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Internet Companies Dial Into VoIP

AOL, Microsoft's MSN, and Yahoo are adding VoIP capabilities to their popular IM software, giving more credence to the burgeoning technology

Voice over IP has the potential to reinvent communications. More people are using the Internet to make phone calls, letting them completely bypass the phone company and its charges. But VoIP has even bigger implications. Imagine a world in which voice, E-mail, and instant messaging are bundled into one convenient service, and you can choose among them with just one click. Such a world might not be that far away.

Spending by U.S. companies and public-sector organizations on voice-over-IP systems will grow to $903 million this year, up from $686 million in 2004, according to research firm Gartner. Investment in hybrid systems, which handle VoIP and conventional calls, will grow from $1.5 billion to $2 billion. By 2007, Gartner predicts, 97% of new phone systems installed in North America will be VoIP or hybrids.

These statistics aren't lost on the major Internet companies. America Online, Microsoft's MSN division, and Yahoo are all entering the VoIP market, armed with services and capabilities that they've added to their popular instant-messaging software. They're looking to compete with market leader Vonage Holdings Corp. for their share of the consumer and small-business markets.

Last month, AOL launched its Internet Phone Service in more than 40 markets across the country. Using the service, AOL customers can make and receive local, long-distance, and international phone calls via high-speed Internet connections. As is the case with other companies offering VoIP services, AOL hopes to secure its existing customer base and attract new customers, including small businesses, by offering Internet phone services at a lower prices than conventional landline services. "It's a good, cheap alternative to your phone service," says Peggy Schoener, a principal analyst at Gartner.

What sets AOL apart is a suite of features that come bundled with its offering, including unified voice, instant messaging, and E-mail. AOL essentially has created a command center on the desktop where users can manage all of their communications, says Jim Tobin, VP and general manager of advanced voice services at AOL. For example, users can check voice mail using a drop-down list of incoming calls. They also can decide which calls to take, which ones to play back, and which ones to forward, just like they would with E-mail.

Voice and E-mail messages can be retrieved from any touch-tone phone or PC with an Internet connection. That feature is integrated with online "presence," an option that makes it possible to indicate how, where, when, and whether phone contacts can be reached via instant messages. "We've crossed between the telephone world and the online world," Tobin says.

AOL, an $8.6 billion-a-year company, is well established as an Internet access provider. In 1994, its customer base reached 1 million, and today it has 22.3 million subscribers across the United States. Now AOL is taking a big step by offering a VoIP service to consumers, who are more likely to adopt voice over IP from a company that they've grown to trust over the years, analyst Schoener says. And because the service is designed for nontech users, it's easy to use--another factor that might drive people to sign up for the service in large numbers.

Similar to AOL, both Yahoo and Microsoft's MSN division offer integrated voice and messaging services. Microsoft last month rolled out the latest version of its MSN Messenger, which lets users have PC-to-PC voice conversations or video conversations. MSN teamed up with Logitech International S.A. to create a full-screen video-viewing feature for MSN Messenger that syncs up audio and video, giving users "a tangible connection to people via IM," says Brooke Richardson, lead product manager at the MSN division.

MSN's investment in VoIP doesn't stop there. The company also is looking at adding a PC-to-phone feature to MSN Messenger, which would give users the ability to connect to a phone right from their computers. "You'll continue to see from us more integration between our communication services," Richardson says. "We're doing a lot of work to make it seamless for customers to flip between different communication channels."

Brad Garlinghouse, VP of communications products at Yahoo

VoIP is a "core component" of IM, says Brad Garlinghouse, VP of communications products at Yahoo.
Yahoo has made its footprint in VoIP by teaming up with the United Kingdom's major telecommunications carrier, BT Group plc, to build a call-management system for Yahoo Messenger. BT Communicator, which was rolled out in March 2004 in the United Kingdom, integrates instant messaging with PC-to-phone calling, Internet call waiting, directory lookup, and other telephony capabilities. Users can choose conventional instant messaging or talk live via Yahoo Messenger using the PC voice-chat feature.

"There's no doubt that when you think about an integrated communications strategy, voice is a key aspect," says Brad Garlinghouse, VP of communications products at Yahoo. The company has big plans in the works. In the near future, users will be able to get call alerts through Yahoo Messenger, which will have a built-in capability to redirect their calls to voice mail, a cell phone, a home phone, or an office phone, Garlinghouse says. "It's a priority for us that we extend VoIP as a core component of the IM experience," he says.

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