Microsoft, Yahoo to connect IM services

Microsoft and Yahoo have agreed to make their IM services interoperable. The agreement will enable the services' respective clients to communicate via text messages and VoIP. Increasing competition from AOL, Google and rising VoIP players like Skype are driving the deal. AOL's IM service claims about 56 percent of the market worldwide, while a Yahoo/MSN interoperability agreement creates an estimated 44 percent market share by connecting about 275 million users. Microsoft's corporate IM service is already interoperable with Yahoo's and AOL's.

Insiders view Microsoft's move as a last ditch effort to stay afloat in the IM market, citing the company's slow start on an IM service with VoIP capabilities. The deal won't threaten AOL's market dominance but will put the two companies well out of Google's reach, which has recently expanded its VoIP and messaging services with GoogleTalk. If rumors of an AOL and MSN interoperability agreement prove true, the vast majority of users would be interconnected. That is, of course, only if Yahoo is willing to team with AOL.

For more on the Yahoo, MSN IM deal:
- read this report in The Wall Street Journal (sub. req.)

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