06/15/98 INSTANT MESSAGING: BIG SUCCESS, LITTLE PAYOFF

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INSTANT MESSAGING: BIG SUCCESS, LITTLE PAYOFF
Quicker than E-mail, instant messaging is red-hot
Not everyone in the city planning department of Albany, Ga., has E-mail. But all 20 of the department's personal computer users have ICQ. Short for I Seek You, the free program from Israeli startup Mirabilis Ltd. lets them exchange messages instantly over the Internet--faster than regular E-mail. Colleagues use it to trade drafting files and stay in touch on the road. Says city project manager Jack Hierholzer: ''It's more immediate than E-mail, and it's a lot less intrusive than a phone call.''
It's also the latest craze on the Net--and the reason Mirabilis is the Internet's hottest takeover target. Insiders say America Online Inc., which offers a similar service, is negotiating to buy the two-year-old company for up to $300 million in cash or stock. Neither company will comment. But the prize for AOL is clear: In the race to capture bigger audiences, Mirabilis' 6 million users are a potential gold mine. ''We're trying to aggregate as many eyeballs as possible,'' says Yossi Vardi, Mirabilis' chairman and financial backer, who founded the company with son Arik Vardi, Yair Goldfinger, and two others.
BUDDY SYSTEM. Other companies are trying as well: Overall, nearly 35 million Web users have made instant messaging a prime communications tool, right next to E-mail. Instant messages closely mirror the swift exchanges found in chat rooms, but are more private since they're one-to-one conversations. Unlike E-mail, with the delay between replies and answers, instant messaging is nearly simultaneous, taking place within a dialogue box on the screen. For businesses, instant messaging software oftentimes runs on a company's network, providing some security for documents and discussions.
The boom was kicked off two years ago when AOL developed a key innovation called ''buddy lists.'' These small onscreen windows pop up to tell people when friends and colleagues are online. Now, 225 million instant messages whiz daily around AOL's buddy-list network. And some 500,000 people use Mirabilis' ICQ simultaneously at peak hours.
The big question: Can anybody make money on instant messaging? Besides outright acquisition, ''it's not clear what the business model is,'' says Mark Saul, CEO of Acuity Corp., which sells communications programs that include instant messaging.
The most immediate prospect--besides selling out--is simply selling software. Many instant-messaging startups are mimicking Netscape Communications Corp., which gave away Web browsers to build demand for lucrative server software. Likewise, instant-messaging programs are free, but they run on backroom software costing $500 and up.
The first target of the instant-messaging startups: Web-site operators. Acuity, for instance, sells software packages that have helped Yahoo! and Sony's The Station Web site set up chat rooms and instant messaging. Still, there's a limit to how many sites want to offer those services. So now, Acuity and others are aiming at corporate intranets, where instant messages fill a void between E-mail and programs such as IBM's Lotus Notes, which lets employees collaborate.
AOL, Mirabilis, and others, however, are hoping to generate different revenue streams, such as advertising. Buddy-list windows offer some advantages over Web sites for ad placement: People spend more time chatting, and they usually provide information about themselves when they register for the software. That means advertisers can target their audience more precisely. Problem is, many advertisers seem reluctant. Instant-messaging windows are small--less than 10% of the screen. And some advertisers worry people will resent ads in such a private setting. ''We would prefer to be less intrusive,'' says Susan Weinstein, Wells Fargo Bank's vice-president of online financial services.
The uncertain revenue prospects may well relegate instant messaging to a mere adjunct to other communications programs. Microsoft Corp. plans to add the instant-messaging technology it bought when it acquired Flash Communications in February to its Exchange E-mail program. No wonder Mirabilis' main goal is to be acquired. With scarcely a trace of irony, Vardi insists ''creating revenue is a big distraction.'' But ultimately, instant messaging will have to deliver profits, not just promise.
By Robert D. Hof in San Mateo, Calif.

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