META Report: Tackling the Instant Messaging TigerMatt Cain
Activity in the instant messaging (IM) space has never been more intense, with numerous story lines surrounding vendor activity. AOL's reluctance to interoperate with other IM networks (such as Yahoo Messenger and MSN Messenger); wireless service providers banding together (such as Wired Village) to provide interoperability; companies like FaceTime using IM within CRM applications: these are just a few of the activities occurring.
We see broad applicability at the corporate level, because IM nicely straddles the line between phone calls and e-mail and eliminates long e-mail threads. IM carries the immediacy of a phone call and gives IT groups the option to not leave records subject to court-ordered discovery process, as does e-mail. Moreover, presence information (knowing who is online) can be invaluable for determining who is immediately available -- even if it means phoning the person, rather than sending a message.
Therefore, IM fits nicely into several long-term corporate requirements, such as closely tying together geographically distributed workgroups, improving communication with business partners and suppliers, improving customer support, and facilitating cross-business-unit communication. Use will expand from person-to-person interaction to machine-generated information alerts, file sharing, and voice communication.
While unofficial use of public networks abounds, the corporate market is virtually unpenetrated. But IT-group sanctioned IM is expected to enjoy explosive corporate growth during the next three years. META Group estimates that the number of "official" corporate IM users will grow from 5 million now to 200 million in 2005. The total IM worldwide population (corporate plus consumer) currently stands at 150 million seats sending 12 billion messages a month. By 2005, we expect that to grow to 500 million clients sending 95 billion messages a month.
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We expect IM to become common in all business-to-business, business-to-consumer, business-to-employee, and consumer-to-consumer market segments, with the technology becoming embedded in teamware, peer-to-peer collaboration suites, and portals during the next several years. Use of wireless IM will skyrocket. During the next three years, corporate adoption of IM will also occur as part of widespread deployment of the new-age collaboration triumvirate of IM, teamware, and Web conferencing.
Lotus and Microsoft
Lotus made a strategic error by not incorporating IM into Domino. Its IM service is packaged in the Sametime Web conferencing server, which has no more than 10 percent of the overall Domino market, thereby opening the door to other vendors to penetrate Lotus accounts. In contrast, Microsoft includes IM in Exchange 2000, ensuring it of deep market penetration as the 78 million-strong Exchange 5.5 base upgrades to 2000 (a slow process, due to Active Directory dependencies).
We also expect Microsoft to repackage its collaborative offerings into a more coherent mix -- combining Exchange 2000 Conferencing Server with its teamware product (SharePoint Team Services) and IM in 2002, which will provide a significant threat to Lotus's own product mix of QuickPlace (teamware), Sametime, and K-station (IM plus QuickPlace).
Microsoft will also emphasize integration with its MSN consumer IM network (32 million seats), thereby rivaling the Lotus/AOL IM partnership. However, these hybrid corporate/consumer IM network links put the onus on IT groups to establish security and usage policies to avoid unauthorized network penetration, misuse by employees, and hygiene issues (e.g., content blocking, virus protection, and etiquette). Microsoft will also blur the distinction between corporate and consumer e-mail systems as it rolls out its HailStorm services, which will use MSN Messenger as a backbone for delivery of consumer and corporate Internet services.
Microsoft has the added advantage of bundling an IM client into MSN Explorer and Windows Millennium Edition and the client is also loaded as part of the Window Update program. By 2005, we expect Lotus and Microsoft to own 90 percent (Microsoft with 70 percent, Lotus with 20 percent) of the Global 2000 IM market, driven by product bundling strategies.
Consumer Market Showdown
The real drama in the IM market is between AOL and Microsoft for consumer use. Control of this space is crucial for both companies, because they hope to use the IM network as a springboard for multiple services that will ultimately provide recurring revenue streams (such as advertising and transaction fees), as well as technical and marketing links to their respective portal sites and Internet-access subscription services.
For example, Microsoft's new version of Windows Messenger, due in the third quarter, is more of a peer-to-peer engine that enables messaging, file exchange, application sharing, video conferencing, and voice over IP, among other items. Ultimately, we believe the IM client will provide the basis for the consumer's online identity, a key aspect of the Microsoft's HailStorm program. As part of that plan, we believe Microsoft will by 2004 merge Windows Messenger with its T.120 conferencing client (NetMeeting) and MSN Messenger, which has only a subset of the functionality of the Windows Messenger client.
Microsoft will expend every effort (including bundling with Windows XP) to catch up to AOL in IM seats, a battle not unlike Redmond's successful jihad against the Netscape browser. Although AOL's IM client growth is slowing (100 million, including ICQ, compared to Microsoft's 32 million), it is not standing still. The company has agreements with RealNetworks, IBM, Novell, Apple, Juno, EarthLink, AT&T, Sprint, Palm, and RIM. By 2004, we believe Microsoft and AOL will equally dominate the consumer market with 125 million seats each, followed by Yahoo as a trailing third.
Business Impact: Instant messaging creates business efficiencies (e.g., instant answers, problem alerts) by enabling distributed workgroups (or CRM stakeholders) to determine who is online and initiate a text-based (or other) dialog.
Bottom Line: IT groups should deploy managed IM networks to prevent uncontrolled use of public IM tools. Infrastructure considerations and vendor viability concerns will lead most Global 2000 companies to choose Microsoft and Lotus IM products. External strategies such as CRM must accommodate IM tools used by consumers and clients, with interoperability issues escalated to IT groups for resolution.
Matt Cain is an analyst for META Group, an IT consulting firm based in Stamford, Conn.