America Online Inc., faced with sluggish business prospects, moved yesterday to generate a new stream of revenue by teaming with Hewlett-Packard Co. to develop and market AOL's instant-messaging service for corporate use.
While AOL brings a giant user base and proprietary software to the partnership, Hewlett-Packard brings relationships with businesses and the technical ability to devise ways to save and secure instant messages.
Millions of people use AOL's free instant-messaging software at work, on cell phones and at home; the company claims 195 million registered users. But businesses, lacking the ability to document instant messages, have been reluctant to adopt them.
Many industry analysts predict that instant messaging will eclipse e-mail in the workplace as a tool for internal communication or a way to confirm transactions. Gartner Inc. says it could happen as soon as 2005. The market leader is International Business Machines Corp., which sells its SameTime instant-messaging service to businesses. Microsoft Corp. and Yahoo Inc. both are working on instant-messaging systems for businesses.
"This continues AOL's drive to get instant messaging into the enterprise," said Michael Gartenberg, research director at Jupiter Research. "A partnership with HP is the right type of partnership because HP has the relationships to make something like this happen. It is the right time for it. If businesses don't seize control of their instant messaging today, they are going to cede control to their end users and that is not a good thing."
No financial terms of the AOL-Hewlett-Packard partnership were disclosed. Hewlett-Packard signed a technology-licensing agreement with AOL, which will earn fees once Hewlett-Packard sells AOL Instant Messenger to businesses.
Bruce Stewart, an AOL senior vice president, said in an interview that America Online's agreement with Hewlett-Packard is the biggest and most important partnership the company has to go after the business market for instant messaging. AOL is free to make similar deals with other companies, he said.
"HP is a leader in providing collaborative solutions to enterprises and understands that having instant access to colleagues for quick exchange of information is a real advantage in today's business environment," Stewart said. "HP will have the ability as a licensee to build applications that meet the needs of their business customers. We have a gateway product. HP will take that solution and integrate it into a company's existing infrastructure."
For AOL, with declining ad revenue and sluggish subscriber growth in its core business of connecting users to the Internet, sales from instant messaging could help the company return to financial health. The company said it has no plan to charge consumers for instant messaging.
"By teaming with an industry leader such as AOL, coupled with HP's strengths in information technology infrastructure services, HB is able to offer . . . a portfolio of messaging services," said Rene Schuster, an HP vice president.
Christopher Dixon, an analyst with UBS Warburg, said the partnership between AOL and HP makes sense for both firms. "I like the idea," he said. "Instant messaging is going to become an increasingly important part of many businesses. Businesses will pay for it."
While there are protocols that enable people to send e-mail to one another no matter what computer system they are using, instant messaging is evolving differently. One factor that has slowed commercial adoption of instant messaging is the existence of incompatible networks. Despite pressure from Wall Street firms and others, industry experts said there is no move afoot for the adoption of a common instant-messaging network or platform, in part because it is not in AOL's financial interest to open its giant system to competitors. AOL has said it resists allowing other instant-messaging systems from connecting to its network out of concern for the security of the system and to save its members from receiving unwanted solicitations.