To most IT managers, Internet-based instant messaging is a toy teen-agers use to swap gossip. At UBS Warburg LLC, it's a tool for trading about $1 billion a day.

Though 100 million people use America Online's market-leading instant-messaging service, the technology is still viewed with suspicion as a mainstream business tool. Some IT managers ban it outright on company machines, worried that it's not secure enough for official business and that personal use will sap productivity. Yet its informal use is spreading, often without official IT department blessing. A few companies, such as UBS Warburg, are even embracing it.

For stock and bond traders, the right information can be worth millions at the right time--and worthless minutes later. At UBS Warburg, traders used to communicate news and market trends to colleagues on trading floors in Zurich, London, and New York using intercoms known as "squawk boxes." Given the din made by the dozens of people working the phones in a trading room, it was easy for useful information to get lost. "We needed to find another solution because we could make a lot of money if we could get the right information to the right people," says Andy Konchan, UBS Warburg's executive director of E-commerce. As far back as six years ago, the bank, part of the Swiss company UBS AG, started experimenting with Web-based instant-messaging systems to spread internal information quickly.

UBS Warburg set up instant messaging that let employees form topic-based groups to simultaneously inform hundreds of colleagues and clients of a critical development. One group alone, on European stocks, has 1,500 members. In 1998, the company began letting select clients receive messages, and today about 1,500 clients and 14,000 UBS Warburg employees use the system. The bank also let clients send buy and sell orders via instant messaging, which has improved accuracy as well as speed. "It's a more-efficient way to do trades than by phone," Konchan says.

UBS Warburg, along with business incubator firm divine Inc., last year spun off the financial company's proprietary instant-messaging system into a commercial product called MindAlign. Since then, the company has continually upgraded the system, adding archiving and a feature that lists the 30 most recent messages for a group when someone logs on. But most important is the chance to make close and frequent contact with customers. "Our salespeople can take information from within UBS Warburg and filter it according to our client's preferences," Konchan says. "We get to the client faster than anyone else."

Instant messaging is a set of protocols and an agent that lets users send messages back and forth over the Internet in near real time. The purest form of peer-to-peer communication, it requires both parties to be logged on, so users know the other party is available and accepting messages.

For catalog retailer Lands' End Inc., the decision to give instant messaging to customers was easy. About three years ago, the company's E-commerce managers sensed a groundswell of interest from online shoppers. "They said they would shop more frequently online if they could get real-time answers to their questions," says Sam Taylor, Lands' End's VP of international and E-commerce. It was hard to say no to that.

The numbers show shoppers weren't kidding: E-commerce marketing manager Terry Nelson says the average customer who uses instant messaging to talk with a customer-service representative spends 8% more than one who doesn't. Even better is the fact that a customer using instant messaging is 67% more likely to buy than an online shopper not using it. Of course, that's in part because a shopper using it usually has a specific product question and isn't just browsing. Answering those questions quickly was why Lands' End was one of the first online retailers to add the feature, dubbed Lands' End Live, and then added Shop With A Friend to let two customers exchange messages. For example, the feature lets siblings converge on the Lands' End site and discuss which sweater would be best for Mom's birthday present.

Instant messaging also provides another outlet to receive customer feedback, Taylor says. Shoppers already provide comments on the phone, through postal mail, and via E-mail; instant messaging makes it even easier for online customers to convey their thoughts about Lands' End products and services.

The Dodgeville, Wis., company likes to say it's "high-tech and high-touch," but Lands' End E-commerce managers realized it's a lot better at the high-touch part. The company developed its instant-messaging system in partnership with Webline, a company later bought by Cisco Systems. "We're not a technology development company," Taylor says.

Telephone representatives were taught to communicate concisely through instant messaging. Of the more than 2,500 representatives working at any given time, several hundred are trained on instant messaging. The reps weren't intimidated by the technology: When the company asked who would be interested in Lands' End Live training, there were more volunteers than needed, so the most seasoned employees were picked, Taylor says.

But the confidence and track record of UBS Warburg and Lands' End are the exception when it comes to instant messaging. Amica Mutual Insurance Co. in Lincoln, R.I., is an example of the growth of instant messaging--and the lingering worries managers have about using it. Amica last month began letting customer-service reps use instant messaging to talk with customers using Amica's Web site. About nine out of 10 Web-site visitors use AOL, so Amica executives believed most users would be AOL instant-messaging subscribers as well. Employees use a program from FaceTime Communications that works with AOL, MSN, and Yahoo instant-messaging services.

Customers have responded favorably to instant messaging in the early weeks of testing, so the company may expand its use throughout the call center. But using instant messaging more widely in-house is another issue. Company officials have discussed the potential benefits of customer-service reps being able to contact technicians or claims agents via instant messages to resolve customer issues. But Amica doesn't let employees load consumer messaging software onto their computers because of security concerns. "Security is dominant in our discussions about new technologies," a spokesman says.

