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An announcement about the joint venture, which will allow MSN and Yahoo! Messenger users to communicate directly for the first time, is expected to be made The Wall Street Journal reports.

In the past people using Yahoo! Messenger could only communicate with other Yahoo! users and not with instant messengers using MSN or other software.

News of the merger may unnerve the

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current messaging leaders AOL who, according to research firm Radicati Group, hold the top slot with a massive 56 per cent of the market share. With Yahoo! and Microsoft accounting for the remainder, a market turnaround could now be afoot.

However, if Internet rumours are to be believed AOL could also be onboard to create an even wider group of users. Microsoft has been in talks with the company in an attempt to woo it into a three-way venture, The Wall Street Journal suggests.

The Microsoft/Yahoo! service is also expected to offer VoIP facilities where users will be able to speak to each other over the Internet with microphones and speakers, say Reuters.

Should the prediction be accurate, tough times could be ahead for Google's fledging Internet calling and instant-messaging service, GoogleTalk. Since its launch in August, Radicati say the service has cornered just 0.5 per cent of the market.