Accidental hero: the future of SMS
12 December 2006
The unexpected and phenomenal success of SMS has been well documented and is now accepted as fact. Indeed, a significant chunk of the high revenues which mobile operators have enjoyed can be attributed to this accidental hero and its unassuming popularity with users. So where next for SMS - what challenges lie ahead and what role will it play in the next chapter of the digital communications saga?
To many observers the mobile industry now appears to be having a mid-life crisis, unsure of the best route to take to guarantee a successful and exciting future, yet painfully aware of being consigned to the shadow of 21st century media and internet companies. Newer services such as mobile TV and mobile instant messaging (IM) tempt and tease operators with a hazy vision for the future, but it is with SMS where the real and tangible hope immediately lies. Nevertheless, most observers agree that if the emphasis is switched to the customer experience, then success and longevity can be achieved.
Continued growth and relevance
Voice is being commoditised and in many cases revenue per user is already in decline, and the industry is seeing a renewed dependence on established earners including SMS, where the infrastructure is already in place and revenues and traffic have exceeded all expectation and continue to remain strong. Ovum predicts that global SMS traffic will continue to grow steadily over the next four years, with a recent forecast suggesting that volumes in 2010 will be nearly double 2006 figures*. Furthermore, the report indicates that global text messaging traffic will actually triple by 2010 due to next-generation technologies like IM.
Yet while traffic is increasing, revenues are unlikely to reflect this as competition drives down the price per message. Indeed, SMS revenue growth by 2010 will only be comparable with growth between 2004-05 according to Ovum forecasts**, though overall text messaging revenues will increase. A dramatic overhaul is not what is required to boost revenues, although a degree of investment is needed. SMS is very likely to remain the most popular messaging stream for at least the next two years, so operators need to decide how to grow the service that consumers love while increasing the revenues it brings.
From a revenue point of view, there are many ways for operators to boost these in the short term. Introducing differentiated SMS pricing structures, for example, with varying levels of service agreements and different corresponding costs per text message to address specific market segments. Opening up third party revenue streams by injecting adverts within text messages also enables profitable growth while cutting costs for customers. New SMS-based applications should be exploited to create more opportunities for people to use their phones, opening the door to personalisation and control. Email-style functionality, for example auto forwarding and auto reply responses, can be introduced with little adaptation of existing technology. Screening of specific senders or phases can block unsolicited or offensive messages. Interactive applications, combining SMS with television and built around shows such as American Idol can create significant revenues for operators and media players. This enables organic growth of SMS and provides a bridge to next generation platforms and enhanced services.
Taking a mid-term perspective, operators can stimulate revenues by investing in new technologies; opening up a world of enhanced messaging opportunities. Next generation messaging technologies, such as mobile IM and converged messaging based on IMS, are already being anticipated with much excitement.
There is great potential in these new services, but to achieve maximum benefit operators must ensure they are not charging ahead and forgetting to take the customer with them. Operators require intelligence about their customers’ needs and behaviour patterns to be able to segment and differentiate their customer base. This will then enable them to mould and personalise new messaging services, making them relevant and compelling to customers’ individual preferences.
Survival of the fittest?
A key challenge SMS faces is that popular IM communities are already offered as a free alternative to mobile users. While communities cannot be forced, it is crucial that key elements of IM are fostered to rejuvenate SMS and offer an enhanced messaging experience. Consumers do not always ‘love’ their operators and the industry must take steps to nurture trust and respect. Communities evolve naturally and operators can take the lead by leveraging the strengths of today’s SMS community and evolve it into the superior messaging service of tomorrow.
This is strongly supported by Ovum, who predicts that continued growth of text messaging will be due to introduction of new IM-based features over the next few years. So, as IM will bring features not available now, it will not replace SMS but enrich and complete it as we move from SMS to conversational text messaging.
IM is emerging as a pure IP-based service that enables significant cost savings and enriched text messaging because of its instantaneous, presence- and community-based nature. In February 2006, the GSM Association announced an initiative to make IM as popular and ubiquitous among mobile users as SMS is today. As part of this, 15 of the world’s leading mobile phone operators plan to rollout IM services that will work across networks. In a practical sense, European operators Telefonica and Telecom Italia Mobile have launched ‘SMS2.0’ and ‘Super SMS’ respectively, leveraging the success of SMS, and providing a richer experience for the top SMS user segment.
