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Businesses are getting the (instant) message

Three start-ups are helping the world's biggest financial institutions and other companies get a handle on IM.

One measure of instant messaging's impact as a technology is its swift evolution from a chiefly social medium to one that, like e-mail, is fast emerging as a major channel for business communications.

Indeed, the days when IM, which by now has entered the cultural lexicon, was largely for interoffice kibitzing or by young people to converse with friends are gone. Today IM is rapidly becoming a mainstay in corporate networks.

"If you don't have IM in this business, you're not there," says Sal Morreale, a trader at Cantor Fitzgerald. "I tend to have 10 or 11 IM windows open at a time."

And it's not just information-greedy traders who are enraptured by IM. Roughly 85 percent of all North American companies use IM, according to a recent report by market research firm Radicati Group. Some researchers even predict it will surpass e-mail as the primary way people interact electronically by the end of this year.

For companies, however, widespread use of the technology presents an important challenge: how to control and manage employee use of IM and, critically, protect against viruses and other security threats while also extending its benefits of instant communication and enterprisewide collaboration.

These advantages are spurring more and more enterprises to use IM as a standard way of conducting business. Of U.S. companies that have deployed internal IM networks, 44 percent did so to boost intraoffice communications, Radicati found. But the potential cost savings also are compelling--33 percent said they offer IM to their employees to reduce long-distance phone charges.

To archive and secure their IM systems, hundreds of the world's biggest financial institutions and other companies turn to three small start-ups: Akonix Systems of San Diego, FaceTime Communications of Foster City, Calif., and IMlogic of Waltham, Mass.

"If you don't have IM in this business, you're not there."
--Sal Morreale, trader, Cantor Fitzgerald
Although the three companies' products have different features, all generally let customers archive instant messages in a similar fashion to e-mail, as required by financial regulators; monitor network traffic; secure against an increasing number of viruses that enter corporations through IMs; and set up walls between employees prohibited from communicating, such as equity traders and investment bankers. The software also helps companies manage their IM networks, conforming IDs to fit a company-approved format rather than an informal handle a corporation might deem inappropriate.

For now, most businesses use the big public IM networks--America Online's Instant Messenger, or AIM; Yahoo's Messenger; and Microsoft's MSN Messenger--to deliver messaging services. Meanwhile, segments of the financial community have gravitated toward particular networks.

Most equity traders, for example, use AIM, while commodity traders tend to rely on Yahoo Messenger to communicate outside their firms. Most banks and other companies also might have internal enterprise IM solutions, including Microsoft's Live Communications Server or IBM's Lotus Sametime, which are used for employee-to-employee communications.

Also popular are hosted services offered by Bloomberg and Reuters Group, both of which run their own IM networks. "Nearly all companies will use multiple IM networks," says Francis deSouza, founder and chief executive of IMlogic. "It is still a heterogeneous network environment, so we have to support all 13 networks."

Many companies don't even know what kind of IM traffic travels among their employees, deSouza says, so IMlogic offers a free download that detects how many public IM network users a company has. "Often a company will tell us that they don't have instant messaging at their company," he says. "A lot of IT departments get a big eye-opener."

Part of the reason for this confusion is that unlike e-mail, IM usage is driven from the bottom up by workers, not down from corporate networks. "E-mail is a rollout planned and managed by IT departments, but IM has come in through the employees," deSouza says. "So IT and compliance departments have been playing catch-up."

IM hits the financial district
The flexibility of the three providers' products enhances their appeal. In some cases, that can spell the difference between a customer's opting to buy a piece of IM software rather than writing its own application.

That was the case when information giant Thomson Financial in February struck a deal with AOL and IMlogic that augments Thomson's AutEx service, an online network that enables equity traders to exchange "indications of interest," or IOIs. With the new arrangement, stock buyers and sellers can instantly open a chat session to arrange a trade.

It works like this. A buy-side trader sends out an IOI with an AOL address with an icon indicating the trader is online. The seller clicks on the address, an IM window pops up with the IOI, and the two sides are immediately in direct communication.

IMlogic's software detects the all-critical "presence"--it lets a user know whether the other party is in front of a computer with an IM window open. But IMlogic also provides an important feature that could allow Thomson to eventually offer its new capabilities on networks other than AIM.

"If we only backed AOL's network, we wouldn't need IMlogic because we could write the interface ourselves," says Jeremy Condie, a senior vice president of institutional equities at Thomson. "But we want a multiprotocol interface, so we needed this software."

Thomson is not charging AutEx users extra for the new service, Condie says. The payoff for the New York financial information company lies in saving customers time in a business where seconds are critical.

"Hedge fund guys have so many contacts, so when they get an IOI, they have to waste time looking for the contact at a particular bank," he says. "We are streamlining the workflow and empowering the trader to trade faster and better and be more informed, and for us that's critical."

Thomson chose IMlogic because it was "more responsive" than other vendors Thomson talked to, and the company was able to quickly adapt the technology to its needs, Condie says.

So why are Akonix, FaceTime and IMlogic the go-to players in IM management? Part of the answer lies in the usual reason start-ups succeed--their smaller size allows them to swiftly develop and modify products in response to emerging market demand.

"It couldn't happen" at Microsoft
IMlogic offers a case in point. After dabbling with early instant messaging over local area networks at the Massachusetts Institute of Technology in the late 1980s, deSouza founded Flash Communications. Microsoft acquired the Boston-based IM start-up in 1998 for undisclosed terms.

DeSouza rose to run Microsoft's real-time collaboration group, heading the company's enterprise IM efforts, among other areas. One of the central lessons of deSouza's career is that even companies that were aware of the benefits of IM needed to manage the technology better. "They told me they would need the same pieces of the puzzle, like security, compliance, etc., as they had for e-mail," he says.

But deSouza also realized that developing a viable IM offering within Microsoft would be all but impossible. He left the Redmond, Wash., software giant to found IMlogic in 2001.

"At Microsoft we knew it couldn't happen because this software would have to work on multiple networks--not just Microsoft's," he says.

Still, sales of IM technology remain modest. Global revenue from all segments of the IM market (enterprise and public IM networks, management software and wireless messaging) is projected to reach $413 million by 2008, according to Radicati.

Another reason why the IM management segment doesn't have more players is that getting the imprimatur of AOL, MSN and Yahoo can be a big headache. "Networks aren't the easiest people to deal with," says an IM industry executive who asked not to be identified. Potential customers want IM management products to be certified by all of the networks, so when protocols change, a company such as IMlogic gets advance notice and can quickly make the necessary changes to its products.

"You have to pay the networks for certification, and we are little, they are big," the executive says.

Of course, getting the big IM networks to accept them burnishes the three start-ups even more. "Network certification is a big barrier, so I don't expect to see many more new entrants in this segment," says Akonix CEO Peter Shaw.

That worries Dan Evans, vice president and network systems engineer at Memphis investment bank Morgan Keegan. "These IM management guys are going to be bought out at some point," he says. "Am I going to lose support and customer service for this product that plays such a key role in our network?"

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