Evolution of Instant Messaging Increases Stakes for Microsoft, AOL

The number of instant messaging users worldwide will reach 180 million by 2004, according to research by Gartner Group, but as instant messaging evolves from a basic communication tool to a platform for commerce the battle between Microsoft and America Online is sure to intensify.

According to a survey by Gartner, 52 percent of consumers and 51 percent of business users use AOL instant messaging. Additionally, 36 percent of consumers and 40 percent of business users use Microsoft instant messaging. Many consumers use both brands.

Not only will almost 200 million people be using instant messaging in 2004, but Gartner also predicts that 60 percent of all real-time online communication — either voice or text — will be driven through instant messaging technology. This means the choice of which instant messaging platform to use extends beyond how you chat. Microsoft’s Web services foundation, code named Hailstorm, is planning to enhance instant messaging with Web services, including private identity tools that will allow instant commerce and transactions such as stock trading, purchasing and corporate procurement.

As consumers and business users select brand loyalty to AOL or Microsoft, they may be pledging not only their IM address, but also their future online persona and personal data, according to Gartner. This long-term market advantage will be far more beneficial than owning an email address or domain because instant messaging will be the core of wireless e-commerce, live collaboration, virtual gaming and a host of other Internet applications.

“As you select your instant messaging preference, think about who will safeguard your banking data, social security number and a host of other private transactions,” said Neil MacDonald, Gartner analyst. “Clearly, Microsoft has the technology lead, but AOL has the consumer confidence on privacy and security matters. The last place you want to have an identity crisis is online.”

A battle between Microsoft and AOL for instant messaging will pit Microsoft’s technology advances against AOL, the master of marketing. While it is possible Microsoft will aim for either the business market or consumers, Gartner predicts a direct clash of the two technology giants by 2003, resulting in either a major technology and marketing deal between the two or annihilation of one of the players as far as Web services is concerned.

“The power of instant messaging is so great, even today, that early success is no indication of future performance in this space,” said David Smith, Gartner’s vice president of Internet and Web Services Research. “Watching the instant message marketplace is like seeing whether Ford or Chrysler will invent the assembly line first. The stakes are that high. Right now, AOL has the marketing, but Microsoft has the Web services vision and the technology.”

Share of Browser Market
As of 4/25/01
Browser Share If AOL Used
Microsoft 86.61% 80.20%
Netscape 13.10% 19.51%
Other 0.29% NA
Source: StatMarket

The battle over instant messaging also calls to mind the battle over browser share that raged online until Microsoft’s Internet Explorer took a commanding lead over Netscape’s Navigator. Not only is it a clash for control of a technology with a bright future, but the names remain the same.

Despite owning Netscape, AOL offers exclusive support of Microsoft’s Internet Explorer browser. According to data compiled by WebSideStory’s StatMarket, should AOL convert all of its privately labeled Internet Explorer browsers to Netscape, Netscape’s browser usage share could rise more than six percentage points to nearly 20 percent worldwide. Microsoft’s browser share, meanwhile, would fall to 80 percent. As of April 25, 2001, the AOL/IE browser accounted for 6.41 percent of the global usage share market.

“In theory, if AOL were able to convert all of its current users, there would be a significant shift in the browser war,” said Geoff Johnston, vice president of product marketing for StatMarket. “Microsoft, of course, would still control a vast majority of the browser usage market worldwide. Still, this is an intriguing development that may give hope to Netscape fans.”

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