Instant Payback?

Think instant messaging is child's play? Reuters begs to differ. The London-based news and technology specialist is rolling out a custom instant messaging (IM) service to improve communications between thousands of buy-side and sell-side financial professionals.

Reuters isn't alone. From financial services firms to online retailers, businesses deploy IM software to strengthen communications with customers, hasten internal decisions and eliminate nonessential face-to-face meetings.

"We've always believed that instant messaging would evolve into a business tool and become as significant as the telephone and email," says Glen Vondrick, president and chief executive officer of FaceTime Communications, an instant-messaging company in Foster City, California. "Clearly, that transition is underway."

Such is the case at Reuters, which has partnered with an IM specialist that serves the corporate market. Its system (Reuters Messaging) includes communications hooks to MindAlign, an IM platform from Divine, a Chicago-based software developer. The MindAlign messaging window allows financial securities traders to type in suggested prices, trading flows, research information, and other comments about particular securities. "It's a powerful tool for real-time information sharing," says Amanda Jones, director of e-commerce solutions at UBS Warburg, a major MindAlign customer and the software's original developer.

Despite such praise, many businesses remain wary of instant messaging because consumer-oriented IM services don't communicate with one another (see the sidebar, "IM Standards Battle Drags On"). And unlike MindAlign, most consumer IM services—from America Online, Microsoft, and Yahoo—lack key capabilities that CIOs crave, such as logging and auditing.

Those features are particularly critical on Wall Street, where the Securities and Exchange Commission (SEC) requires brokerages to archive all electronic messages dating back three years. Those that don't follow the archiving requirements face steep penalties. For instance, in December 2002, the SEC fined five Wall Street brokerages (Deutsche Bank, Goldman Sachs, Morgan Stanley, Salomon Smith Barney, and U.S. Bancorp Piper Jaffray) a combined $8.25 million for failing to properly preserve email and memos.

In the Beginning

The IM market began to take shape in 1996, when a startup company called Mirabilis launched the ICQ service. The free ICQ client uses a proprietary protocol to connect with an ICQ server. Once logged into the server, ICQ clients can communicate directly in real time with other clients. The ICQ clients use IP addresses and port numbers to allow rapid, direct communications between users.

America Online acquired Mirabilis in 1998 and the ICQ software remains popular—though it's not to be confused with the AOL Instant Messenger (AIM) service, which leads the market with 180 million users, followed by ICQ (130 million), Microsoft's MSN Messenger (78 million), and Yahoo Messenger (21 million).

As this story went to press, America Online disclosed that it had won a broad ownership patent on instant messaging technology. However, it's unclear whether AOL will attempt to enforce the patent and collect royalties from rivals. A spokesperson for AOL said that there were "no plans" to leverage the patent in any way.

Despite its popularity, IM can be both a blessing and a burden. Much like early Web browsers, IM software often infiltrates corporate networks without management's approval.

In some instances, IM has evolved into a virtual water cooler where employees exchange gossip, trade stock tips, or discuss the office football pool. "Over the past fifteen years, the three greatest killers of corporate productivity have been Microsoft Solitaire, the Web, and now instant messaging," says a CIO with a Fortune 500 company headquartered in California. "We banned computer games and blocked certain Web sites. Now, we're working on a corporate policy to address instant messaging. We need to leverage instant messaging's strengths while minimizing the potential distractions it can cause."

Corporate Ambitions

Enter AOL, Microsoft, and Yahoo, which are taking aim at the fledgling—but potentially lucrative—corporate IM market. At roughly $10 to $100 per user (depending on deployment size and complexity), corporate IM represents a multibillion-dollar opportunity for Internet and corporate software providers.

Businesses appear eager to put the software to use. By the end of 2005, 50 percent of companies will use corporate-focused IM software, according to Gartner. Rival market watcher International Data Group (IDG) is equally bullish, predicting that the corporate IM market will reach 200 million users by 2005, up dramatically from 5.5 million corporate users in 2000.

When it comes to tapping into the business market, numerous Davids lurk among the IM Goliaths. During the late 1990s, several niche software companies—from Bantu to WiredRed Software—identified corporate IM as a potentially huge opportunity (see table, "Corporate IM Competitors").

Many of the upstarts attempted to design their own IM networks from scratch. But companies like FaceTime attacked the market using a more traditional approach. Instead of reinventing the wheel, FaceTime built enterprise-class services to sit on top of established IM networks from AOL, Microsoft, and Yahoo. That tactful decision—reached four years ago—is paying big dividends.

"It can be difficult to be the Switzerland of instant messaging," concedes FaceTime CEO Vondrick. "We realize that this is a multinetwork world and our partners trust us not to share information about what the other guy is doing. We have separate account managers for each network partner, so that certainly helped us to earn everyone's trust."

Banc of America Securities (BAS), for one, rolled out FaceTime's software to speed correspondence between its brokers and investors. For the sake of simplicity, BAS wanted a consumer IM desktop interface but needed a platform that complied with the Commodity Exchange Act, as well as SEC auditing and monitoring regulations. As previously mentioned, these regulations require Wall Street firms to monitor and archive their electronic messages.

BAS, a subsidiary of Bank of America, evaluated seven IM options. Ultimately, it chose FaceTime's IM Auditor because it tracks all instant messages, manages buddy names, prevents non-approved customers from accessing the system, and creates an archive of IM messages. The IM system, deployed more than a year ago, is wildly popular. The FaceTime software manages more than one thousand daily conversations between BAS and its customers. Roughly fifty new customers sign up for the service each week, according to Chad Lane, a lead project manager at BAS.

The Big Three

Despite anecdotal success for IM startups, most eyes remain firmly focused on AOL, Microsoft, and Yahoo.

"People ask us how we stack up against those companies all the time," says Ryan Gaylor, Divine's product manager for MindAlign. "But people have to remember that consumer instant messaging lacks enterprise authentication. Our software is used on trading floors with 1,500 active traders. The environment can be total chaos, but MindAlign brings secure, reliable order to the chaos. The other guys just can't say that."

The Big Three providers of consumer IM are moving aggressively into the corporate market. To wit, AOL in early November 2002 unveiled AIM Enterprise Services, which includes gateway software, private domain services, and federated authentication. Yahoo's enterprise system is now in beta.

The enterprise gateway, for instance, provides a secure connection between corporate IM systems and AOL's broader IM network. "The gateway server builds on our existing IM technology," says Brian Curry, senior director of strategic developments for AOL Strategic Business Solutions. "The gateway's primary function is to provide a single point through which you can manage enterprise instant messaging."

In a typical setting, customers deploy the enterprise gateway onsite—behind a firewall—to serve as a traffic cop between the public and private IM systems. The gateway allows companies to monitor instant messages for legal, regulatory, and accounting compliance by logging, auditing, and creating reports on all AIM communications.

AOL's optional private domain service (PDS) and federated authentication software ties to LDAP-compliant directories (Microsoft Active Directory, Novell NDS and eDirectory, and so forth). As a result, businesses can manage instant messaging "screen names" from the corporate directory and create private domains similar to email addresses.

One early adopter is Apple. The company's iChat service allows Mac.com members and AIM users to communicate across the disparate instant messaging networks. Apple uses AOL's PDS and federated authentication software to manage the cross-network link.