The deal comes as they take on entrenched messaging leader AOL and market newcomer Google.

The agreement, the first major alliance between two of the Web's main providers of instant messaging, will allow users of Microsoft's MSN Messenger service and Yahoo Messenger to swap instantaneous text messages with each other.

Up to now, such interoperability has been restricted to users within each service.

"This is truly a turning point for the IM [instant messaging] industry, and we believe our agreement with Microsoft will help usher in a new era of IP [Internet Protocol] communications," Yahoo Chief Executive Terry Semel said in a statement on Wednesday.

Market leader

AOL, a unit of Time Warner Inc, is the market leader in the instant messaging space with a share of 56%, according to research firm Radicati Group.

"This is truly a turning point for the IM [instant messaging] industry"

Terry Semel,
Yahoo chief executive

But with Microsoft and Yahoo making up most of the rest of the market, their combined service could be a threat to AOL. Google launched its own instant messenger, which includes Internet voice calling, in August.

At stake is the ability to attract users and offer them other services and information from the web portals, which in turn helps Microsoft's MSN Internet unit, Yahoo and AOL earn advertising dollars.

The technology behind the deal already exists.

Microsoft has opened up its corporate online messaging service, which requires a licence and offers more features, to AOL and Yahoo.

Unlike free messaging services, corporate messaging lets businesses install instant messaging within corporate networks, where conversations can be monitored and saved, much like enterprise e-mail.