The IM Invasion Instant-messaging providers are targeting corporations in a big way. Does using IM make sense?
By Christine Y. Chen

(FORTUNE Magazine) – At a typically busy lunch hour at a Hardee's in Indianapolis, a cashier is ringing up an order. The eagle-eyed customer notices a mistake: He is being overcharged by a dollar for his roast-beef sandwich, which was supposed to be on special for $1.88 this week. The manager rushes over and notices a computer glitch. She quickly gets on the horn to a Hardee's call center in Anaheim. Instead of putting her on hold, the guy at the help desk types up an instant message via AOL's new IM enterprise software, which the company has been testing for a few months. Immediately, windows pop up on the screens of several tech support analysts. One hits a few keys on her PC and--presto!--within ten seconds, the problem is solved.

A fast-food franchise might seem like an unlikely place to see the benefits of instant messaging. But this year IM is finally making serious inroads into the business world. According to market research firm Osterman, 18% of the working population uses IM today, vs. a mere 8% two years ago. AOL, which boasts the largest number of registered user names--195 million--estimates that 1.6 billion IM messages are sent on its network each day. By 2006, consulting firm Gartner estimates, more people will be using IM than e-mail as their primary communication tool at work. And over the past seven months all three major commercial providers--Yahoo, Microsoft, and AOL (owned by the parent of FORTUNE's publisher)--rolled out campaigns to target the enterprise market. Their challenge: to convince companies that embracing IM is worth it.

It won't be a cakewalk. "IM has one stigma," says Glen Vondrick, CEO of corporate instant-messaging startup FaceTime. "There's an automatic association that it cannot be useful for business because kids used it first." Boomer execs tend to think of IM as the tool their kids use to send "C U L8R! :)" messages to their friends on the opening night of the new Lizzie McGuire movie. But as a post--Fleetwood Mac generation starts to graduate from college and enter the workforce, corporations will become dominated by those for whom IM is a way of life.

For those of you who haven't taken lessons from tweens at home, here's how IM works. First you download the software free onto your desktop from one of the myriad providers. Then you set up a buddy list of friends and colleagues who are on IM too. Double-click on a name, type in "Hi," and a box containing the word "Hi" immediately pops up on that person's computer screen. He or she types a response into the box, which you see immediately. It's technological instant gratification. You can IM groups too, in real time--it's much cheaper and easier than setting up a conference call. And while e-mail can be better for long messages that you'd like to save, IM is better for those pesky one-line messages that can pile up and clutter your in-box.

The business implications are obvious. Retailers might use IM for superquick customer service, for example. Health-care companies might use it to transfer medical records instantaneously. The biggest roadblock: concerns about security. Most messages today are not encrypted, and they're pretty easy to intercept. "It's no big deal if you get an IM saying there's a meeting at 5 P.M.," says Ben Golub, senior vice president at technology security firm VeriSign. "But it's a huge issue if you're talking about financials or your competitors or other sensitive issues." Osterman Research estimates that some 27% of corporations have responded to such vulnerabilities by blocking commercial instant-messaging access at work altogether.

Where some companies experience fear and loathing, though, others see dollar signs. In March alone, AOL, Yahoo, and Microsoft boasted a combined 102 million users, according to comScore Media Metrix, a technology-traffic tracking firm. True, most of those are people who use free consumer IM software at home or in the workplace to communicate with the outside world. But why not boost the bottom line by offering greater security and asking corporations to pay for it?

It's a thought that seems to have occurred to all three major players at the same time. In October, web portal Yahoo announced that it would begin offering corporate subscribers the Yahoo Messenger Enterprise Edition. This beefed-up IM service includes better encryption than the free consumer download, says Ken Hickman, Yahoo's director of enterprise product strategy. And it lets companies exercise more control over whose IM messages, and what kind, can flow in and out of their computer systems. In November, AOL launched a similar product called Enterprise AIM Services.

That same month Microsoft announced MSN Messenger Connect, a version of its consumer IM program, for secure business-to- customer communications. And in April it unveiled yet another service, Real-Time Collaboration. Unlike MSN Messenger Connect, RTC is designed for internal company use. Microsoft views it as much more than humble IM. According to corporate vice president Anoop Gupta, it is the launching pad for an entirely new Windows server-based communications system that will allow employees to use IM, e-mail, phones, and web conferencing all at once--on the same platform.

Mind you, these enterprise IM projects are in their infancy. There have been some publicly disclosed beta tests, such as the AOL one at Hardee's. But so far none of the three big services will say how much revenue the products are bringing in.

