills, Calif.-based Lexington Ventures and others, Omnipod will officially launch its corporate-grade messaging and file-sharing product with 12 beta, or trial, customers, the largest of which has tens of thousands of seats, according to Omnipod.

In addition to creating a niche for newcomers, the business market is already leading to paid IM services, an area that AOL, Microsoft and Yahoo have left aside for now.

While AOL has no plans to begin charging for its consumer instant messenger anytime soon, it is taking steps to counter corporate challengers with the encrypted Enterprise AIM system, which it announced last month in a partnership with VeriSign.

AOL isn't alone in falling behind the corporate IM curve: Yahoo currently offers no corporate IM solution, but a company representative said, "We think that corporate messaging is very interesting, and we're evaluating it closely."

Eating into AOL's pie
The corporate market could signal a reversal of fortune for AOL in instant messaging, an area it has dominated since it acquired instant messenger ICQ in 1998. AOL claims 150 million screen names for AIM, plus more than 130 million screen names for ICQ.

Designed for the consumer, AOL communications applications often have been met with hostility in the workplace. Even at AOL Time Warner, AOL-designed e-mail proved so unwieldy in a corporate setting that the company rescinded a rule mandating its use.

Meanwhile, the amount of time people spend chatting on instant messengers at work is ballooning. People in 82 percent of all organizations are using some sort of IM application, with 70 percent of those using AIM, according to a report issued by Osterman Research this year. Microsoft's MSN Messenger is a distant second with 51 percent, and Yahoo Messenger third with 44 percent.

But those numbers account for both official and unofficial IM use. As companies begin to create standards for corporate-grade software, AIM's lead could deteriorate to the benefit of the corporate IM crowd. According to Osterman, IM use is official in only 34 percent of large organizations, 23 percent of medium-sized organizations, and 19 percent of small organizations; a full 23 percent of organizations surveyed blocked IM traffic at the firewall. Among organizations that use instant messaging in an official capacity, Lotus Sametime captures 69 percent of the market, the research firm found.

Burton's Kobielus called AOL's VeriSign deal "too little, too late. Even if it provides tight encryption, it's not an enterprise-hostable solution. The business-grade market has opened up."

Despite the early perception that AOL ruled the IM market, companies have carved out various IM niches inside and out of the business world. In the world of finance, that market owes its vitality in large part to SEC regulations, Rule 17a-4 in particular mandating the archiving of trading communications.

One company, Communicator, markets HubIM specifically for use by financial services firms. Customers include Credit Suisse First Boston, Goldman Sachs, J.P. Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley and Salomon Smith Barney. Other secure IM products in use by financial institutions include Divine's MindAlign and WiredRed.

"It's quite a boost in IM's perceived business value when Wall Street gets behind it," said Kobielus, who added that several financial firms have banned traditional, unencrypted IM applications in the workplace.

Creating their own space
When Enterprise AIM hits the market, it will face scores of competitors, mostly small companies, offering secure instant messaging among an array of other tools. These include e-mail, file transfers, conferences, message broadcasts, and message archiving and security. These last two features are of increasing importance to financial services companies, which are in many cases required by the Securities and Exchange Commission to log all instant messages.

Other corporate IM competitors include Jabber, Mercury Prime, QuickSilver, 2Way, Ikimbo, Ezenia, NetLert, ACD Systems, Bantu, and Comverse's Odigo unit, acquired last week.

In the coming months, AOL will likely face tougher competition for the corporate IM market from bigger guns as well.

Lotus Development, a unit of IBM, was early to the corporate IM game with its introduction of the Sametime application in December 1998. Microsoft's Exchange software features IM software, and Novell markets a corporate IM application based on AIM called InstantMe. Ericsson, in conjunction with Oz, marketed until recently a secure wireless IM product called iPulse. Ericsson has since scrapped that project in favor of the Wireless Village, or Mobile Instant Messaging and Presence Initiative, with Motorola and Nokia for promoting interoperability between mobile IM systems.

"Somebody is going to be the powerhouse of corporate IM," Kobielus predicted. "It's going to consolidate down to two or three providers, probably Lotus or Microsoft because they already have the groupware market locked up."

AOL is working to insert itself into this market, making its system interoperable at the server level with corporate IM applications marketed by Sun Microsystems and Lotus.

Despite the proliferation of IM services, few will likely survive, Kobielus predicted.

"There are going to be a lot of casualties," he said.

Evan Hansen contributed to this report.