Is the threat of OTT Encroachment on SMS Revenue Real?
By : Flytxt
By Abhay Doshi, Sr. Director- Marketing, Flytxt
Originally appeared in Telecom Tiger
It would not be exaggeration to say that SMS is the most prolific applications a mobile phone user has ever seen. Since the adoption of SMS messaging in early 90’s, it has come a long way. In 2010 alone, around 6.1 trillion SMS messages were sent across the world – about 2 Lakh messages every second[i]. We are yet to see the actual numbers of 2011, but it was estimated to be around 8 trillion. The astounding growth of the medium can be attributed to its simplicity and the fact that it is supported by majority of handsets.
With it stupendous growth notwithstanding, there is an argument that the growth of SMS in near future will be dented by the rapid advancement of smart phone enabled communication methods. According a recent survey of Telecom executives from Middle East and Europe at Telco2.0 summit, OTT players are going to burn 40% of SMS revenue by 2015[ii]! A case in point is the recent announcement by Jaxtr, an Indian Start up that enables SMS communication from a Jaxtr application installed on a smart phone can send SMS to any mobile phone, anywhere in the world with or without the same application installed. For this application to work, all that the consumer needs is a handset capable of installing application and an operator enabled data connection. With these applications providing service free of cost and at the same time trying to emulate the simplicity of SMS, the concerns about the future of P2P SMS’s growth in are not totally unfounded.
The threat to growth of SMS seems to be coming from multiple angles with already existing handset applications such as Viber, Whats App, Haywire and mobile platform enabled applications such as Apple’s iMessage and RIM’s blackberry messenger. While Jaxtr doesn’t need application installed on the receiver’s handset, others require same application installed. iMessage and Blackberry messenger enable communication between users of Apple devices and Blackberry devices respectively. These applications completely bypass mobile operator’s SMS connectivity and use data networks for communication. Though there is little proof to show that these applications are having any impact on SMS usage, consumers have always adopted services that enriched their user experience while remaining simple and engaging to use. When it is simpler to poke a friend, like a message, write a comment or ask a question on a social networking website or Ping on a mobile messenger, user might certainly like to consider it over sending an SMS to a friend, provided the simplicity of service matches that of SMS, if not exceeding it.
Though SMS prices have reached rock bottom levels, what works in favor of OTT applications is that these are free of cost. So how does the application provider make money? By monetizing the application with advertising and consumer sends messages free of cost. Currently, this service is limited to smart phones, but the number is fast growing and is a huge market for these kinds of applications. While it is easy to overlook these applications now, it will have a certain impact on mobile operator’s SMS revenue which currently stands anywhere between 3%-4% in India.
While the impact on the rise of over the top (OTT) applications on SMS growth is certainly arguable, the growth of SMS in near future may come from 3 distinct areas.
Advertising: SMS advertising is the simplest form of advertising any medium has ever seen. It is affordable for all advertisers, big and small, easy to understand and effective in communicating the message and can be highly targeted. While the concerns about misuse of the medium have long existed, regulation of advertising would certainly enhance the value of SMS as a key advertising medium.
Information Dissemination: SMS as a source of information has become ubiquitous these days with it being treated as perfect medium for information communication on Travel related alerts such as change in timings, bookings, Traffic information, Banking transaction information, weather alerts, stock quotes etc. The volume of this message has become so large that it has slowly overtaken the promotional SMS messages. The key advantage with SMS is the possibility of communicating message in real-time. In future, the breadth of SMS use for information dissemination would increase.
Interactivity: SMS has long been seen by consumer as a simplified means of interacting with applications of media companies for voting, participating in contests, of financial service companies to know details of their accounts, of subscription systems in Telecom companies to subscribe for VAS services etc. Simplicity of consumer to interact via SMS ensures that growth of SMS will be driven by this segment as well.
Although there is no indication anywhere in the world with regards to the impact OTT messaging services have on P2P SMS growth, the threat is very real and the same sentiment was espoused by executives at Telco 2.0 summit. Being the custodians of SMS medium, operators have a critical role to transform SMS into a valuable A2P communication medium to deal with the possibility of OTT encroaching on P2P SMS space. Mobile operators have to innovate with new business models with services such as Ad Funded Advertising models, local Information & search services, Directory services, Alerts & Content etc. The growth in SMS services would come from communication between Applications and Individual users where the possibility of it being dented by OTT applications doesn’t seem like a possibility. Therefore there is a need for operators to expand the scope of SMS and transforming it into a tool for organizations to communicate and interact with mobile subscribers. On OTT front, applications have be designed with user experience in mind to ensure it matches the simplicity of SMS in order to compete with P2P SMS pace in any meaningful way. With competition intensifying to capture consumer communication space, it would be interesting to see how use of SMS would evolve in near future and what role mobile operator would play in it.