MSN's Messenger late to the party

Microsoft's answer to the instant messaging software made popular by America Online is still waiting in the wings nine months after it was announced. As a result, it faces a steep climb to catch up with AOL, which runs the two most popular instant messaging clients: AOL Instant Messenger and ICQ.

According to Microsoft, the lag is the result of expansion problems with the integration of Messenger into MSN Hotmail, its Web-based free email service. But analysts and others in the industry point to confusion within Microsoft's management as the real hindrance in the software's release.

Last July, Pete Higgins, then vice president of Microsoft's interactive media group, unveiled MSN Messenger Service during the company's annual financial analyst day at headquarters in Redmond, Washington. At the time, Microsoft was preparing to take a significant step into the portal market by consolidating its myriad Web properties--such as Expedia, CarPoint, and MSNBC--under one MSN-branded site. Instant messaging was to be a key offering in that campaign to create consumer loyalty.

Microsoft maintains that it delayed the client's release because of strategic changes. For one, the company was scaling the client so it could become a feature of MSN Hotmail, according to Sean Fee, Hotmail's director of product marketing. Microsoft plans to bundle MSN Messenger into a larger communications package with Hotmail, which now has 40 million users.

Regardless of its strategy, analysts say the delay has been costly, given how quickly ICQ and AOL Instant Messenger are growing. ICQ has grown from 12.7 million registrations in June 1998 to today's 30 million.

Behind the ICQ eight ball
Instant messaging has become a popular Web communications method because it allows users who are online to send real-time text messages to designated lists of "buddies" that also have the client. Since the technology is both fast and convenient to many users, the audience for instant messaging has grown quickly.

AOL's "buddy list network" includes the 35 million people who use AOL Instant Messenger and AOL's proprietary service, according to the company. ICQ, now an AOL subsidiary since its parent company Mirabilis was acquired last June, boasts 30 million registered users and growing, according to ICQ.

ICQ recently released a new version of its client with more portal features. The company plans to introduce deeper marketing and e-commerce opportunities in the future.

"Fundamentally for us, instant messaging has been explosive," said Fred Singer, ICQ chief operating officer.

"I just think that there's so much support behind ICQ and AOL Instant Messenger that [Microsoft is] definitely behind in the early market advantage," said Anya Sacharow, an analyst at Jupiter Communications. "They have the late market disadvantage."

Other analysts say Microsoft's delays are no surprise. This is hardly the first time in Microsoft's history that its has unveiled software with considerable fanfare but delayed its release. AOL's Mirabilis acquisition could have pressured the company to announce its plans earlier than expected.

"Microsoft is good at getting its hands in the game early on," said Dwight Davis, an analyst at Summit Strategies. "[But] it's much harder to know when a real code will materialize with that statement."

Davis added that Microsoft's announcement about its instant messaging client "probably was a knee-jerk response to the market's interest at the time to ICQ."

Management roadblock?
Analysts also blame the management upheaval that has continued to shake MSN since Higgins stepped down in November. Since then, the company has been looking for a replacement to head MSN efforts. Recently, Microsoft appointed two executives from within its software ranks, Brad Chase and Jon DeVaan, to serve as placeholders, and renamed the interactive media group the "Consumer and Commerce Group."

"Frankly, much of that group has been in a holding pattern since that point to see who will take charge in that position," Davis said. "There certainly was some delay that you could favor to organizational turmoil in MSN itself."

Rob Enderle, Giga Information Group vice president, said the management holding pattern also prevented Messenger from receiving much-needed attention for its release.

"MSN lost its way big time," Enderle said. "I think it was the case of nobody senior really focusing on the surface."

Nonetheless, Enderle contends that Microsoft's lateness into other markets has not been a problem. "If they put their mind to it, there's little they cannot do," he said.

For its part, Microsoft says it is waiting for the technology to be ready for what it hopes will be an avalanche of users. "We continue to work on this technology, and one of the things is so that it will scale to tens of millions of our users," Fee said.

Fee said Hotmail also is pursuing a strategy to license a "communications suite of services" to other sites that will include free email and instant messaging. Microsoft unveiled this plan in January when it said it would license Hotmail to the Compaq-owned AltaVista portal. However, AltaVista has not switched over to Hotmail and continues to use Mail.com as its email provider. Fee would not give a time frame for the switch.

In addition, Fee said Messenger and Hotmail will be folded into new versions of Microsoft email client Outlook Express 5.0. Additionally, Messenger will indirectly use the Internet Explorer 5 Web browser as a distribution vehicle, since Hotmail links are planted throughout IE 5.0.