Ovum expects the decline (nearly 6 percent of total messaging revenue in 2010 and 9 percent in 2011) to continue as the popularity of messaging apps continues to grow. Ovum warns operators to rework their legacy services if they want to secure their future position in the messaging market.
How can mobile operators hold their ground? Neha Dharia, consumer analyst at Ovum and author of the report tells us collaboration, not competition is the way to succeed. “Tapping into the creativity of app developers, forming industry-wide collaborations, and leveraging their usage data and strong relationships with subscribers are the key ways for operators to ensure that they hold their ground in the messaging market.” Read the press release.
Social apps disrupt the status quo
Interestingly, the impact of social messaging apps such as Whatsapp was also a topic I covered last year in the Netsize Guide by Gemalto, a comprehensive mobile industry analysis I wrote on behalf of my client Netsize. The chapter dedicated to this development (aptly titled TRANSFORMATION) described how IP-based applications that enable one-to-many messaging (and the growth of one-to-many broadcast models) might disrupt telecoms strategies that placed mobile operators in control in the first place.
To drive the point home I also interviewed Pamela Clark-Dickson, Informa Telecoms & Media Senior Analyst, Mobile Content & Applications (@PamelaC_D). She remains my go-to person for all things related to messaging, and I also reached out to her again in prep for the last episode of M-Pulse to get her perspective on the Ovum forecast.
Ovum’s observation that the increased of IP-based voice and messaging services are costing mobile operators revenue is a given. In South Korea, for example, the staggering popularity of social messaging services such as KakaoTalk and Daum’s MyPeople have driven down SK Telecom’s SMS traffic considerably.
But there is an upside to the story. To use the services offered by these IP-based voice and messaging providers, people need a smartphone and a mobile data plan. Put another way, mobile operators may be losing SMS revenues, but they are also gaining smartphone subscribers and the data plans that come as part of the package.
What is the outlook for smartphone penetration? In a word: buoyant.
Informa forecasts that global smartphone penetration will reach 50.9 percent of total handsets sales by 2016. Predictably, developed markets in regions such as North America, Asia Pacific and Western Europe will see higher smartphone penetration (69.8 percent in Europe, 78 percent in North America, 92 percent in Japan and 85 percent in South Korea).
Informa is still forecasting that SMS will remain a multi-billion dollar industry for mobile operators through 2016, with global SMS revenues rising from US$114.9 billion in 2011 to US$135.6 billion in 2016.
Mobile operators react
What can mobile operators do in the meantime? Both Ovum and Informa advise mobile operators to move fast (and now) to restructure their price plans in order to fight back against the over-the-top (OTT) players such as Google, Apple and Amazon providers.
KPN Netherlands and Vodafone need little convincing. They are already offering their subscribers attractively-priced packages of voice minutes, SMS and mobile data to encourage their customers to stay on their networks and use their services. As Pamela sees it: These operators are “achieving good conversion rates” in the youth markets they target with social messaging services.
At the other end of the spectrum, some mobile operators are pursuing their own strategies and provisioning IP-based services. Prime examples are O2 Connect (U.K.), T-Mobile Bobsled (U.S.) and Rogers One Number (Canada).
We are witnessing an avalanche of applications that enable one-to-many messaging. In practice these allow users to create or add groups, and send messages out to those who join the group. Thus, one-to-many broadcast models are springing up and entire communities are forming around messaging using these applications.
But there is still one major obstacle: a lack of interoperability between the different social messaging apps and services. “That may not be such a problem if you are Facebook or Apple, and already have a large user community,” Pamela observes, “but it could be a point of vulnerability for the smaller players.”
No argument here. With the possible exception of WhatsApp, many of these nimble newcomers are not yet generating meaningful revenues. They clearly need to rethink their business models (which will likely happen), but — keeping in mind most are funded by venture capital — time (and money) could run out before they make the move. Where does this leave mobile operators? Social is where the action and the opportunity is — supported by data around how we use our mobile devices to connect and communicate. Clearly, the barriers between social and mobile are fast disappearing. Now its up to mobile operators to rethink their business models and choose their allies carefully. There’s strength in numbers — and they is what operators need to face the challenge from Web giants, who have a foot in all the platforms that define our connected lives.
Check out Episode #9 of m-pulse here.
Next week we continue our focus on developers with Bango CEO Ray Anderson. Check out untetherTV for the full-length interview – and I’ll provide additional analysis in a companion post here at MobileGroove.