Instant Messaging Market In Flux

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December 04, 2000 (6:02 PM EST)

As the dot-com market goes, so apparently goes instant messaging.

CMGI Inc. (stock: CMGI) shut down its iCast site -- and instant messaging capability -- last week as planned.

That move, and CMGI's decision to stop support for Tribal Voice's PowWow software, is part of the huge Internet incubator's effort to focus its businesses and make money.

"The market isn't what it used to be before when you could put money into companies that might grow, but not offer sustainable revenue or profits," said a source close to the company.

CMGI said in a statement issued as financial guidance in mid-November that it would shut down iCast, a site that offered multimedia player capabilities along with instant messaging.

Instant messaging caught on fast -- first among young people, then spreading like kudzu in corporations where it often took hold without IT's sanction.

But whether IM can be a profitable proposition for its suppliers is a big question with industry powers including America Online Inc. (stock: AOL), Yahoo Inc. (stock: YHOO), and Microsoft Corp. (stock: MSFT) giving it away.

While Yahoo and Microsoft have been the fastest-growing IM services of late, according to recent Media Metrix numbers, America Online's AIM and ICQ remain the team to beat. Together they comprise an estimated 90 percent market share, analysts said.

Instant messaging is a draw but not a moneymaker, said Mark Levitt, research director for International Data Corp., Framingham, Mass.

Companies might be able to profit by licensing IM to third parties or offering it as part of a customer-support solution. The bottom line, however, is that "IM alone is not a product -- it's a feature," he said.

Even remaining IM players acknowledge that pure consumer plays will not likely pay the bills.

"There is no way to make money off consumer services, but other models make sense," said Dante Federighi, president and co-founder of Chicago's Imici, which now boasts about 50,000 users.

The silver lining to the iCast and Tribal Voice closures is that those users may well need a new provider.

ICast claimed some 750,000 users and Tribal Voice, which supplied IM technology to AT&T Corp. (stock: T), said more than 8 million users in 18,000 communities used its PowWow software.

Alex Diamandis, vice president of marketing for New York's Odigo, said the death of PowWow and iCast is more a CMGI issue than a symptom of a sickly IM market.

"The IM industry is still nascent. This is not a shakeout," he noted.

Odigo gains 12,000 to 15,000 users per day and has 2.3 million users total, he said.

And, the company continues to add features and functions to its offering. Tuesday, it will announce its third major version that adds new content channels from ESPN and National Enquirer.

It also supports group surfing, so that a group of buddies can cruise websites together.

In addition, the software can be programmed to alert the user via IM when a regular e-mail message arrives in his or her mailbox, he said.

Last week, Imici unveiled its 1.6 release, which adds file transfer, encrypted login, and the ability to log and archive instant messages, Federighi said.

In addition, the company has not had an interoperability problem with AOL in more than three months, something of a milestone.

Last summer, AOL regularly disrupted interoperability between AIM users and third-party IM providers, citing privacy and spam concerns.

The remaining IM players -- with the huge exception of AOL -- still want to ensure interoperability between their offerings.

AOL, Dulles, Va., has pledged to interoperability in theory, and the issue has been brought up to the Federal Trade Commission as a potential hurdle to the company's merger with Time Warner Inc. (stock: TWX).

Tribal Voice and iCast were two of the most vocal critics of AOL's stance and were two of the nine founding members of IMUnified, a consortium dedicated to IM interoperability.

The consortium sent out its specification for interoperability to companies requesting it last week. The group will work with the IETF to assure such interoperability, according to its website, www.IMunified.org.