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SMS Jackpot

Impressive growth of SMS pushes carriers and their providers
to develop the next generation of applications and services.

The ascent of SMS (Short Message Service) as a revenue stream and gateway to premium services has nabbed the attention of manufacturers, carriers and most importantly, both enterprise and residential customers.

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724 Solutions created a messaging solution that bridges multiple forms of messaging so messages sent and received can cross several messaging channels (IM to SMS or MMS to IM) but is transparent to the user.
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And it’s no wonder. Analysts predict SMS revenues of between $60 billion and $80 billion worldwide in 2007, with the number of SMS messages expected to reach a whopping 1.8 trillion in 2010. Add in an ABI Research forecast of more than 100 million handsets with touchscreens predicted to ship in 2008, and 500 million by 2012, and the emergence of SMS as the real deal in messaging is even more appealing.

The result is an intensifying search by carriers for new applications, technologies and business models in the SMS space, and enhancements to existing platforms.

“Evidence proves SMS is a messaging gateway to other services. We’re seeing strong results in customer surveys and once SMS is used, people send lots more messages. It’s extremely addictive, sticky and opens up new usages by mobile phone device users. And SMS takes up very little network capacity. It’s growing virally in the United States and we’ll see more growth,” says Daniel Longfield, industry analyst for Frost & Sullivan.

Carriers such as AT&T are well-aware of the potential impact of SMS on their businesses, and their customers. Consequently, they are deep-diving into the search for new applications to enhance and add to their current SMS offerings, while tinkering with a mind-numbing array of pricing bundles.

“It’s top of mind at every level of our business. With 40% penetration worldwide, there’s plenty of opportunity to grow the SMS business,” says Becky Snyder, director of messaging products for AT&T Mobility.

AT&T, she explains, is looking at GPS, content, voice-activated (See “SMS Gets a Voice”) pictures, video and a host of messaging applications across all of its devices. And with the end-game being IP.

“There’s an evolution to IP. In the meantime, we’re balancing products and services and looking at simplified pricing,” she says. “There are still lots of non-users who feel SMS is too difficult, so it’s very important we make it simple. It’s all about penetration and getting non-users to use and users to use more.”

Craig Kirkland
Kirkland: Give subscribers easy

The SMS message is clear, adds Craig Kirkland, director of messaging and voice services for Alltel. “Develop new applications and services to help people start texting and give them easy choices.”

He cites Alltel’s Eco-Friendly tips and various alerts and picture messages as examples. “That’s where the growth is in SMS. And it is a natural entry point into other data services,” he says.

And, a point of entry to a potentially lucrative ancillary revenue stream for carriers is advertising. “We’re exploring different ways to enable mobile advertising. But we’re concerned about privacy and what customers will tolerate from an advertising perspective. There’s lots of opportunity, but it needs time to marinate,” Kirkland maintains.

Alltel is already serving up several SMS plans such as Family Circle, which includes both voice and text services, but looking for more. “We’re looking at new applications like voice-activated and want to launch applications that extend beyond the reach of text messaging, like our Celltop and threaded conversations,” Kirkland says.

Good idea, particularly with the growing popularity of quadruple-play bundles and SMS as a key component. “SMS is making money and its growth is impressive lately. Bundles are up and usage is up. No question it’s a popular service. In Europe, it’s 12% to 15% of a mobile operator’s revenue and will be close to that in the United States very soon. It serves what people want their cell phones for,” says David Chamberlain, an industry analyst for the research group In-Stat.

And what they want, found a recent In-Stat study, is SMS. Nearly 80% of 18- to 24-year-olds use text messaging, with the average number of messages sent across all respondents totaling 155 per month.

Global SMS Volume in Billions
Although revenues from voice calls still comprise 80% of worldwide total mobile revenues, operators globally are eyeing data services to increase their average revenue per user (ARPU). Of the various data services available, SMS, according to Portio Research, actually accounts for approximately 75% to 80% of non-voice service revenues worldwide.

Those are the types of numbers that are driving carriers such as Virgin Mobile deeper into the SMS space. “We launched our Messaging Pack in April and have done a lot of pricing and bundles, like Penny Messaging. SMS’ popularity and use cases are growing, and the base is expanding. There’s tremendous growth in the various uses of text messaging. It’s now a service in its own right,” says Jonathan Cho, director of messaging and communications for Virgin Mobile.

Virgin, which recently partnered with messaging service provider 3Jam to enable group text communications, is also looking at mobile advertising and focusing its SMS attention on the youth market.

Yet Cho is well-aware of the challenges SMS presents, most notably the introduction of new applications to an already successful business. “Finding those key applications that resonate with consumers is the challenge. There are lots of opportunities with SMS, but what’s most compelling to
the customer?”

AT&T’s Snyder concurs. “How much do you enhance and add to the SMS business? It’s been successful, so we’re reluctant to do anything dramatically different. We can’t get carried away with video, etc. We have to pay attention.”

And there’s plenty of attention being paid to SMS by messaging providers such as 3Jam, which see nothing but blue skies ahead for the messaging market.

