The End of Instant Messaging (As We Know It)

It's the end of instant messaging as we know it. Those chat boxes once commonplace on a computer desktop amid documents, Web browsers, and spreadsheets are giving way to a new breed of user-friendly, real-time conversation tools that Internet companies hope will keep users engaged with their content—and the advertising that appears alongside it.

Case in point: Microsoft's (MSFT) Nov. 13 announcement that it will integrate its instant message service, Messenger, used by 300 million people, more closely with its Windows Live e-mail and social networking sites. So instead of having to toggle to a separate window, downloaded to a desktop, users can strike up a real-time conversation with someone else right from an application they're already using—say, Hotmail.

Like other companies hoping to make money from the Internet, Microsoft is responding to consumers' waning interest in standalone IM tools and their desire for chat features closely connected to their favorite sites. Like e-mail, games, and other categories that have gradually migrated away from downloaded and off-the-shelf software, instant messaging is shifting toward the Web, where it can be accessed from any computer while taking up no space on a hard drive.

Embedded IM

AOL (TWX) Instant Messenger, the desktop chat program that was once the gold standard in the category, saw unique visitors decline 4% in the year ending September 2008, according to comScore (SCOR). During the same period, two of the top four standalone programs—AOL's ICQ and Chinese-language Tencent QQ—had declines in minutes used.

Instead of spending time with these old-fashioned chat windows, Web users are flocking to sites like Facebook and Google's (GOOG) Gmail, where instant messaging tools are more closely embedded in what they are doing. For Web operators that get it right, embedded IM could increase the amount of time users spend on their sites, engaging with content while chatting with pals. Embedded Web-based IM tools may also appeal more to advertisers.

Most web users over 20 years old were introduced to instant messaging by AOL's pioneering service. But the wide range of chat options is making it harder to compete for instant messages, says David Liu, senior vice-president of AOL People Networks. "Activity [in AIM] is going down because of all the different sites available," Liu says. "So we're working on making AIM more social and viral."

Facebook's Chatting Toolbar

One way AOL hopes to do that is by linking AIM to the company's social networking site, Bebo. In early 2009, AOL plans to unveil an IM dashboard that travels with Bebo users from page to page. The selling point: Every one of AIM's 30 million users will get instant access to a Bebo profile page that's already set up with their "buddy list."

Instant messaging is also top-of-mind at the world's fastest-growing social network, Facebook. Earlier this year, the site installed a toolbar that lets friends chat one-on-one while they browse the site. According to product manager Peter Deng, some 75 million people—a little more than 60% of active users—have tried out the toolbar. "We had messaging, we had wall-to-wall [posting], and we thought having that private conversation was necessary," Deng says. "It enables a channel of constant communication between you and your friends."