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In a move to expand its share in the growing Voice over Internet Protocol market, Yahoo completed the acquisition of Internet telephony services provider DialPad on Monday. Yahoo purchased the Milpitas, Calif.-based company for an undisclosed amount
Yahoo joins SBC Communications, America Online and Comcast (Nasdaq: CMCSK) in the race to roll out Internet telephone services that allow people to make calls worldwide over broadband networks. With Dialpad's 14 million subscribers, Yahoo will gain a stronger foothold in a market that Jupiter Research predicts will penetrate 12.1 million households by the end of the decade.
With DialPad, Yahoo expands its VoIP capabilities. Its current service only allows people to speak to each other via computer connections. The Dialpad purchase allows Yahoo to offer PC-to-phone calling services and inbound PC calling services. That means Yahoo's 62 million monthly Messenger users can use VoIP to contact someone on a phone.
Acquiring Skills
Yahoo was not immediately available to comment on the acquisition. But Forrester Research analyst Charlie Golvin told TechNewsWorld that although this is a strong acquisition for the Internet pioneer it does not necessarily differentiate the company or give them a core capability that puts it ahead of competitors AOL or MSN.
"I suspect this acquisition is more about acquiring knowledge and skills in the VoIP arena by bringing on board Dialpad employees who helped created the products than it is about acquiring the Dialpad customer 
base," Golvin said. "This is much more an endorsement of the importance of VoIP as a technology and Yahoo's need to have that skill set and capability in-house going forward."
Ruffling Feathers
Nevertheless, analysts said Yahoo may ruffle a few feathers with its latest acquisition. Perhaps one of the company's biggest challenges in the wake of the Dialpad buyout is managing its relationships with telecom partners.
Golvin said Yahoo's expanded VoIP service is not going to enamor SBC, Verizon and British Telecom, with whom the company has close DSL-based relationships. But that's not the only challenge Yahoo faces in this space.
"This acquisition moves Yahoo further into the paid communications space. This is no longer just another free extension to Yahoo Messenger or a piece of the loyalty pie that brings customers to Yahoo network," Golvin said. "This is actually something that will generate revenue for Yahoo. This puts more onus on the company to maintain network quality and deliver an experience closer to what customers expect from a telecom provider."
Readying for the Revolution
Industry watchers predict it may become increasingly difficult for communications services startups to compete in the face of mega Internet brands building market share and cable and telecom giants getting into the fray. Golvin said users are more likely to gravitate to brands they trust. That's why the Dialpad acquisition could be a strong long-term play for Yahoo.
"Integrating voice calling, e-mail of other forms of data communication is definitely the road map for the future," Golvin said. "Companies that are able to cement integrated communications customer relationships today will an advantage because it is not as likely that customers are going to switch to another service in the future."
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