Microsoft and Yahoo! Press Teleconference

Blake Irving, Corporate Vice President, MSN Communication Services and Member Platform Group, Microsoft Corporation
Dan Rosensweig, Chief Operating Officer, Yahoo!
Brad Garlinghouse, Vice President, Communications Products, Yahoo!
October 12, 2005

BROOKE RICHARDSON: Thank you and welcome. My name is Brooke Richardson. I’m with the Microsoft MSN Communications group.

This morning we’re announcing an industry first, that Yahoo! and Microsoft have formed a landmark agreement to connect our respective instant messaging communities on a global basis. Together, Yahoo! Messenger and MSN Messenger will form what is expected to be the largest IM community in the world, estimated to be more than 275 million strong.

Joining us today are Dan Rosensweig, chief operating officer at Yahoo!, Blake Irving, corporate vice president of MSN Communication Services and Member Platform Group, and Brad Garlinghouse, vice president of Communications Products at Yahoo!.

Dan and Blake will each speak briefly and then the operator will provide instructions for a Q&A session with Dan, Blake and Brad.

Now I’ll turn the call over to Dan to start things off. Dan?

DAN ROSENSWEIG: Thank you, Brooke, and welcome, everybody, and good morning, thank you for joining us.

We are thrilled to be talking to you about interoperability between Yahoo! Messenger and MSN Messenger. As you all know from following us, we are singularly focused on providing the best possible consumer experience, and we know that doing so we create a great business. Our success is predicated on meeting and exceeding consumer expectations. And because communications is the most popular online activity, Yahoo! is dedicated to being as open and comprehensive as possible, allowing consumers to expand both their online communities and communications.

Providing consumer interoperability between Yahoo! and MSN’s thriving IM communities, starting in the second quarter of 2006, will give consumers unprecedented benefits to connect with a global community of friends through a shared instant messaging network.

Users from Yahoo! and MSN will be able to see their friends’ online presence, exchange instant messages, share select emoticons, and do all of that with one single ID. We will also enable PC to PC voice calls between the services.

We believe that by further demonstrating this technology’s potential to bring users and communities together, the partnership we’re announcing today will help make instant messaging an even more valuable part of users’ lives and in turn enable them to get more out of the Internet.

We believe that are combined user bases consist of more than 275 million users. That’s more than a quarter of a billion people. The number is actually staggering. With interoperability, the Yahoo!, MSN IM community will enable instantaneous communications between what is far and away the largest group of Internet users in the world.

Frankly, interoperability between the communities of this size will be a complex undertaking, and we are very focused on ensuring that we do it the right way, with the utmost attention paid to consumers’ privacy and security.

The only way to do this well is to partner with a like-minded company, and that is exactly what we found in Microsoft, a partner equally committed to creating the best possible experience for consumers.

Yahoo! knows that sometimes it’s difficult to deliver on what consumers want, but when we see the opportunity to do just that, you can count on us to seize it. At the end of the day, Yahoo! is all about what will benefit Internet users around the world.

I speak for everyone at Yahoo! when I say that we are proud to form this first interoperability agreement between leading global IM providers, and we look forward to finally making secure interoperability real for consumers. We are excited to continue working with our partners at Microsoft to extend the relationship even further.

And with that, I would like to turn it over to our friend, Blake Irving. Blake?

BLAKE IRVING: Thanks, Dan.

Microsoft has long believed in IM interoperability, and we’ve been working to make it a reality for quite a few years. As many of you know, we’ve made progress here. That progress also involved Yahoo!. Today, we deliver enterprise-grade IM with Microsoft Office Live Communication Server 2005, and that offers instant messaging and presence awareness as part of a scalable solution, including public IM connectivity to MSN and Yahoo!, as well as AOL. Now, that overall solution has been very valuable to our enterprise customers, enabling them to connect with partners, customers and others in a way they couldn’t before.

You know, however, even with that progress and all that we learned from it, the holy grail of IM interconnect, which is connecting our MSN Messenger customers with customers from another leading global consumer IM service, has alluded us until today.

Just like Dan, I’m thrilled to announce Microsoft and Yahoo!’s groundbreaking efforts to connect our consumer IM networks on a global basis, and believe that this heralds a new way for customers to create closer and large communities.

It’s been a long journey. We’ve been working with Yahoo! for quite some time to make this milestone a reality, overcoming numerous technical, business and even detailed user experience challenges together, because ultimately we believe this is great for consumers.

As Dan mentioned, being able to instant message with friends and family that use other IM services is one of the most requested features from our users, it’s been bubbling up the list over the year, and it’s a critical part of delivering on our mission in MSN to connect our customers with the people and information that matter the most to them.

