Microsoft has finally decided to do what instant messenger users have been crying out for - work with rival IM services from Yahoo and AOL. Its enterprise IM server, from the end of the year, will also work with its MSN consumer IM product.

Microsoft's Live Communications Server (LCS) 2005 will allow users to exchange instant messages with users on AOL's AIM, Yahoo Messenger and MSN Messenger. The link between LCS and the three IM networks will be provided through add-on modules that will be sold separately. Pricing for the connectivity modules is still being worked on and will be announced later this year.

"This has been the top request from our corporate customers. They have clearly told us that anything we could possibly do to make this happen would make them the happiest," said Taylor Collyer, Microsoft's senior director for LCS. "We'll try to make it an attractive proposition. We want to put this thing within reach," Collyer said.

Collyer claimed that, until now, this type of interoperability between LCS and the three consumer IM networks could be accomplished only by cobbling together bridges using third-party gateway products. Doing it that way is cumbersome and requires heavy lifting on the part of IT departments, he said. However, third-party universal IM clients such as Trillian from Cerulean Studios have been available since 2000.

According to Microsoft, the new connectivity modules will plug into LCS natively out of the box and enable the interoperability with little configuration required. Because the modules will be designed to work with LCS specifically, the links with the public IM networks will be more stable and secure than with third-party products, the company claimed.

Representatives from AOL and Yahoo indicated separately that the collaboration with Microsoft is a significant step for their respective IM services in the corporate market. "This will open up new opportunities for all of us," said Brian Curry, AOL's senior director of AIM network services.

"Through our relationship with Microsoft LCS, we are able to increase the distribution, usage and presence of Yahoo Messenger while providing our users with a secure, convenient and seamless experience," said Lisa Mann, senior director of Yahoo Messenger.

"The big winner here will be the enterprise customer," Collyer said. Meanwhile, the biggest losers are the makers of IM gateway software, such as IMlogic, FaceTime and Akonix, said Robert Mahowald, an IDC analyst. These vendors have enjoyed solid sales over the past three years, thanks to the lack of interoperability in the marketplace and to the quick adoption of IM in businesses.

As employees began to use consumer-oriented IM networks for work matters, IT departments scrambled to implement gateway software from these vendors to manage and control that IM use, establishing usage policies and security safeguards. Meanwhile, Yahoo, AOL and MSN have so far declined to make their public, consumer-oriented IM networks interoperable.

But if Microsoft is building links between its server IM product and the consumer IM networks, the gateway vendors could find their products becoming redundant, Mahowald said. "Their days will be numbered. It's uncertain what their role will be." IMlogic, FaceTime and Akonix will need to change the focus of their products to niches that Microsoft won't go into, he said.

Also significant is what Microsoft's decision may herald in the way of interoperability. While the three consumer IM networks still don't interoperate, Microsoft's action could be the first step that triggers further co-operation, Mahowald said. "It's a really big shift in the market."