Technological enablers and widespread adoption of mobile Internet access have lowered the barriers to entry in communication services markets. Over-the-top (OTT) messaging services, in particular, have proved popular and adoption levels soared in many countries in 2012 and 2013. This article provides an outlook for the messaging market to 2018 and considers the implications for mobile operators.
IP messaging is turning out to be a 'killer app' for the mobile Internet
Major Internet players such as Apple, Facebook and Google have identified the messaging market as a target for market disruption and one that can complement their core businesses. In addition, specialist start-ups such as Kakao, Line and WhatsApp have driven innovation in feature sets and supporting business models. The segment proved wildly successful, and we estimate that 55% of smartphone owners worldwide were active users of IP messaging services at the end of 2013.
The services are driving much higher levels of user engagement compared with SMS. 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 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 (see Figure 1). 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.
Figure 1: Messages sent via mobile handsets by service type, worldwide, 2010–2018 [Source: Analysys Mason, 2014]
Operators need to reassess their role in the messaging market
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.
Operators' IP-based initiatives, whether industry-standard such as RCS or based on proprietary platforms, could serve to limit substitution in some markets, but are likely to only secure minority market shares. In most cases, the momentum behind OTT alternatives is too strong, and operators are lacking compelling means of differentiation in messaging.
As operators decide whether or not to seriously compete in messaging, they should focus on the following.
- 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.
Our recent report OTT communication services worldwide: forecasts 2013–2018 provides a quantitative outlook for traditional and IP-based communication services in 47 countries and 8 regions. The report is partnered with OTT communication services worldwide: stakeholder strategies, which provides more detailed discussion of the different approaches available to players, whether mobile operators or alternative providers of OTT services.