Microsoft has acquired San Francisco based Teleo, a developer of VoIP, PSTN termination and click to call functionality.

The deal accelerates Microsoft's VoIP capabilities and sets the stage for a fall showdown in the VoIP over IM space as AOL and Yahoo! ramp to launch their respective services as well.

"They were doing a lot of things that we found interesting in terms of helping us accelerate the time frame of us being able to bring new things to market for customers," Brooke Richardson, lead product manager for MSN, told internetnews.com.

Richardson explained that the live enabling search links could allow a user to do a local search for a pizza parlor and get a live link that allows users to call via PC to PSTN.

Teleo existing client currently makes use of the Global IP Sound (GIPS) VoIP codec, which is also currently being used by Skype, among others. The current Teleo client is also SIP based, which is an open standard that is rapidly becoming a standard for VoIP communications.

GoogleTalk also uses SIP for its PC-to-PC calling. Skype uses its own propriety protocol.

Microsoft's MSN Messenger at one point actually had PC to PSTN connectivity, but the service was rolled back.

"We have been looking at a reproach in terms of how we were going to bring that technology to the next level," Richardson said.

"In terms of accelerating out time to market and innovating more quickly the buy decision made a lot of sense especially given the synergies with what they are doing and what we were looking to do," Richardson added.

"We're going to continue to invest in VoIP. Our goal is to have some of this technology integrated by later this year so that we can be testing it later this year. We'll have more to talk about this fall."

Microsoft recently improved its MSN Messenger client's voice quality in the 7.5 release , which itself benefited from Microsoft strong voice and video push in the7.0 release.

The fall is likely to be a highly competitive time for the VoIP over IM space.

AOL is widely expected to release it newest IM client, code named Triton this fall as well, which will also have dramatically improved VoIP capabilities. Yahoo! in June acquired VoIP to PSTN play Dialpad Communications and is also expected to be rolling those features into its IM client which has recently been renamed Yahoo! Messenger with Voice.

Financial terms of the deal, which closed this week, were not disclosed. Microsoft has indicated that the Teleo executive team and some of the development team will continue to work with Microsoft.


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