We plan to implement the solution to make it easy and useful and very natural for customers. The most important thing in making sure it’s useful is to make sure we deliver the service in a way that is safe, secure and private, as Dan mentioned. As we’ve worked through our plans with Yahoo!, this has been a major, major focus for both companies.

We also want to make it super simple and easy. One way we’ll be doing this is by working to implement a server-to-server interoperability model based on SIP, on the SIMPLE standards, which have a proven track record, not yet at the scale but a proven track record. By connecting this way, customers will be able to use one primary ID to IM with, with their friends and their family on the MSN and the Yahoo! service. We also will make it easy by making it very clear at a glance what network a user is actually coming from.

Now, while we aren’t announcing business terms around this relationship, there is a business model supporting this relationship. MSN and Yahoo! run two of the largest global IM services in the world. This means our customers will soon have many more friends to IM with around the globe, making our respective services frankly more valuable to them, which we believe will grow the overall market as well as increase customer engagement and loyalty with our respective services.

We believe that this is one of those situations where one and one can equal three. And that’s generally the Internet ecosystem overall will benefit and grow from even greater friction-free communication between these two IM networks.

Ultimately, we’re frankly just excited to announce plans around something that we know for a fact will delight our users. We continue to invest heavily in MSN Messenger as a key part of our efforts to deliver what I guess I would call relationship-centric integrated communications. We’re working to bring innovations, particular innovations that customers are asking for, to market rapidly.

I personally want to thank Yahoo! for being a terrific and awesome partner here. This is only the first milestone and I look forward to delivering IM interop with Yahoo!, and we’ll continue to listen to our customers and work to deliver the services they ask for. Yahoo! has been a tremendous partner as we’ve gone through this agreement, and I look forward to working with them in the future.

And I also look forward to adding both Dan and Brad’s Yahoo! IDs to my messenger contact list next year.

Now I think we’re going to move over to questions, so, Operator?

QUESTION: Hello. I was wondering if you guys could give me one good reason why I should dump AOL Instant Messenger next year for your service. And two, you guys haven’t been able to catch Instant Messenger thus far; what makes you think you’ll be able to do it now?

DAN ROSENSWEIG: Well, I’ll start, and, Blake, you obviously chime in.

I think the beautiful thing about this is this gives users even more choice. So we’re not going to ask users to dump anything or to take anything, we’re simply going to provide them with a choice, and if they see a benefit in being part of the largest community in the world and having the ability to interop between the two networks, and if they think that adds more value to them, then they’ll do that on their own. And our goal was just to focus on the consumer and provide services for them that they would want.

I think in terms of catching or not catching, this is again really both companies — and Blake has been a real leader there — have been focusing on what’s best for consumers. It’s not about numbers or not numbers, it literally is about providing a service that users really want and value.

In terms of the size of the networks, I think when you look on a global basis and not just the U.S., this becomes the largest global network of IM users in the world, so I think this is something that can benefit more than a quarter of a billion people and both companies chose to seize that opportunity and do it.


BLAKE IRVING: Yeah, Dan, let me hop on that as well. I guess cheekily I’d say, well, why don’t you just switch today, but I won’t go there.

So I think that another part of Dan’s answer, which is just to add a little bit more detail to it is in the United States, which I think is probably what you’re thinking about is where AOL was really the early entrant in market. If you leave the boundaries of the U.S. and go outside of the U.S., really it’s MSN and Yahoo! and you don’t really find a whole lot of AOL. So if you had other journalists on the line that were from other parts of the world, they would listen to that question and say they didn’t understand it necessarily because outside of the U.S. AOL really doesn’t have a presence, it’s really exceptionally here. And I think if you actually look at research data you’ll find that that’s the case on a global basis, and in the U.S. you’d find more presence for AOL.

QUESTION: Hi. The talks you’ve been having recently with AOL — I’m sorry, this is for Blake — if that touched on IM and interoperability at all. And also, secondly, I just want to know about the security part of the new service structure that you’re looking at, I was wondering if you could elaborate on that a little bit.

BLAKE IRVING: I didn’t hear the second part of your question, I’m sorry.

QUESTION: Yes, you were talking about safety and security on this new SIP-SIMPLE network. I was wondering if you could elaborate a little bit more on that.

BLAKE IRVING: So on the first piece where you asked about AOL, generally we don’t comment on rumors about whether we’re talking to companies or not.

