• by Shankar Gupta , October 13, 2005

By the second quarter of next year, MSN Messenger users and IM Yahoo! Messenger users will be able to seamlessly send each other messages, as part of a deal between the two companies announced Wednesday.

The arrangement, which provides for interoperability between the two messaging services, will allow users of each service to IM their contacts on the other, but doesn't entail any combination of the actual programs.

Blake Irving, MSN's corporate vice president of MSN communications services, said at a press teleconference Wednesday that customers had long requested interoperability between MSN's platform and other IM programs.

Dan Rosensweig, Yahoo! chief operating officer, added that making the services compatible "will give consumers unprecedented benefits to be connected with a global community of friends through a shared instant messaging network."

MSN's Irving also said there were no plans to combine ad sales on the two platforms. "In this agreement, there isn't any advertising collaboration through the networks," he said. "But the more users, the more engaged they are, the more committed they are, the more our businesses grow, and the better and more relevant the advertising can be."

Yahoo! and MSN currently operate the second and third most popular instant messaging services, respectively. Combined, they have almost as many users as market leader America Online.

Jupiter Analyst David Card said this deal will exert some pressure on AOL to make its service compatible with others. "This puts a little more pressure on AOL to open its network--this is number two and number three getting together, and that alone makes it a big deal," Card said.

But, he added, AOL still has some breathing room. "I don't think these guys are big enough to force AOL's hand yet," he said.

Moreover, Card said, since the deal doesn't combine the advertising of the two networks, it doesn't compete with AIM in that regard, either. "This doesn't solve the problem--if it's a problem--of a single critical mass platform," he said.

According to comScore Media Metrix, AOL is the clear leader in market share--with 49.2 million users in August of 2005--followed by MSN Messenger with 24.4 million, and Yahoo! Messenger with 21.9 million. AIM has also been on the rise, with 6 percent more users than the same period last year, while MSN and Yahoo! have been slipping, with MSN losing 14 percent and Yahoo! dropping one percent over the same period.

Some in the IM space are singing the deal's praises. Bob Kimball, CEO of MECA Communications, which produces a multi-platform instant messaging program that can instant-message MSN, Yahoo!, AIM, and ICQ users, said that the deal helps IM grow. "It's establishing IM as a legitimate, hugely popular, and now more than ever integrated communication mode," he said. "It never makes sense in a communications technology to have artificial barriers and restrictions."

Kimball also said that although the deal doesn't increase the size of MSN and Yahoo! messengers' ad-serving base, it could still have positive ramifications for IM advertisers. "It makes it easier to do more IM," he said. "When you break down the barriers between communications, every IM user is able to send and receive more messages, which means they'll be spending a little more time on their messenger, and get a few more impressions."