File Under: Get Your Geek On

By Jove I think he's onto something.

And speaking of phones, last week Yahoo and Microsoft supposedly connected their instant messaging systems in a move that will eventually allow full interoperability, which was viewed almost universally as a defense against the threat of Google. Not so. It is all about phones.

There are a dozen or more healthy startups that already enable users to send instant messages from one IM system to another. What MSN and Yahoo quite specifically announced was the interoperability of their VOICE chat products, which of course also include text capabilities. Google is a small player in this space and not doing an especially good job of competing. What Microsoft and Yahoo care about far more than market share (which they've shown they can maintain -- IM users rarely migrate even for free services) is REVENUE. They want to be your phone company. And between them their IM operations touch a third of the Internet homes in both the United States and the world. That's an important statistic, because it means that through this simple (in a business, if not a technical sense) interconnection they have the prospect of carrying a substantial percentage of world phone traffic at almost zero cost.

People are still willing to pay for phone service, but profit margins in that often-regulated industry are historically around 10 percent. If Microsoft and Yahoo can get into the phone business and can convert their IM customers into phone customers, they will not only steal business from the telcos, they'll do so with profit margins that are on average 300 percent higher. THAT's why the telcos hate net neutrality. [emphasis in original]

Holy shit! Three thousand percent profit? No wonder they wanna play.

Now how they're gonna charge the customers isn't clear to me and the article doesn't say. I have both IMs and both have voice. I can talk to someone with either IM half way 'round the world for free now. So how they'll get those obscene profits escapes me.

BTW, isn't it interesting Microsoft and Yahoo account for 1/3 of the IM users worldwide? That's some market penetration.

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