On the second piece of the question about security, basically safety, privacy, security, the combination of the things that we have in place today that protect users and what Yahoo! has done to protect users, they’ll be on SIMPLE protocol mechanisms. They go to having reverse lists, being able to deny somebody from actually being able to see your presence unless you specifically ask them to join. So there are actually a series of things that we’ve agreed to do in this agreement that will provide secure IMing between users without creating any additional risks because we’d be using a standard protocol. So we’ve actually taken steps within the agreement to make sure that users are kept secure, safe and comfortable that they aren’t being exposed to any risk.

BRAD GARLINGHOUSE: There’s no doubt that I think — this is Brad Garlinghouse. There’s no doubt that both companies put as a paramount priority I think the security of the user, and I think our track record, both companies have a great track record of protecting the user, partly as evidenced by our e-mail products and protecting users from spam and phishing, and even more prominently in the last year, so in the instant messaging experience. And frankly I think those track records speak for themselves in putting that as a top priority, and that will certainly continue to be the case as we implement this relationship.

QUESTION: I wanted to ask a question and direct this one at Brad. With the announcement of using SIP, will that also involve outbound calling tied into your Dialpad acquisition?

BRAD GARLINGHOUSE: Thanks for the question, Andy.

In the short term really we’re focused on making sure that we get the PC-to-PC experience right and our respective companies obviously are making sure that as we implement this relationship we think about voice as an integral part of the instant messaging experience and we want to make sure we get the PC-to-PC experience right. I think that really is a priority in the immediate term.

QUESTION: Hi. My question goes to Dan, and I’m curious about does Microsoft and Yahoo! will have the deeper integration in marketing section where they have what kind of cooperation is going on?

DAN ROSENSWEIG: I’m not sure I understand the question. It sounded like are you saying will Microsoft and Yahoo! have deeper integration in marketing?

QUESTION: Yeah, will they have more, yes.

DAN ROSENSWEIG: Well, right now there are a number of relationships between Microsoft and Yahoo! and between MSN and Yahoo! around a number of areas; this is just the latest of them. We find Microsoft to be a terrific partner and we enjoy working with them and they share our values of the consumer experience and security and privacy. And so if there are more opportunities to continue to work with Microsoft or MSN, we will continue to do so, but there is nothing particularly contemplated today.

QUESTION: Oh, hi. This question is for Dan and Blake. I wanted to find out whether there will be any opportunities created for advertisers as a result of this collaboration.

DAN ROSENSWEIG: This is Dan, I’ll go first, which is in this agreement there isn’t any advertising collaboration between the networks in terms of being able to run ads through the instant messaging networks, but as Blake said earlier, the more users and the more engaged they are and the more committed they are, the better both of our businesses grow and the better and more relevant the advertising can be. So I would think we both agree that this helps our overall advertising businesses individually, but there isn’t something contemplated to be doing advertising together in this space.

BLAKE IRVING: Yes, I totally agree with Dan.

QUESTION: Hi. I was wondering, if this is agreement is as good for consumers as you say, why you didn’t strike it years ago.

DAN ROSENSWEIG: So here’s the good news. The good news is we have this agreement today. The other good news is this industry is only 10 years old and instant messaging is not even that old. So both companies agree that we’re at the beginning and the inception of this industry so we’re actually thrilled to be able to create this kind of capability for over a quarter of a billion people this early in the industry. Most companies don’t come together until the industry is on its down side or maintenance side. Both companies saw the consumer experience first, and I think Blake can walk you through how complex this is, but on a spiritual level we feel like we’re coming at this early. We’d always like to do something earlier but this was the right time to do it and we’re looking forward.

So, Blake, I think it might be good to take him through how this is not as easy as it sounds.

BLAKE IRVING: Well, yeah, the complexity of a deal like this and trying to execute is such that you can’t even do it with more than one partner at a time. And you think about the overall scale of trying to connect networks that we have like 180 million folks in our network and we’re going to try to get all of those simultaneous online connections to work with the simultaneous online connections in Yahoo!’s back end. To get those things to actually work at a technical level is extremely difficult. In SIP, as we do believe that SIP-SIMPLE is the right protocol to use and we’re going to use that, but it’s never been scaled at this level. So we actually have to be very careful and cautious on how we roll that out and make sure that security and privacy mechanisms that we’re using to protect users scale as well.

And frankly, just on the end-user experience side, we had to go through a lot of conversations on what’s the best way to surface some functionality for users that makes it very simple for them to tell somebody else is in another network, that they’re capable of doing the following things, and that it makes it very comfortable and easy. And when you think about the first time logon experience and how do I make them aware of other networks that we’re going to add people to or add people from, it becomes a very complex problem to try and solve.

