IM - that's 'Instant Money'

Sure, tens of millions of people use instant messaging technology on the Web. And, sure, it's the fastest growing application on the Web, outperforming chat and personal pages.

But Web sites that offer the technology to their users still haven't found a way to make money from the surge in IM use, beyond improving their traffic to attract more advertisers. That may change, however, as America Online and its ICQ subsidiary, Yahoo! and Microsoft implement schemes to make instant messaging a profit centre.

"Monetising instant messaging will be huge," said Charlene Li, senior analyst at Forrester Research, and it will only get bigger after there's an open standard for IM technology, she said. "I think Microsoft is right (in) calling for an open standard for instant messaging," Li said. "At the same time, I can see why AOL wants to keep it proprietary, so they can monetise their audience."

The numbers are certainly there. According to Media Metrix data for June, instant messaging is the fastest-growing Internet application, up 11.6 percent over May's totals. In the same period, Internet usage itself grew 7.5 percent, while Net communities increased 9.4 percent, chat rose 4.7 percent and message board usage fell 2.7 percent.

There's room for more growth, too: Media Metrix says that only 42 percent of US Internet users have even tried IM. "Interoperability is the big issue and once (all of the instant messenger services) can talk to each other, there will be an explosion," said Brian Park, senior producer for Yahoo! Messenger. "Once there's a standard, you'll see development of instant messaging applications and you'll see increased usage."

The question then becomes, how will messaging make money? So far, sites such as MSN, Yahoo! and ICQ are selling general branding advertisements to be placed on the IM interface. But Yahoo!'s tab design enables ads to be targeted to each tab, be it news, travel, sports, etc. Six of Yahoo! Messenger's eight tabs are advertising-enabled.

AOL and AOL's ICQ are still working on their strategies for make money from instant messaging, but each will have decidedly different approaches. AOL appears to be using ICQ as a testing ground for targeting marketing messages to its 40 million users worldwide, while it will cautiously exercise its banner-advertising-enabled IM windows for its 18 million AOL customers in the future.

"We think of IM as much more of a feature that people love," an AOL spokeswoman said. "Right now, it's advertiser-enabled, and we use house ads at the top. We don't have any big plans beyond that."

Since ICQ users worldwide are younger than the average AOL user, ICQ will start with campaigns targeting the younger audience. A spokeswoman said the service would integrate advertising for hip apparel for young women and students, and for music and entertainment. "It's a perfect demographic fit," she said.

For the future, ICQ is exploring ways to target Instant Messages about special discounts that are of interest to individual users. For instance, ICQ has a deal with eBay.com to distribute IM alerts about auction activity. That potentially drives traffic to eBay, which indirectly boosts sales. Yahoo! also alerts its Messenger users if they have been outbid on Yahoo! Auction.

Park says Yahoo! sees expanded commerce and communication opportunities down the road for instant messaging. Among the possibilities are users being alerted to when their stocks have reached the user's preset level, and then the user can decide whether to sell the stock and make the transaction via instant messaging. Park also sees an expansion of targeted sports information, per the user's interest level, including alerts on sports scores of favourite teams, or alerts on ticket availability. Some sites already are using IM to improve customer service online, he said.

Web companies may be filled with ideas for making money from instant messages, but one analyst thinks they may find it easier said than done. Ken Lim, senior futurist at CyberMedia Convergence Consulting, doubts that advertising on instant messaging will be a lucrative pursuit. "That's a real tough one. It's like trying to make money off of telephone calls or CB radio service," Lim said. "When you're talking about real-time voice conversations, that's something that specifically doesn't want to be monetised. People don't want to be interrupted by anything."

And as IM progresses from a text chat to voice conferencing, Lim said, there will be less opportunity to advertise than with a text interface. But Lim sees another way that voice IM can generate dollars -- a monthly fee. "If AOL and other others are smart, they will offer (voice IM) as a separate feature you have to pay for instead of free, say $9.95 (£6) or $10.95 per month," he said. Users could use the service instead of long-distance phone calling, he said, after bandwidth issues improve.

Instant messaging is likely to appear on cell phones and other offline devices anyway, said Deanna Sanford, lead product manager for MSN marketing. "Imagine a world when I'm offline, I'm on my way to the airport, and my instant messages are sent to my cell phone," Sanford said.

Integration is the core of Microsoft's strategy. June's launch of MSN's Messenger, which now has some 1.3 million users, meant integration with other MSN products, such as Hotmail, WebTV, handheld devices with Windows CE and Web searching. "That's where the future is going -- to tighter integration of MSN," Sanford said.

For Yahoo!, Park said the company is building its multimedia-enabled instant messaging, with voice chat already available for users with a microphone and speaker. Park expects video also will become a part of Yahoo!'s instant messaging in the future.