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updated 11/17/2008 1:28:35 PM ET 2008-11-17T18:28:35

It's the end of instant messaging as we know it. Those chat boxes once commonplace on a computer desktop amid documents, Web browsers, and spreadsheets are giving way to a new breed of user-friendly, real-time conversation tools that Internet companies hope will keep users engaged with their content — and the advertising that appears alongside it.

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Case in point: Microsoft's Nov. 13 announcement that it will integrate its instant message service, Messenger, used by 300 million people, more closely with its Windows Live e-mail and social networking sites. So instead of having to toggle to a separate window, downloaded to a desktop, users can strike up a real-time conversation with someone else right from an application they're already using — say, Hotmail.

Like other companies hoping to make money from the Internet, Microsoft is responding to consumers' waning interest in standalone IM tools and their desire for chat features closely connected to their favorite sites. Like e-mail, games, and other categories that have gradually migrated away from downloaded and off-the-shelf software, instant messaging is shifting toward the Web, where it can be accessed from any computer while taking up no space on a hard drive.

Embedded IM
AOL Instant Messenger, the desktop chat program that was once the gold standard in the category, saw unique visitors decline 4 percent in the year ending September 2008, according to comScore. During the same period, two of the top four standalone programs — AOL's ICQ and Chinese-language Tencent QQ — had declines in minutes used.

Instead of spending time with these old-fashioned chat windows, Web users are flocking to sites like Facebook and Google's Gmail, where instant messaging tools are more closely embedded in what they are doing. For Web operators that get it right, embedded IM could increase the amount of time users spend on their sites, engaging with content while chatting with pals. Embedded Web-based IM tools may also appeal more to advertisers.

Most web users over 20 years old were introduced to instant messaging by AOL's pioneering service. But the wide range of chat options is making it harder to compete for instant messages, says David Liu, senior vice-president of AOL People Networks. "Activity [in AIM] is going down because of all the different sites available," Liu says. "So we're working on making AIM more social and viral."

Facebook's chatting toolbar
One way AOL hopes to do that is by linking AIM to the company's social networking site, Bebo. In early 2009, AOL plans to unveil an IM dashboard that travels with Bebo users from page to page. The selling point: Every one of AIM's 30 million users will get instant access to a Bebo profile page that's already set up with their "buddy list."

Instant messaging is also top-of-mind at the world's fastest-growing social network, Facebook. Earlier this year, the site installed a toolbar that lets friends chat one-on-one while they browse the site. According to product manager Peter Deng, some 75 million people — a little more than 60 percent of active users — have tried out the toolbar.

"We had messaging, we had wall-to-wall [posting], and we thought having that private conversation was necessary," Deng says. "It enables a channel of constant communication between you and your friends."

Some smaller social networks are catching on to chat's appeal, too. Earlier this year, Joe Greenstein, chief executive of Flixster, an online social network for film buffs, noticed that users were interacting with each other in real time, discussing and suggesting movies, rather than posting a review and coming back to check for responses later.

Some days, users would leave tens of thousands of short messages. So in October, Greenstein introduced a new feature, a Web-based instant messaging toolbar that lets Flixster users see which friends are online and chat with them one-on-one.

Next: Embedded advertising
Flixster's toolbar was created by Meebo, a Silicon Valley startup launched in 2005. Over the next six months, Meebo will roll out similar Web-based IM toolbars for 19 other sites looking to increase community engagement.

Meebo Chief Executive Seth Sternberg says the pitch is easy for Web publishers looking to keep users on their sites longer: "The interesting thing about live chat is that it forces the user to focus persistently," he says. "If a site's [average engagement time] is three minutes, we can move it to six."

Eventually, Flixster and other Meebo partner sites will embed advertising inside the IM toolbar, or in text conversations themselves. Sternberg says this will present a new opportunity to advertise in IM via a new target. A Flixster user, for example, might be able to view a trailer for a movie inside the chat window itself, all the while exchanging short messages about it with a pal.

It's about time Web companies breathe new life into IM, says Eric Druckenmiller, vice-president of media at interactive marketing agency Deep Focus. "If you look at the distribution of IM, it dwarfs [many other channels of online advertising], but marketers haven't paid attention to it since the late '90s," he says. But a recent project where Deep Focus placed ads for Havaianas sandals on Meebo's own IM site convinced him that the channel has more potential for advertising.

When Microsoft unveiled the new chat functions on its Windows Live pages, it was in some ways playing catch-up to its biggest rivals, Google and Yahoo!. In the past two years, as those sites have vied to become one-stop destinations for online communities, they have included IM tools throughout their pages. The idea is to make everything from e-mail to spreadsheets more collaborative and open — and ultimately, more addictive and profitable.

Yahoo's aggressive IM branding
Google offers chat capability in its Google Talk desktop application, in Gmail Chat, within such collaborative Google Docs like the word processor, and in widgets that users can install on their custom iGoogle home pages.

"Talk is about choice and we want people to have instant messaging with them where they need it," says Seth Demsey, product manager for Google Talk. On Nov. 12 the company announced a new feature for Gmail Chat: free videoconferencing.

Yahoo has 116 million users of its standalone IM application, compared with Google Talk's 6 million. Yahoo has been more aggressive at introducing advertising to IM. It uses display ads and contextual ads, such as offering links to a Yahoo map if users enter an address.

Yahoo also employs branded entertainment — a mini-Coca-Cola soccer game is embedded in the IM window — and branded virtual goods, such as a customized background theme around a musical act or sports team.

Is there room for so many different IM services on the Web? Possibly. According to Palo Alto-based technology researcher The Radicati Group, consumer IM traffic will grow to 711 million users worldwide in 2011, a 43 percent increase from 2008.

But still others are predicting that IM users will increasingly want to tear down the walls between platforms and find their entire community of friends in one place — whether it looks like a toolbar, an e-mail folder, or a desktop application.

Copyright © 2012 Bloomberg L.P.All rights reserved.

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