Andy Jagoe
Jagoe: Elements to expand SMS aren’t yet in place.

“SMS is taking off and margins are tightening on voice. SMS is an interesting opportunity,” says Andy Jagoe, CEO and co-founder of 3Jam.

And there’s expected to be plenty of opportunity to go around. But with some needs to be filled first. “So many elements aren’t there, like threading conversation, multiparty communication, presence, location and content information. They should be available on SMS,” he maintains.

There are, of course, other challenges, he admits. “We asked some hard questions about multiparty messaging and the biggest challenge is the expectations of SMS and its ubiquity. But SMS will eventually be everywhere. T-Mobile, for example, reported 16 billion text messages in one quarter, up from 7 billion the previous quarter. So, we see great growth potential with SMS. But it’s an evolutionary process.”

Yet many believe the process is quickening, and pushing more companies into developing new SMS applications and enhancing the current offerings of carriers.

“Carriers are looking at SMS as access to premium content services, and applications like voting on TV shows. The trend is toward access to content,” says John Sims, CEO of 724 Solutions, which recently partnered with telecom giant Swisscom to develop next-generation messaging services that would leverage the telecom’s IMS and mobile messaging services.

John Sims
Sims: Access to content

“SMS is a saturated technology, so how do you leverage that to add content? Swisscom is a good example, along with companies like AT&T and Verizon. Solutions like seamless messaging keep them high up on the value chain,” he says.

And the value of SMS to companies such as 724? “It includes a combination of things. From leveraging assets to user connections with other communities. SMS is part of the mobile revenue picture and a significant portion of its revenue stream and will continue to emerge. It’s clearly the common denominator among users,” Sims notes.

It’s also clearly showing up on the radar screens of messaging providers such as Interop Technologies, albeit with lingering issues. “The sheer volume of SMS traffic and growth is mind-boggling and it’s adding value to a carrier’s service. So, how do you keep the platform ready for growth? We must have a good understanding of message delivery attempts (MDAs) to offer a roadmap,” says Damian Sazama, vice president of marketing and product development for Interop, a provider of scaleable support systems for SMS.

For SMS to reach its full potential, however, most experts agree there are technical and behavioral challenges that need to be addressed, especially with the dawning of the all IP-based network.

Damian Sazama
Sazama: Must understand message delivery attempts.

“SMS is successful and simple. But when you change that experience by enhancing it with new features, it’s a challenge,” says Dror Bin, general manager and vice president of messaging for Comverse, a software and systems provider playing in the SMS space.

Adds Bin: “Up to now, SMS has been a siloed platform. Now, with the integration of other technologies, we need to be able to send and receive messages seamlessly, with one solution. But, SMS is now a growth engine for revenue and a differentiator.”

And, it is a logical progression, concludes Longfield. “It makes sense to offer SMS and applications like LBS. And it has targeted marketing opportunities as well. It can infect everyone.”

Just how infectious SMS becomes will likely be determined by how quickly users will adopt the new generations of applications now being developed and tested. One thing is certain, however, the SMS message has been sent and received.

SMS Gets its Voice

SMS is gaining momentum not only as an impressive revenue stream for carriers, but as a gateway to more lucrative premium services. It’s also spawning a new generation of applications and services, one being voice-activated SMS messaging.

The concept of speech messages translated into text is getting the attention of carriers and the wireless industry in general. And though still in its incubation period, voice-activated texting is emerging as a potential new application in the expanding world of SMS.

Thompson: Traditional
voice mail market has
flattened out.

“The ability to move between a voice mailbox and text is a wave of the future. It allows users to press a button and dictate an SMS message and see the text on a screen as a text message. You can see your voice mail,” explains Mike Thompson, vice president and general manager of mobile search and communications for Nuance Communications.

Nuance, Thompson says, is deepening its voice-activated SMS presence. And for good reason. “The traditional voice mail market has flattened out, and SMS is now a critical piece in the value chain. A carrier’s biggest driver is getting people to a data plan.”

Voice-activated SMS also will allow carriers to list top services and retailers in the area on a screen during a mobile search, he notes. “When a person calls asking for a listing or directions, for example, three plumbers are identified in the immediate area. Those plumbers will pay to be at the top of the list. SMS is critical output to mobile search, which is a big market.”

And it’s a market that’s being noticed by carriers such as AT&T. “We’re hearing from subscribers about voice-activated messaging. A day will come when it’s in the marketplace,” says Becky Snyder, director of messaging products at AT&T Mobility.

Nuance is betting on that day being sooner rather than later. “Carriers are on the cusp of broadening their portfolios, which makes voice-activated SMS even more compelling,” Thompson says. “The ability to speak and dictate text messages is exciting. Carriers are now figuring out pricing models and behavior. And, it extends into the enterprise market.”

Yet voice-activated SMS, Thompson admits, has some growing up to do. “Globally, there are lots of different languages. We have 42 available today, so we need language coverage. But in North America, we’re quite active, and there is quite an appetitive for this service. However, it requires a behavioral change, so it will take time.”

Source:  SMS Jackpot,
By Craig Kuhl, WirelessWeek - October 15, 2007

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