SMS is Losing, but Operators Can Still Win


179959458Ten years ago, I was running a wireless application service provider that, among other things, made mobile games and offered an SMS chat dating service — which was very popular. (Current traffic at BBM PIN exchange sites is evidence that some things haven’t changed!) A decade later, the underlying technology has evolved significantly, but people still use it to connect and interact.

Back then SMS was dominant technology, providing the foundation for my old company’s apps and services. Now, smartphones are taking over, and with them, over-the-top (OTT) messaging and voice providers — so-called because they go “over the top” of the cellular network and operators by working via a device’s internet connection.

OTT players include independents like Skype, WhatsApp, Line, Snapchat, Kakao, etc., as well as offerings from the established BlackBerry (BBM) Apple (iMessage), Google (Messaging, Voice, Hangouts) and Facebook (Messenger).

Because these apps offer free (or nearly free) messaging and voice calling, along with other bells and whistles, SMS is sadly on the decline. Recently, I ran the messaging business for Mobile 365 (now SAP Messaging Services) for Asia, and also the US at one stage. So even though SMS dying, I’ll always be a fan.

Nostalgia aside, the volume of SMS is down everywhere, and drastically in some countries. The trend first made news in the US in late 2012. Western Europe was next, with the number of texts sent in the UK falling by 7 billion last year (from 152 billion in 2012 to 145 billion in 2013). SMS traffic is also down 1% in Kenya and 4% in the Middle East — and is predicted to keep falling globally. The numbers may not sound like much of a slide, but they indicate the first decrease that SMS has experienced in its 20-year existence.

What’s more, instant message volume is going through the roof. For example, the UK sent 160 billion messages in 2013, and is predicted to almost double that by sending 300 billion in 2014.

And declining SMS volumes translate to declining revenue for mobile network operators.

SMS vs. Messaging: The Match-Up

Whereas SMS travels over cell networks, costs money, and restricts you to 160 characters and/or limits per month depending on your plan, messaging apps — including BBM — send data over the Internet for free (or a low annual fee), and there are no limits on the length or number of messages you send. Advantage: messaging.

The advantage gets even bigger when you chat internationally. Again, messaging is cheap and SMS is expensive — and often doesn’t work internationally due to carrier network incompatibility.

Add security concerns to the picture, and messaging wins again, particularly with services like BBM Enterprise (formerly known as BBM Protected) offering multiple levels of encryption for government and enterprise settings.

SMS does have one key advantage: the network effect. Just about everyone with a mobile phone can send and receive it. Though messaging apps are cross-platform, they depend on both senders and receivers using the same app to communicate.

Going back to the fact that OTT apps offer internet protocol (IP)-based messaging and voice, they also effectively cut operators out of the deal. This is all particularly problematic for operators, as SMS has become a significant source of revenue.


BBM’s Different Tack: Partnership
While others are going head-to-head with operators, BlackBerry wants to work with operators. Today, BBM-carrier partnership opportunities fall into two broad categories.

The first is offering BBM to carriers as a channel for delivering ads, content or payment solutions directly to their wireless subscribers. This is available in markets of BBM strength, where over 10% of the smartphone population uses it (Indonesia, South Africa, etc.). As most operators have set up internal teams focused on these opportunities, they don’t have the destination site to monetize them fully.

BBM is that destination. Because of our high levels of engagement (72% of our monthly active users employ BBM daily), BBM offers a highly effective way to merchandise carrier offerings to customers. The business model is based on revenue sharing.

The second category is strategic partnerships. Together, BBM and carriers can combat IM apps and the mutual threat of reduction in SMS revenues through a co-branded BBM product. The business model here could involve the sharing of revenues across all monetization events in a carrier’s market, including data packages, as we integrate services like SMS and grow BBM through carrier channels like pre-installs, etc.

Most operators today are either investing in Rich Communication Services (RCS) or building their own IM apps to compete with this market. As an alternative, BBM offers a proven, trusted app where carriers can encourage the migration of SMS traffic.

As part of a strategic partnership, carriers would implement a co-branded BBM to drive mobile active user (MAU) growth in-market. The BBM roadmap includes support for SMS and RCS messaging, allowing carriers to provide BBM as the default SMS/messaging client on all smartphones so that anyone wishing to send SMS messages is effectively becoming a BBM user.

Called “Messages,” the co-branded BBM product is otherwise identical to BBM and supports customization of branding, content and services within a standard framework. BBM requires integration with carrier SMS/RCS gateways to function as the SMS client across all smartphone platforms.

Essentially, BBM is a free solution offering carriers turnkey RCS support on a revenue-share basis. It can be a better response to the OTT players that are eradicating their SMS business. So far, RCS has largely failed to be this response due to fragmentation — the lack of a critical mass of people using any one solution. While other messaging apps are competing with carriers, BBM’s strategy is to be carrier-friendly and to leverage our past partnerships when monetizing their assets.

About Matthew Talbot

I am the Senior Vice President - Emerging Solutions at BlackBerry. I have extensive International Management, Sales and Marketing background in Mobility and Cloud technologies, Financial Services, Telecommunications, and Content in both a “Start-Up” and Public company environment. This includes stints as a senior executive at SAP, Sybase, Mobile 365 and others.

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