Microsoft acquires Teleo

SEATTLE -- Microsoft Corp. has bought the Internet telephone company Teleo Inc. as its MSN unit races Google and Yahoo to be first to give instant-messaging customers the ability to call conventional phones.

MSN plans to test a product developed from Teleo technology this year, vice president Blake Irving said yesterday. San Francisco-based Teleo, acquired for an undisclosed price, makes software for placing phone calls using so-called voice over Internet protocol.

MSN is competing with Yahoo Inc., which bought Internet phone software maker Dialpad Communications Inc. in June, as well as Google Inc. and Skype Technologies SA in adding voice communication services from a personal computer. More than 27 million people in the United States will make Internet calls by 2009, up from 3.1 million this year, according to IDC of Framingham, Mass.

''This is a capability you need to be competitive," said Charles Golvin, an analyst in San Francisco for Forrester Research. ''We started with e-mail and instant messaging, and gradually instant messaging has evolved to include voice."

Google last week introduced Google Talk, which lets users with a Google e-mail account talk to other account holders using a PC equipped with a microphone and speakers or a headset.

MSN's Messenger, an instant-messaging program, already lets two PC users talk to each other. Teleo's technology will let a PC user place a call to a conventional land-line or mobile telephone.

MSN has had 25 employees working on Internet phone service for less than five months. The company started a similar service in 2001 but phased it out in 2004 because Internet technology at that time didn't allow for high sound quality and speedy call connections, Irving said.

Luxembourg-based Skype offers an instant-messaging tool that lets users hold voice conversations with other Skype members. The privately held company, founded in 2003, has more than 51 million customers, up from 2 million at the start of 2004.

Unlike instant messaging software from Microsoft and Yahoo, Skype's program allows consumers to make calls to land-line numbers for a per-minute fee. Customers also can pay a monthly fee for a phone number so people can call them from traditional phones.

Microsoft is not interested in selling a service to replace traditional telephone calling, Irving said. Instead, the company wants to provide both free and paid services that let MSN Messenger customers call friends on their contact list or dial businesses they've searched for. For example, if a user looks for a pizza parlor, he could then click on the results to call the store and order a pie, Irving said.

Yahoo wants to let customers make calls from its instant messaging program to land-line phones ''in the coming months," Yahoo spokeswoman Terrell Karlsten said.