So we did this when we got the contract done, we’re announcing the contract today, because frankly the teams have a lot of execution work to do over the next months to make sure that we can deliver in Q2 ’06, and it’s a lot of work to try to get this thing actually working at scale with two communities of this humongous size.

So that is sort of the technical back end on how to actually make this thing work.

QUESTION: If you don’t mind if I follow-up, Blake, when you said that it’s so complex that you can’t do it with one more than one partner at a time, does that mean that even if you wanted to strike a similar deal with AOL tomorrow, you couldn’t do it?

BLAKE IRVING: What I’m saying is that we need to execute and scale this up very similarly to the way that we did Live Communication Server initially, made sure that that was a very important part of our sequence of our interoperability that we were going to roll. That’s not a scale interoperability, but it’s using the same types of protocols that we will use here. Now this is another level of complexity, much more complex, and so we’re in a position now to try with one partner but not with more than one.

Dan, you might have some comments to make as well.

DAN ROSENSWEIG: Yeah, I think if we just raise it up a little bit for a second, Chris, which is we want to get this one right and it’s going to take a period of time to implement it, as you already heard in our prepared remarks that we’re not going to be able to get this out until the second quarter of ’06. So both companies agree that we ought to focus on getting this one right. You’ve understood now the complexity of getting it right. The goal is to make it seamless and easy for users so they don’t understand any of the stuff that we just said.

And then as we begin to get this right and understand the positive consequences of this, we will always look to be able to provide more benefit to consumers with each other and with potentially other partners.

So we just want to get this one right, because it affects more than a quarter of a billion people, so that’s really what Blake was saying.

QUESTION: Hi there. I wanted to know if Google came to you guys tomorrow, would you be willing to open up the network to Google as well with Google Talk?

DAN ROSENSWEIG: Well, I think we just articulated what our expectation is. This is a very large network, these are two large networks that have been around for a very long time that have significant amounts of users, and the good news is Larry and Sergey can both download either of these products and get interoperability right away if they want to. But I think we’re going to focus on getting this one right first and, as I said, we will always contemplate what users want and need, and we just want to make sure we work with companies that respect and understand the security issues and the privacy issues the way these two companies have worked so hard on in the last seven, eight, nine years to get right.

BLAKE IRVING: I’d add that certainly we’d be willing to talk to them but in terms of executing against the deal, as we described earlier, we’ve got to get this right.

QUESTION: Hi. Thanks. Good morning. I have a couple of questions about this, one of them being does this basically include outbound calling at some point in the future, yes or no? And secondly, will the Mac versions of your clients also have the same interoperability?

DAN ROSENSWEIG: I’ll take the first one and then Brad and Blake should take the second one, which is right now this agreement does not contemplate voice other than PC-to-PC voice, but as both companies have said, as we roll this out, as we get this right, if we see more and better opportunities we will, of course, contemplate them.

Brad and Blake?

BLAKE IRVING: Yeah, I would add that outbound calling frankly isn’t an interoperability feature. Either party can decide that they will go down the path of outbound calling when it’s right for either party, and it’s not reliant on either party.

BRAD GARLINGHOUSE: The question about supporting the Macintosh, in the remarks up front I think both Dan and Blake perhaps alluded we’ve done this in a very seamless way and that means that it’s done in the back-end in a server-to-server basis. Therefore if someone chooses to use a Macintosh version of the Yahoo! Messenger client, it would support interoperability the same way a PC version would.

BLAKE IRVING: The same with MSN client.

QUESTION: Hi, good morning. This question is for I guess everybody or whoever wants to respond. I’m just wondering about the discussions when they started seriously, because I mean I’ve heard about interoperability for a long time. So when did MSN and Yahoo! decide that they would have — when were serious discussions about partnership started? And also if this is about interoperability, was AOL at all ever part of the discussion? And if not, why not? And the last question is, what is your market share of the IM market globally? Or combined I guess.

DAN ROSENSWEIG: Okay, Blake, I’ll start.

BLAKE IRVING: Yeah, I’ll let you take that, Dan.

DAN ROSENSWEIG: I’ll start with the first – I guess there were three there. On when we seriously started, I think both companies have been serious for a long time. I think the conversations have been going on frankly for years.

And as to your AOL question, the conversations have gone on with multiple partners for years. And between Microsoft and Yahoo!, we were able to find sort of like-minded thinking in terms of doing this and doing this now and dealing with all of the complex issues necessary, as Blake has outlined I think quite nicely for all of us to understand.

