(FORTUNE Magazine) – Video teleconferencing over the Internet isn't new. Just minutes after scientists discovered how to transmit two-way voice, video, and text streams between computers, sex-starved nerds were offering their credit card numbers to interactive peep-show services. Before long, travel-averse businesses started exploring Internet-based video teleconferencing. Even so, until now rigging a computer to act as a videophone generally has been more trouble than it's worth, with tiny, fuzzy pictures and walkie-talkie voice delays.

Apple is changing all that with software that makes Internet-based video chats cheap and simple, using the popular AOL Instant Messaging (AIM) and its own .Mac services. With the new iChat AV prototype software (free, for now) and an iSight digital web camera ($149), a Mac user with a high-speed connection can "call" home from a business trip, sympathize as his youngster shows off a skinned knee (or a new piercing), make goo-goo eyes or grouse with the spouse for an hour, and never pay a dime to the phone company.

Microsoft is cooking up something similar with its MSN Messenger version 6.0, now in testing. It's not as simple or satisfying as Apple's offering. Still, Windows outsells Apple's Mac OS X more than ten to one, so it's bound to expose more people to the idea of Internet-based video chat.

Once video chat is built into operating systems, as it soon will be, we're not going to be able to work at home in our underwear. Text-based chatting is phenomenally popular among young people and is poised to become a major new method of business communications. The addition of voice and video chat is a profound advance in the instant messaging medium.

But we're not there yet. Apple's "public beta" software and webcam both have rough edges. However, like almost all of Apple's recent products, they are elegantly designed and crafted to take advantage of Apple's control over both its operating system and hardware. The software will be included in the next major revision of Mac OS X, code-named Panther, which will go on sale before the end of the year for $129. Those who balk at paying Apple $129 every time it revises its OS will have the option of paying $30 for iChat AV once it exits beta mode. Mac OS 9 users need not apply.

The iChat AV software allows Mac users to create "buddy lists," familiar to tens of millions of IM aficionados, which let you know if friends are online and able to chat via text, voice, or video. One catch: Your buddies must be on AOL's Instant Messenger service, which is free, or Apple's .Mac service, which costs $100 a year. Although AOL keeps promising to interconnect with users of MSN, Yahoo, and other IM providers, it has yet to do so. (Disclaimer: AOL is FORTUNE's buddy in AOL Time Warner.)

Any webcam or digital videocamcorder will work with iChat AV as long as it has a high-speed FireWire connection, which is standard on all newer Macs. However, for sheer simplicity it's hard to beat the iSight color webcam. It's a lightweight cylinder 3.5 inches long and less than 1.5 inches in diameter, with a 50-millimeter autofocus lens and a built-in microphone. It's easily mountable on a notebook, a desktop monitor, or just a desktop.

Here's the installation procedure for setting up an iChat AV video chat: Download software. Plug in camera. Find a buddy. Click. If all goes well--and in my tests, it took some tinkering--a window pops open, and suddenly your Mac is a videophone. (One problem: Corporate firewalls almost always block video chats, meaning you'll likely be blindfolded and gagged on company networks.) Apple claims you'll see full-motion, TV-quality video. Maybe on their network. But over my cable modem and DSL lines, the picture quality of my buddies 1,500 miles away ranged from abstract to impressionist to realist.

The iSight camera is surprisingly good. It automatically corrects for lighting and color, and it's easy to place close to the screen, minimizing the Taxi Driver "You talkin' to me?" effect, where your buddy is looking at you on the screen instead of into the camera, and vice versa.

Talking is another matter. Voice over the Internet is subject to delays that can be disconcerting. Apple has figured out a way to lip-synch the video with the voice delays, though it's not perfect.

Apple's market share remains disproportionately small compared with the large impact it is having on the computer industry through innovative products like iChat AV and iSight, the iMac, the iPod, and the iTunes Music Store. Maybe these new products will open some more eyes.