Instant messaging's key role
2008-06-17 09:12
Roger Cheng
New York - Instant messaging, a tiny cog in the alliance between Google and Yahoo, may turn out to be a large motor of growth in the long term and make the companies best friends forever.
While instant-messaging services don't generate much revenue, they serve as guideposts directing users to various internet portals.
Google's push to make Yahoo's more popular Messenger work with its own lagging Google Talk demonstrates the importance placed on the feature. Instant messaging, or IM, is seen as playing a key role in the battle for eyeballs in the mobile arena - and possibly more so with Google's mobile operating system Android.
"In the mobile story, instant messaging will be more important," said Michael Wolf, an analyst at ABI Research. "Right now, it's a fuzzy business proposition."
IM and e-mail are similar in that they are basic services with little business potential, but are necessary tools for driving traffic and building customer loyalty. Eventually, some say, data gleamed from social-networking tools such as IM and e-mail will help create more targeted advertisements. That reality, analysts warned, is still a long way off.
In the meantime, Google doesn't want to fall behind. Late on Thursday, much of the attention revolved around the search-advertising pact between the two internet giants, which essentially quashed a potential merger of Yahoo with Microsoft Corp.
The Yahoo-Google deal, though, also allowed users of the competing IM services to communicate with each other. It was seen as a minor victory for Google because usage of its IM service falls well behind other, more established, services.
Yahoo hold slight lead
In terms of audience reach, Yahoo holds a slight lead with 23% of users surveyed by research firm IDC. AOL, a unit of Time Warner, trailed closely with 22% of users, while Microsoft's MSN Messenger was at 18%. Google Talk reached five percent of users.
The deal opens up Google Talk, which already works with AOL's IM, to Yahoo's large base of users, making it a more attractive service because it can connect with the big two. It boasts an edge over MSN Messenger, which currently works with Yahoo.
Personal computer-based IM services currently generate little revenue, and likely operate at a loss for their companies. The current opportunity for advertising is limited to scrolling ads in buddy lists or with start pages that launch when a user signs on to the service.
But down the line, internet portals can take information from IM and e-mail services, along with other social-networking tools, to determine how individual relationships work. The frequency of IM conversations and e-mails can point to how close people are.
"People I exchange e-mails with are close to me, but people I exchange IMs with are even closer," IDC analyst Karsten Weide said.
That could lead to opportunities, for example, where one person purchases a television or pair of shoes, and close friends get advertisements for similar products.
It will take a while
"From what we know anecdotally, ads based on social networking are more effective than behaviour targeting," Weide said.
That is likely why privately held Facebook has begun offering IM services that don't need to be downloaded and ride on top of the website.
But portals must walk a fine line in balancing the use of information for targeted advertising and violating their users' privacy.
Facebook's much-hyped Beacon advertising platform, which tracked what its users bought and posted that information on its advertising partners' sites, suffered heavy criticism from privacy advocates, and was ultimately shuttered.
While there remains opportunity in IM, industry observers say it will take a while for companies to settle on a business model.
Gaining a large foothold in the IM arena now is crucial because it is seen as an eventual tool to funnel users to the various internet giants' mobile websites.
"It's very, very important," Weide said. "IM usage has become very popular, especially in the younger demographic."
- Dow Jones