Ironically, the only large company that so far has made serious inroads in enterprise IM is one that doesn't offer a mass consumer product. Five years ago IBM's Lotus software division developed an IM product called Sametime, started using it internally, and then began offering it commercially. According to Kevin McLellan, a Lotus marketing manager, IBM has captured 73% of the enterprise instant-messaging market. (That figure omits the majority of IMers, who unofficially use consumer products at work.) So far, Big Blue is the only company that can provide real statistics on the cost savings of instant messaging. Within IBM, McLellan estimates that the web-conferencing component of Sametime saves the company $4 million per month on airfare. And phone costs have gone down 4% since IM was introduced internally.

Pricing schemes for enterprise IM are all over the place; Yahoo, for example, charges about $30 per employee user per year, and AOL charges an upfront fee of $20 to $35 for each user, plus an annual maintenance fee. Providers insist that it's well worth the resulting cost savings and boosted productivity. In an IM interview, Bruce Stewart, senior VP for strategic business solutions at AOL, says that IM helps workers "collaborate with their 'business buddies'--their partners, clients, vendors, suppliers, geographically dispersed teams." People selling IM technology especially like touting the virtues of "presence," meaning that IM will allow managers to find their employees at all times.

An industry already using IM in large numbers: financial services. The real-time aspect of stock market trades makes instantaneous communication valuable. The industry's most popular provider is business-news service Reuters, which last October began offering clients a free, secure service based on Microsoft's RTC technology. J.P. Morgan Chase, UBS Global Asset Management, and Vanguard all use it. What about regulatory agencies' recent requirement that Wall Street firms archive all electronic communications? Until now IM has gone largely unmonitored. But the new enterprise IM packages allow companies to save and audit IM communications just as they do e-mail.

IM does have drawbacks besides security, though. For example, the lack of interoperability between major consumer systems is a real pain. You may have to download all three separately in order to chat with whomever you want. That's where smaller players like FaceTime come in. CEO Vondrick believes that the IM industry will eventually look like telecom, with AOL, Microsoft, and Yahoo acting as major carriers of messaging traffic, just as AT&T and the Baby Bells carry calls, and companies like FaceTime providing infrastructure to let the networks talk to one another. The platform of a Denver software company, Jabber, is especially popular among IM-crazy geeks, who love its peer-to-peer technology and open-source architecture. Jabber CEO Rob Balgley hints that later this year he'll announce a deal with a major cable operator that will help triple the company's revenues, to $9 million.

But the big corporate IM providers still have serious work to do. They'll have to change the minds of people at all those companies who think IM is intrusive and distracting. Many employees say that there's a Big Brother quality to it and add that they don't want to constantly be on call. Many managers say that IM eats up valuable time and makes productivity go down, not up. (To them, I say this: Those IM conversations on Wednesday mornings about American Idol? They make your employees happier--ergo, more productive.)

True, IM isn't a practical application for all types of work. Take, for example, my interview with AOL's Bruce Stewart over AIM. We attempted a connection; my computer crashed. When we finally got the ball rolling, well, let's just say Stewart isn't exactly the world's fastest typist. (Perhaps that's why I have carpal tunnel syndrome and he doesn't.) But IM's multitasking capabilities helped enormously. As I was interviewing Stewart, I could sense other IM transactions happening in the background--undoubtedly his PR rep feeding him statistics to give me. Like him, I often IM while doing other things, like research.

And I can certainly imagine ways in which a technologically secure IM system would make my job easier. If my office had an IM-based system that let multiple people work on files at the same time, for example, my editor and I could simultaneously work on this story, both making real-time changes to the text. That would be much more convenient than having to shuttle it back and forth via e-mail.

IM execs tend to speak in circa-1999 hyperbole when they argue that IM will be as revolutionary for the workplace as e-mail. That's doubtful. But as a regular IM user, I can tell you that real-time applications are a genuinely helpful addition to workplace communications. The arguments against IM sound like the ones that Luddites made when Internet browsers made inroads into the workplace. Before that it was e-mail. And before that it was the telephone. Ask yourself whether you could function as effectively at work without any of those.

Banning IM at your company may be futile, anyway. Take an IT consultant I know, who for obvious reasons doesn't want to be named. For the past few months he's been working on a project at Morgan Stanley, which operates an internal IM system but forbids its employees from using consumer messaging with the outside world. When I ask how he deals with Morgan Stanley's firewall, he shrugs lackadaisically: "Oh, I just programmed my way around it."

Unless you have this consultant's technological know-how, the degree of freedom or restriction for instant messaging will ultimately depend on your boss. Luckily for me, I work in an environment where management trusts employees to manage their own time.

On that note, it's time to go. C U L8R! :) at the Lizzie McGuire flick!

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