Through mobile IM, these operators will offer a superior text messaging experience to the top 20% of SMS users that account for 80% of all traffic. The benefit for users is that they will enjoy a superior text messaging experience. The service will present the availability of ‘buddies’, show exchanged messages as conversations, support group chat and provide access on both mobile and PC. For operators, these capabilities will bring increased text messaging usage and potentially save costs by delivering 80% of all text messages fully over IP.
Critical success factors for mobile IM will be full interoperability with the global SMS user base from day one and the positioning of IM-based text messaging as the enhanced SMS experience. There are around 2.1 billion SMS users and one billion IM users worldwide and the key point here is to connect them, not just replicate IM functionality in the SMS world. This way, operators can boost both traditional text messaging revenues in addition to generating new revenues based on IM functionality. Ultimately, the value of a service is proportional to its reach. Put bluntly, IM will ensure continued growth of SMS.
Looking beyond IM, there is a healthy consumer appetite and industry capability for a range of consumer services – mobile, IM, email, internet, video – to fall under one roof. Industry leaders are confident enough about the relevance of existing and future mobile services to say that it will be mobile operators in control of these one-stop-shops. Crucially, from a commercial perspective, they will be in the position to charge premiums for these enhanced services in the near future.
Under threat
It is fashionable for the mobile industry to model itself on the internet and PC world; through similar applications, services and user experiences. Unfortunately, successful mimicry will bring the same problems that have plagued PC users for years – viruses and spam.
SMiShing, for example, is the latest threat to mobile users – the mobile text message cousin of computer phishing attacks. However, mobile spam and viruses present distinct threats from their internet-based cousins and require a different approach to prevent and control them, ultimately ensuring the integrity of SMS. SMiShing takes a ‘social engineering’ approach to spam, taking advantage of subscribers’ lack of knowledge. This variation of spam does not directly attack handsets like a virus would; these hackers are financially driven to exploit legal loopholes and the latest technologies to obtain personal data. For example, recent attacks have included false online dating subscriptions and job offers via SMS, asking users to go to websites to unsubscribe the service.
The good news is that knowledgeable users can completely avoid SMiShing attacks. By recognising the message and ignoring the instructions, any threat is immediately defused. There is opportunity for operators to ensure users have this knowledge - with the right network tools these messages can be recognised, then labelled upon delivery in such a way that a warning arrives at the same time as the SMiShing message, conveniently on the handset.
Another common problem is linked to third party suppliers having access to subscribers’ numbers. With content increasingly moving off portal, and unvetted premium SMS suppliers proving popular, operators must monitor and manage who they give subscribers’ mobile numbers to.
Aliasing is an incredibly straightforward way of managing this problem as the operator assigns a code name to a customer which works like a post or ZIP code. The operator knows who it should be delivered to, but to the content provider it’s just a string of letters and numbers. Furthermore, it can be changed every time so, having delivered the content, the provider cannot then send anything else, such as unsolicited marketing, without the consumer requesting it first. The operator now has much more control over where the consumer’s mobile “address” is made available. The next step is to offer consumers the option of controlling what messages they receive through the use of a spam filter.
The nature of SMS delivery also means that the “junk mail” folder option usually employed for basic internet spam filtering is not workable in the mobile environment. Most phones have only one inbox folder so any spam filter that decides not to deliver a message for any reason needs to be certain that it is spam and not a genuine message. The operator must therefore be able to interrogate the message directly to check the content and, if necessary, amend it. Verifying a user’s age before allowing access to adult services, or identifying premium rate numbers in messages and highlighting it with an appropriate warning text, provides the customer with appropriate information to decide how to react. Filtering can also help fight against the spread of viruses and Trojans. With appropriate content control filtering measures in place, revenues and the operator’s brand can be protected, allowing operators to confidently offer premium content.
The road ahead
The mobile industry needs to consider a fresh approach in order to thrive in the new communications world, as it is not just in the business of selling technology – we need to be enabling cultural change. Apart from being a convenient cash cow for the industry, SMS brought about something of a revolution in terms of the way people communicate with one another.
The enthusiasm with which SMS has been embraced by society presents many opportunities for the industry. There is no reason why the introduction of enhanced messaging services, ultimately paving the road to IMS and a fully ‘intuitive’ approach to messaging, cannot be spread out with little risk or outlay to recoup. Done well, this will lead to a natural and well-timed rollout of next generation text messaging services that will offer greater differentiation, helping build brand loyalty and reduce churn. SMS still has quite a few un-played cards in its hand and enhanced messaging services are a way of tapping into the revenue potential at the same time as gradually encouraging a cultural shift towards making more use of our mobile phones.
* March 2006, Ovum
** Mobile messaging services: a market overview, June 2006, Ovum