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Message Wars: are operators really ready to fight back?

According to Analysys Mason, which has been busy researching the area, more than half of all smartphone owners worldwide are already active users of OTT messaging apps and it’s an area that can be expected to keep on growing.

Barriers to entry for IP (Internet-based) messaging are low and bound to get lower as virtualised/cloud services really gain traction. These drop the real cost of supporting an individual messaging service across the IP control plane to just a few cents a year, so there is likely to be little let-up from new services with new twists and new business models coming on stream. Already we’ve seen Kakao, Line and particularly WhatsApp making big inroads.

There’s likely room for plenty more and the push is likely to be greater from the big Internet players - Apple, Facebookj and Google, says Analysys Mason, which points out that “WhatsApp recorded an all-time high of 10 billion outgoing messages in a single day in June 2013, which equated to an average of more than 30 messages per user per day.

“We [Analysys Mason] estimate that the total volume of messages sent from mobile devices via IP services exceeded the volume of SMS messages for the first time in 2013, at more than 10.3 trillion compared with 6.5 trillion worldwide. These trends are set to continue, driven by increased adoption levels. We forecast the number of users on smartphones to increase from about 1 billion in 2013 to almost 3 billion in 2018. Messaging volumes associated with OTT services are expected to almost double in 2014 and will reach 37.8 trillion messages sent in 2018.”

The researchers suggest that the “weakening role of operators in the messaging value chain suggests that it is only a matter of time before SMS services are dislodged from their current default position on smartphones. OEMs and OS providers are moving aggressively into the messaging market and it will be increasingly commonplace for alternative messaging services to be set as the default.

“The ubiquity of operator services is often cited as their key strength or unique selling point (USP). However, in messaging, intensive usage tends to be clustered within relatively small user groups, and many users switch rapidly between different services. Any interoperability issues are solved by an easy download of another app. In this fragmented market, operators could potentially be left as the third-rate fallback option, behind native capabilities provided by the OS (Android, iOS or Windows Phone) and behind the large-scale, cross-platform apps.”

And forget about RCS. “In most cases, the momentum behind OTT alternatives is too strong, and operators are lacking compelling means of differentiation in messaging,” it says.

As operators decide whether or not to seriously compete in messaging, they should focus on the following, says Analysys Mason.

Support for a broader consumer proposition built around voice and video: Operators will struggle to compete directly with the major Internet players and niche providers of messaging services. Instead, they need to focus efforts on supporting services where they are able to differentiate and derive revenue.

Improving the feature set available to the B2B, B2B2C and wholesale sectors: Given the limited opportunity in the consumer retail space, operators should focus their efforts on using their network assets and brand strengths to ensure that they are well positioned to address opportunities in other segments. Working with partners and fostering ecosystems is critical to success in the broader communication services market.

Cost reduction: Competition from major players with extensive financial resources and indirect business models further underlines the need for operators to focus on cost reduction. Messaging margins are very vulnerable when services such as WhatsApp Messenger can run on operating costs in the tens of cents per subscriber per year.

Follow the writer on Twitter @ ian_TTV

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