America Online (AOL) and Lycos, Inc. (LCOS) Wednesday announced a strategic agreement to develop a custom version of AOL's instant messenger for Lycos' 32 million registered users.

Under the agreement, AIM service will be available in Lycos Clubs, Lycos Chat and other areas of the Lycos Network in December. The agreement means that Lycos users may readily communicate with more than 45 million AIM users worldwide.

Lycos plans to promote a co-branded version of the AIM software in its registration process, while the company continues to develop its own customized version of the AIM client. The deal also stipulates that Lycos and Netscape significantly expand their distribution alliance.

Bob Davis, Lycos president and chief executive officer, said the IM feature would be a big hit with Lycos users.

"We are pleased to embrace the AIM instant messaging community and to allow our users to easily communicate with what has become the largest IM environment in the world," Davis said.

Bob Pittman, AOL president and chief operating officer, said the Lycos deal keeps AIM services far ahead of other online messaging systems.

"This agreement with Lycos, the Internet's fastest growing portal, is a great way for us to continue the momentum of the world's leading and most exciting instant messaging community."

The AOL-Lycos alliance may refuel the instant messaging duel with Microsoft (MSFT).

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The IM fracas erupted in July when Microsoft released an open version of its MSN Messenger software on its Hotmail portal.

On the first day of its release, MSN sources reported that 200,000 users downloaded the software. Almost immediately, AOL electronically blocked Microsoft's instant messaging program. AOL criticized Microsoft's MSN Messenger, stating that it poses a security threat to AOL users.

The battle quickly escalated and resulted with industry leaders calling for an open standard on all IM services. The Internet Engineering Task Force has been asked to develop an Instant Messaging and Presence Protocol, but no common criteria have been developed to date.

With no open standard in place, AOL has continued to forge lucrative IM deals with International Business Machines Corp.'s Lotus Development Corp., RealNetworks and Apple Computers.