The mobile messaging landscape. Global SMS usage vs. IM

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2 The mobile messaging landscape Short Messaging Service (SMS) continues to be a major communications channel for mobile phone users globally. However, the rapid increase of instant messaging (IM) via Over the Top (OTT) internet apps and social media platforms poses a significant threat to mobile operators revenue from text messaging worldwide. Indeed, data from emarketer on the total number of text messages sent globally 1 paints an alarming picture for the future of SMS with figures appearing to decline in recent years after peaking at 7,760 billion in The growing popularity of internet messaging platforms such as WhatsApp or Snapchat will continue to divert mobile messaging revenues away from mobile network providers unless operators confront the challenge ahead and take a new approach to the provision of mobile messaging. Encouragingly, despite the growing popularity of IM and social media, SMS still accounts for almost half of all revenue generated by mobile messaging around the world, according to Portio Research 2. With this in mind, now is the time for network operators to look at innovative ways of monetising mobile messaging before IM takes precedence. SMS advertising, specifically that which exploits messaging conversations, presents a huge and untapped market with mutual benefits for mobile operators, advertisers and consumers worldwide. From providing mobile users with better and more cost effective phone packages to offering advertisers a highly targeted channel which delivers greater revenue, next generation SMS advertising utilising messaging conversations and permission-based user data is set to revolutionise the provision of mobile messaging. Global SMS usage vs. IM As the figures above show, text messaging is still a highly popular form of mobile communication. All the major mobile networks provide their customers with the ability to send and receive SMS messages and, for the time being, it remains a vast source of revenue on a global scale. Unlike IM, SMS offers the significant benefit of not requiring use of the internet, a major factor in markets where the internet is not readily available. This is especially relevant when we consider that only around 43 per cent of people worldwide have access to the internet in Despite its pre-eminence in the mobile messaging market, operator revenues from SMS are falling (as seen in figure 1.). This is most likely a direct consequence of the growing number of mobile customers adopting and using a vast and growing array of IM platforms in place of SMS. It is also safe to assume that access to the internet is likely to increase rather than decrease, opening up the use of IM platforms to an even wider global audience going forward. 1 emarketer, Are We Watching the Death of SMS, Portio Research, There is NO SMS versus OTT battle, September internet live stats, Internet Users,

3 SMS Global Revenue (Billions) SMS Global Revenue (Billions) Figure 1: Portio Research Ltd, The 1.5 Trillion $ dollar story of SMS, December The ability to access and use IM via mobile devices, as well as their increased functionality, has provided the catalyst for IM s boom in popularity. WeChat, for example, offers users multiple services including file transfer, voice conferencing and group chat. Also testimony to the increasing importance of IM and consumers desire to use them on mobile devices, social networking applications have been seen to change their approach to IM. Facebook, for example, created Facebook Messenger solely for IM. As a consequence, IM providers have been able to acquire vast numbers of users in a short space of time, as demonstrated in the graphic below. Figure 2: We Are Social, Global Digital Statshot August 2015 So what does the future hold for mobile messaging? Research from The Radicati Group finds that worldwide IM user accounts are expected to grow from over 3.2 billion in 2015 to over 3.8 billion by

4 year end 2019, an annual average growth rate of about 4%. 4 So while SMS remains popular today, it s clear IM is a significant threat to operators in the future, especially those wishing to retain their revenues from mobile messaging. The future of mobile messaging: Mobile messaging, however it is delivered, will remain an extremely profitable market and one which is likely to grow even further. As the graphic below clearly shows, just over half of the world s total population are mobile users though total subscriptions are in excess of 6.6 billion equating to around 93% penetration. Mobile network operators have a tough task ahead if they wish SMS to stay ahead of online services, especially as internet access becomes more readily available worldwide. Figure 3: We Are Social, Global Digital Statshot August 2015 Mobile operators have already had their SMS revenues streams reduced by the influx of IM providers and this is likely to continue unless operators can find a way to curb this trend. These revenue streams have diminished as the commercial model for SMS and IM is fundamentally different, SMS is charged per message whilst IM is free if an internet connection is available. Users who have their consumption limited by finite amounts of 3/4G data on their plan have opted to use IM whilst connected to WiFi, either on commercial hotspots, their place of work or residence. Mobile network operators will therefore need to subsidize their SMS infrastructure in order to provide a zero-rated tariff on message volumes if they wish to retain control of the messaging medium. Advertising is the obvious choice, but it will need to evolve beyond standard push text alerts in order to maintain quality and relevance. A new approach to SMS advertising: 4 The Radicati Group, Inc, Instant Messaging Market, , February

5 The current practice of sending SMS messages straight to the customer s mobile phone with embedded text advertisements or web portal links delivers an extremely low success rate and there is little evidence of these adverts being specifically opened. The lack of effective segment targeting or tracking of existing SMS adverts has meant that Advertisers have to be willing to spend budget based on a cost-perthousand (CPM) model rather than a quality or performance based metric. As a result, advertisers don t currently view the medium as a viable channel for increasing brand awareness or activation, and are missing out on a significant opportunity to reach mobile users directly, utilising a highly targeted audience and achieving greater ROI for their advertising spend. By inserting personalised and unobtrusive adverts in a fixed banner at the bottom of an SMS screen, advertisers will be able to deliver real-time, preferential, contextual, location and lifestylebased adverts to mobile users. For example, advertisers might choose to highlight a specific offer when a customer is near one of their branches, or send a promotional coupon for services based on the context of the text conversation. This approach would enrich the overall shopping experience of users and offer advertisers the utilisation of a range of advert types including text, graphics, animation, coupons, video, websites, and events on a mobile advertising channel and achieve a higher rate of clicks and views for their brand or product. This new approach to mobile advertising offers a revenue share model for the operator and for the user, offers and incentives such as a better phone plan, upgraded handset and/or improved allowances to accept advertisements in their text chats. The operator gains an opportunity to enhance and increase customer loyalty and retention (reduced churn rate), while simultaneously taking positive action against the growing trend of competition from IM and other OTT providers and safeguarding SMS revenues. Crucially, this solution is designed to be very respectful of valuable operator services, in particular 3G/4G data and SMS. Indeed, part of the patented solution offers the ability to deliver advertisements WITHOUT the use of data, and with virtually no SMS overhead. Diminishing revenues from SMS combined with increasing use of IM means operators must look to for new and innovative ways of monetising SMS in the present and in order to sustain its use and profitability in the future. New technology which enhances mobile advertising could offer the solution that operators are looking for, as well as a new and targeted channel for advertisers looking to capture an increasingly mobile audience. Finally, Cloudbanter supports the monetization of the GSMA industry initiative Rich Communications Services (RCS) framework.

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