Microsoft and Yahoo have agreed to make their instant messaging products compatible.

It will mean users of either service will be able to exchange messages by the end of the year and, at a later date soon to be announced, make VoIP phone calls.

The IM market has been dominated by three main players - Microsoft, Yahoo and AOL - but all have gone out of their way not to work with the others in a grab for market share. Analysts have long predicted it was only a matter of time before the companies saw the financial sense in allowing their customers to communicate with one another.

That decision may finally have come with the arrival of Google in the market with its own IM product tacked onto a strong VoIP free product for users that have an e-mail account with Google. The deal puts pressure on Google and on AOL.

An official press conference later today should supply a few further details.