And so the conversations have been going on for a long time. I think for the better course of the last year we have both tried, as Blake said, to peel back the layers of the onion, and as you get deeper and deeper the desire has always been to do it. The question is, OK, so now if we’re going to do it, what does it take to do it, what are the issues, what are the complexities. When you’re dealing with a quarter of a billion plus people and you’re doing it in 25 languages and you’re doing it simultaneously around the world, you really do need to take your time to get it right, because the one thing that the consumers want is for all of that to be in the background. So that’s the reason these things take longer than people would like.

And, of course, there were business issues to overcome, but both companies set out to serve the consumer, and we’re looking forward now that we’ve got the agreement to be able to create a really great experience across the networks and uniquely on each one of these clients.

QUESTION: I guess, Dan, what you both, MSN and Yahoo! in the last year introduced sort of these enhanced IM clients and I’m just wondering what was it over in the last several months, perhaps there were challenges or challenges or business issues as you mentioned or significant changes in the market, what was it that made you decide that this is indeed something that you two would have to do? Because it’s not that you have a client out there, this is just an agreement, which you could have done about six months ago.

DAN ROSENSWEIG: Well, again I think you’re discounting how complex it is to do this. Very few companies have dealt with networks like this of a quarter of a billion plus people in multiple languages around the world that need to be safe and secure. So from our perspective, the market dynamics have not changed, instant messaging has been enormous for years, we’ve been in these discussions for many years, we’ve been at them in earnest for a year, and I think the reality is that we’ve always wanted to do this. Both companies see the consumer benefit, which is really what this is all about. So I think trying to look deeper than that is missing the simplest point, which is this is good for consumers, and both companies want to do that. It’s just a lot harder to do when you’re flying an airplane as fast as these companies are flying, and you want to change the engines at the same time. We have to get it right, as Blake has said. So it’s really as straightforward as that.

BLAKE IRVING: To build on Dan’s analogy, we’ve referred to it as well as flying an airplane at 30,000 feet, painting the airplane and taking on passengers at the same time, and it is a massive undertaking. And one of the things that I’ll add to Dan’s comments is the IM networks that we run are business assets and frankly one part of the conversations we’ve had is to make sure that this is a good business decision for both parties, and there have been frankly a lot of tough conversations around that as well, which was part of this, and we were able to come to some great and very solid agreement between both companies.

QUESTION: OK, quickly, your market share globally?

DAN ROSENSWEIG: I honestly don’t have a feel for share of market globally.

BRAD GARLINGHOUSE: It depends country by country.

BLAKE IRVING: By country it varies hugely, the swings are very, very extreme.

QUESTION: OK, but you did say, I heard you correctly that you have a larger market share than AOL overseas?

BLAKE IRVING: Yes, you did hear that.

QUESTION: But you can’t quantify it, right?

BLAKE IRVING: You know, what I would do is I would look to some company like NNR or Nielsen Net Ratings to go score perhaps to go use their numbers directly versus mine.

QUESTION: OK, thanks.

BRAD GARLINGHOUSE: Thank you. Next question, please.

QUESTION: Yes, hi. I was wondering about advanced features that you both have in your respective services like photo sharing and that sort of thing, gaming, for example?

BLAKE IRVING: Yeah. We’ve sort of walked you through the features that this will be able to interop at this time, which is sort of text, PC-to-PC voice, selected emoticons, those kinds of things, presence, all the key sort of major food groups of instant messaging. Each of the respective clients will continue to integrate in independently with their own networks and be able to continue to offer integration with the services that each company has, in our case, of course, the 360, which is becoming one of the fastest growing social media sites in the world where music, you know, our search and those capabilities and MSN Messenger will continue to do the things that it has done so well for its audience.

QUESTION: So just so we’re clear then, you’re going to be interoperating on what you consider a set of core basic services but there will be some other so-called advanced features that will not be part of the interoperability?

DAN ROSENSWEIG: Dan, you should think of it as like we’ve committed to do, as we’ve said, text IM here, emoticons and voice, and to actually get those things done on an interoperable basis we think we can handle in the timeframe that we’ve expressed. There are other things that we can actually look at as being interoperable in the future that aren’t part of this agreement, but we’re going to execute these pieces first, get them done, provide a great user experience around those features and then move on to the things that matter the most to customers next.

BROOKE RICHARDSON: I believe that was the last question, so we will wrap up this call. Everyone from Microsoft and Yahoo! would like to thank you all for joining today, and if you’d like more information you can go up to our respective Web sites to our press rooms where you’ll find the press release and other materials. So thank you very much.

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