Microsoft buys Web-phone firm in race against rivals

Microsoft Corp bought Internet telephone company Teleo Inc as its MSN unit races Google Inc and Yahoo Inc to be first to give instant-messaging customers the ability to call conventional phones.

MSN to test a product developed from Teleo technology this year, MSN vice president Blake Irving said on Monday in an interview. San Francisco-based Teleo, acquired for an undisclosed price, makes software for placing phone calls using so-called Voice over Internet Protocol.

MSN competing with Yahoo! Inc, which bought Internet phone software maker Dialpad Communications Inc in June, as well as Google Inc and Skype Technologies SA in adding voice communication services from a personal computer.

More 27 million people in the US will make Internet calls by 2009, up from 3.1 million this year, according to IDC in Framingham, Massachusetts.

"This is a capability you need to be competitive," said Charles Golvin, an analyst in San Francisco for Forrester Research.

"We started with e-mail and instant messaging, and gradually instant messaging has evolved to include voice," he said.

Google week introduced software called Google Talk that lets users with a Google e-mail account talk to other account holders using a PC equipped with a microphone and speakers or a headset.

MSN's Messenger instant messaging program already lets two PC users talk to each other. Teleo's technology will let a PC user place a call to a conventional land-line or mobile telephone.

MSN had 25 employees working on Internet telephone services for less than five months. The company started a similar service in 2001 and phased it out last year because Internet technology at that time didn't allow for high sound quality and speedy call connection, Irving said.

Luxembourg-based Skype offers an instant messaging tool that lets users hold voice conversations with other Skype members. The privately held company, founded in 2003, now has more than 51 million customers, up from 2 million at the start of last year.

Unlike messaging software from Microsoft and Yahoo, Skype's program allows consumers to make calls to land-line numbers for a per-minute fee. Customers can also pay a monthly fee for a phone number so people can call them from traditional phones.

Microsoft not interested in selling a service to replace traditional telephone calling, Irving said.

Instead, the company wants to provide both free and paid services that let MSN Messenger customers call friends on their contact list or dial businesses they've searched for.

For example, if a user looks for a pizza parlor, he could then click on the results to call the store and order a pie, Irving said.