Microsoft is jumping into the hot Internet-based telephony business by acquiring Teleo, a small San Francisco company that develops software...

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Microsoft is jumping into the hot Internet-based telephony business by acquiring Teleo, a small San Francisco company that develops software for users to make and receive phone calls through their computers.

Microsoft announced the acquisition late yesterday and said it expected to add advanced Voice over Internet Protocol technology to its MSN Messenger product in test form by the end of the year.

The technology, known widely as VoIP, may show up later as features in other Microsoft products, such as its Office software suite.

The acquisition boosts MSN’s efforts to compete with rivals, which are adding voice communication and other features to consumer products. Last week, Google unveiled a test version of Google Talk, an instant-messaging service that allows users to speak to each other over the Internet.

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Yahoo!, Google and MSN still offer only computer-to-computer calling, as opposed to calling from an Internet-based telephone to any kind of phone.

In June, Yahoo! said it was buying Dialpad Communications and would eventually allow users to contact people over a phone.

Teleo’s software enables users to call from Internet-based phones or computers to cellphones and land-line phones. Users are given a phone number so that their computers can receive calls from phones.

Teleo charges a base rate of 2 cents a minute for outbound calls to phones in North America, Europe and Asia. There is no charge for incoming calls.

The software is closely integrated with Microsoft’s Outlook e-mail program, allowing Outlook users to place calls directly from e-mail messages or contact lists.

That “click to call” capability is something MSN was very interested in, said Brooke Richardson, a lead product manager there. Another feature MSN wanted was the ability to directly call phone numbers that show up in search results, she added.

Microsoft did not say how much it paid for Teleo, which was founded in 2003 and has a couple dozen employees. Teleo will close its offices, but a majority of employees will be hired by Microsoft full time or as consultants, Richardson said.

Teleo’s founder, Wendell Brown, will not make the move to Microsoft but will stay on as a consultant during the transition.

Microsoft is feeling considerable pressure from rivals rolling out a steady stream of innovations, said Bob Toomey, an analyst with Seattle-based E.K. Riley Investments. Toomey personally owns Microsoft stock, but E.K. Riley doesn’t do any investment banking for the company.

“MSN has to stay on the bleeding edge if they want to be a leader, and their goal is to be a leader in this area,” Toomey said. “They’ve got a lot of work to do.”

Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com

Toolbar gains

“phishing filter”

MSN unveiled two add-in features for its MSN Search Toolbar yesterday. One is designed to help users detect fraudulent Web sites that resemble the sites of legitimate businesses.

The feature uses a so-called “phishing filter” that checks the Web pages a user visits to see if the sites are suspicious or have been reported as fraudulent.

Another add-in allows one-click access to MSN’s gaming site, which gives users a daily trivia question directly from the search toolbar. It also offers a pull-down menu of links to the most-played games of the day on the site.

Seattle Times technology reporter Kim Peterson