A friend of mine who is the owner of a small 20-person technology company called me the other day to get some advice on instant messaging (IM). He’s been resisting his employees’ insistence on using IM technologies for months, but now that the other 19 employees use it regularly, he’s recognized the need to get with the program. He wanted advice on how to use it efficiently and whether he should connect with people outside the company and allow them to use IM to talk to him as well. This led to the inevitable discussion of how to deal with companies that don’t use his brand of IM (MSN Instant Messenger). When I told him that his only choice for communicating with users of Yahoo IM or AOL IM (AIM) was to download and install those clients as well, he couldn’t believe it. Frankly, neither can I. And this lack of interoperability is what will cause AOL and Microsoft to draw their respective lines in the sand.

In this article, I’ll give you the dirt on how the problem came about and how AOL and Microsoft are dealing with the issue.

Your tax dollars at work
Of course, the Federal Communications Commission (FCC) had the chance to fix this interoperability problem last year. When the AOL and Time Warner merger needed FCC approval, the FCC had the chance to force AOL to open up its messaging protocol to allow interoperability with other instant messaging systems. (In a strange twist of fate—or hypocrisy, depending on your point of view—AOL was one of the companies lobbying to have Microsoft broken up or forced to release the Windows source code to the public domain.) The FCC had a simple option: don’t approve the merger unless AOL agrees to publish its IM protocols. In an act of sheer cowardice, the FCC decided to approve the merger without this condition. So now, as companies are beginning to recognize the value of “presence information,” the industry has fractured around two major standards: AIM and MSN Messenger.

The Microsoft response
In another strange twist of fate, AOL may have created a beast that it cannot control by refusing to release a strategy for AIM integration. When it became apparent that Microsoft couldn’t integrate with AIM customers, the company decided that the only remaining option was to absorb them. The three-pronged Microsoft strategy for reeling in these consumers has now become clear: Exchange, Windows Messenger, and HailStorm.

Installations of Microsoft Exchange 2000 are running neck and neck with those of IBM/Lotus Notes. But for corporations wanting to install secure IM systems, Microsoft also provides the Exchange 2000 Conferencing Server, which includes a version of MSN Messenger that integrates with the Exchange security credentials. Companies can not only configure IM users, but they can also add secure audio and video conferencing (the recently released Service Pack 1 makes this technology much more robust and efficient). The flaw in this existing strategy, however, is that customers wanting to engage in IM conversations with individuals outside the company are required to also have an external MSN Messenger account, which means that conversations can’t include both Exchange IM and MSN Messenger participants.

Enter Windows Messenger. With the release of Windows XP this fall, Microsoft will integrate its PassPort authentication service with Windows XP security and Windows Messenger. Windows Messenger will become the IM technology for both Exchange Conferencing Server and for the public MSN Messenger service. Corporations adopting Microsoft Exchange as their messaging platform and Windows XP as their desktop operating system platform will have a unified messaging, presence, and notification platform that works “out of the box.” Since AOL hasn’t provided any mechanism for interoperability, corporations will have no choice but to abandon AIM accounts and replace them with MSN Messenger accounts.

This is also the first step toward adoption of HailStorm, Microsoft’s strategy for providing centralized Web services for consumers. Individuals using Microsoft Exchange for corporate mail and calendaring have the option of using the same credentials at home (i.e., their PassPort authentication). Now, if Dad puts the kids’ soccer game on his home calendar (as a hosted HailStorm service), it can be easily synchronized with his work Exchange schedule so he won’t commit to one of those pesky client meetings at the same time. In addition to personal calendar services, HailStorm will also expand the basic authentication, presence, and notification services provided by the existing PassPort and MSN Messenger services.

How can AOL respond (and why should you care)?
AOL already has three significant advantages over Microsoft in the IM space. First, AOL has a superior client. Where MSN Messenger is limited to 75 contacts in a flat address space, AOL allows unlimited contacts and has a great metaphor for grouping contacts by user-defined categories.

Second, AIM owns the consumer market. From my informal research (talking to companies about their IM strategy and talking to my daughter and her friends about their preferred messaging provider), it appears that MSN Messenger is preferred by over half of all businesses and AIM is overwhelmingly preferred by consumers, especially those under 25.

Third, AIM has more users. Even though Microsoft makes a lot of noise about the number of PassPort and HotMail users they currently have, those numbers don’t translate directly to MSN Messenger users. The most recent numbers I’ve seen show AOL with a 4 to 1 ratio of IM users (120 million to 30 million). That’s a commanding margin, even though those numbers will surely even out as Microsoft marches toward broad implementation of its Windows Messenger and HailStorm strategy.

It’s time for AOL to leverage its consumer strength by working with Microsoft to allow Windows Messenger users to authenticate transparently to AIM. Microsoft also needs to provide AOL with a way to co-brand the Windows Messenger interface and to reach Windows Messenger users with its marketing messages (in order to recoup their operating costs). Here’s a great opportunity for the two giants in IM to cooperate for the benefit of their mutual customers.

What’s your take on the IM issue?

Does your company use instant messaging? What could Microsoft and AOL do to make IM usage more efficient? Post your comment below.