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Yahoo, Microsoft form messaging partnership

Microsoft Corp and Yahoo Inc have agreed to make their two instant-messaging programs work together, a partnership that could threaten market leader America Online, people familiar with the situation said.

The deal was expected to be announced early yesterday, these people said. One of them works closely with Microsoft. The other was briefed on the deal. Both spoke on condition of anonymity because they were not authorized to disclose details.

A Yahoo-Microsoft partnership, allowing users of the competing services to exchange messages seamlessly, would give the two companies nearly as many users combined as AOL has in total.

Instant-messaging services are becoming increasingly vital, not just as social lifelines for young people but also in the business world. Their providers are adding video chatting and Internet telephone functions, and Google Inc entered the arena last month with a service of its own that includes voice chat.

"Up until now, AOL has been able to pick and choose its part-ners, command the royalties it wants," said Robert Mahowald, an analyst with the research firm IDC.

"They've moved to develop this market at their own pace. This forces them to take a more aggressive stance," he said.

Microsoft, Yahoo and AOL, a division of Time Warner Inc, all declined to comment.

AOL's instant-messaging product, AIM, had some 51.5 million unique US users as of last month, compared to about 27.3 million for the competing MSN Messenger and 21.9 million for Yahoo's Messenger, according to Nielsen/NetRatings.

Other instant-messaging products, such as Trillian, allow people to send and receive messages from multiple messengers.

None of the instant-messaging systems have communicated directly with each other yet, though promises of "interoperability" have been made for years.

Redmond-based Microsoft has long sought to forge some sort of deal to boost the profile of MSN Messenger. The company also has been in talks with AOL over possible partnerships with Microsoft's MSN online unit, although it's not clear where those talks stand now.

"I think what's really pushing this is Microsoft's ability to see that it's long been playing cat and mouse with AIM and ICQ [another AOL instant messaging service]," Mahowald said. "Microsoft needs to stake its presence in a big way."

Microsoft already has a product that lets business users send and receive messages from Yahoo, AOL and Microsoft's instant-messaging systems. But the product does not extend to consumer users.
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