Security is a strong concern when it comes to instant messaging. IT managers often haven't created an official instant-messaging policy, so it hasn't received the same level of security scrutiny that other communication, such as E-mail, has. "They don't want to advertise that it's available because they don't want to support it," says Pete Lindstrom, director of security strategy at analyst firm Hurwitz Group. "You have it creeping into the organization." Instant messaging should be taken seriously because it's an opening in the corporate firewall, but the threat isn't so great that instant messaging should be blocked when there's a strong business case for it, he says. "People would just go around it, and that's much worse than acknowledging it and trying to control it," he says.

IT executives at Sam Ash Music Corp. were more concerned that instant messaging would keep people from getting their work done. The 30-store musical-instrument retailer decided to use Websense Inc. software to block all instant messaging use from its network. "The chief operating officer doesn't want workers sitting by computers the whole time using instant messaging. He'd rather have them dealing with customers in the store," says Mark Getman, the Hicksville, N.Y., company's systems administrator. There are only two exceptions to the anti-instant-messaging policy--Getman and the company's IT director, who use it primarily for external communication such as getting information from vendors.

UBS Warburg and Lands' End both let employees use instant messaging for personal messages. Lands' End considers it a time-saver that cuts down on telephone use. At UBS Warburg, the system was developed for foreign-exchange traders, but it's been extended to the human-resources, IT, networking, and telecom departments, which have become heavy users. The bank considered the possibility of abuse sapping productivity, but decided managers could monitor employee performance, Konchan says. "We decided we weren't extremely concerned about it being used for stuff other than business purposes."

Another roadblock to instant messaging is the lack of a unified standard. AOL, MSN, and Yahoo users can't talk to one another without intervening software such as the kind Amica uses. That convinced Jo Haraf, chief technology officer of the San Francisco office of law firm Morrison & Foerster LLP, that it wasn't time yet to adopt instant messaging, despite having more than 1,000 attorneys practicing law in seven countries. Haraf says she won't turn to instant messaging until it delivers the same ease of use she gets with Microsoft Exchange 2000 E-mail. "I can send an E-mail to anyone, whether they're on Microsoft Exchange or Eudora," she says. "The same isn't true of IM."

Microsoft and Yahoo have been urging America Online to foster interoperability and formed IMUnified as a coalition to develop open standards. America Online has been reluctant to open its network to subscribers of other services, but that's likely to change. As a condition of AOL's January merger with Time Warner, the Federal Communications Commission insisted that the company show progress toward opening its instant-messaging networks to competitors. In August, AOL began interoperability trials with Lotus Development Corp. to test whether AOL instant-messaging servers could communicate with Lotus' Sametime servers.

One final obstacle to business adoption of instant messaging is that--just like E-mail in its early adoption--the informal rules of engagement haven't been written. Business managers will need to learn how to manage instant messaging or the annoyance of constant interruptions from pop-up messages will have them unplugging the system in a hurry, says Peter O'Kelly, an analyst with the Patricia Seybold Group. "If you don't establish a profile for when you can be contacted, it's going to make spam look like a happy day," O'Kelly says. But he considers those hurdles manageable, especially in information-intensive industries such as financial services, engineering, and sales, where there's a lot of money to be made by quick response.

Vendors are starting to offer instant messaging that's tailored to business use. Companies such as startup Netrana LLC pitch instant messaging as an alternative to complicated business-to-business Web-trading marketplaces by building templates--such as an order form or a small spreadsheet--into instant messages. CEO Rusty Braziel notes that Web marketplaces required a major change in behavior and investment to do E-commerce, whereas instant messaging more directly replaces a phone-and-fax deal with a written online connection.

Braziel predicts instant messaging will follow an adoption curve similar to that of E-mail as acceptable business communication. But because people with Web access can easily get instant messaging, it will start at many companies with a few individual users, rather than as a large-scale corporate IT project, he says. "Two people can adopt it without having their entire company sign on to a new software application," he says. "I can download a piece of software, you send me a template, and I'm rocking."

The next five years will bring widespread adoption of instant messaging in connection with self-monitoring devices, Forrester Research analyst Navi Radjou predicts. Machinery that includes software based on artificial-intelligence algorithms will be able to self-monitor for glitches, offer possible solutions, and alert the appropriate person through instant messages. A simple example is an industrial fuel tank that notifies an employee by instant message when it's running low.

UBS Warburg's Konchan sees the addition of artificial-intelligence software to its system as the next big step. Today, the company's system delivers information based on certain category filters. Konchan envisions software that can add a level of judgment, determining which information is important to a trader or client and alerting them via an instant message. "In the future," he says, "artificial intelligence will be able to alert you about pertinent information, even if it's not specifically what you asked for."

--with Christopher T. Heun