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Story URL: http://www.silicon.com/research/specialreports/voip/0,3800004463,39131197,00.htm

Yahoo! buys into net phone services firm
Closing in on the killer app?

By Elinor Mills

Published: Wednesday 15 June 2005

Internet giant Yahoo! has agreed to purchase Dialpad, a company that offers internet telephony services, and expects to offer new voice services within the next few months, Yahoo! said on Tuesday.

Joanna Stevens, Yahoo! vice president of corporate communications, said: "By combining Dialpad's technology and expertise with the technology we've already built in this area we can basically get to that next level at a much more rapid pace and scale more quickly" for the 61.7 million Yahoo! Messenger users worldwide.

The companies did not disclose the value or other terms of the deal. California-based Dialpad, which launched in 1999, has about 40 employees.

Yahoo! has been open about its intention to compete in voice services. Frazier Miller, Yahoo!'s director of instant messaging, called voice over Internet Protocol (VoIP) the new online killer application in May when the company updated its Yahoo! Messenger with featured VoIP services. At the time, he said the company had re-evaluated itself as a communications provider, servicing voice and video exchanges alongside email and IM.

Still, it's unclear what the Dialpad acquisition means to Yahoo!'s longstanding relationship with regional dial-up and broadband service provider SBC. Yahoo! and SBC have a partnership providing Yahoo!-branded broadband access through SBC's telephone lines. With Yahoo! now offering voice calling services, it will be competing with SBC in the voice market - over SBC's own phone lines.

However, Stevens said buying Dialpad would not conflict with its relationship with SBC.

"It won't have any impact on our relationship with SBC. We've been very upfront with our broadband partners about our intentions in the voice space and we have very good relationships with our broadband partners," she said.

"We will continue to work with them to look for opportunities to integrate with our broadband partners," she added.

Yahoo! has offered free PC-to-PC voice calling since 1999 but initial enthusiasm for the service faded quickly. In 2002, Yahoo! pushed VoIP to the sidelines by removing a "PC phone calling" button from Messenger version 5.5 to accommodate a button for text messaging mobile phones. The "PC phone calling" button, now called "Call Computer", made its return to prime real estate in the latest Yahoo! Messenger version.

CNET News.com's Stephanie Olsen and Scott Ard contributed to this report

Elinor Mills writes for CNET News.com