TECH TALK: Disruptive Technologies: SMS

The Short Messaging Service (SMS) revolution is an unlikely one: the cellphone keypad is inadequate for typing the message length is short (no more than 160 characters). And yet, it has captured the imagination of cellphone users unlike anything else. While on the one hand there are optimistic forecasts of the 3G services, the success of SMS has proved that it is impossible to predict what users want and will use. For most cell operators, SMS services have ben an after-thought. Today, SMS represents about 3-5% of revenues worldwide. The biggest success has been Philippines at an incredible 22% of revenues. According to Ovum, income from text messaging is expected to reach USD 18.9bn this year or about 4.7% of total revenues of US$400bn.

A recent report by Merrill Lynch on Mobile Data identifies the key factors for the success of SMS:

Adoption by the youth segment: The youth market is an early adopter and helps build scale and mass acceptance of new services.

Pre-paid services: Pre-paids lower the cost of entry and help build scale for SMS services.

Affordable service: The cost of messaging is significantly cheaper than per minute mobile calls and even when compared to paging, thus encouraging high volume usage.

Common GSM platform: Given the larger base of subscribers, new services such as long-distance roaming could be developed.

Interoperability: Interoperability has been a proven driver of messaging growth. In the UK, after interoperability was available in April 1999, SMS traffic increased seven-fold.

Calling Party Pays (CPP): CPP encourages use of messaging as users do not have to pay for incoming messages. In the US, two-way billing has slowed messaging as the receiver has to pay for receiving messages. CPP does not translate to lower revenues as incoming messages stimulate response and more traffic.

Wide diversity of services: With a common platform and large subscriber base, a large variety of services have been developed, the most popular of which are consumer applications such as simple person-to-person messaging, notifications of voice and fax mail, unified messaging, ringtones, chat, information services, mobile banking and payment, and National and international roaming.

SMS gross profit of about 90%: Margins on messaging are usually very high as there are low variable costs and these almost fall directly in the bottom-line.

90% of SMS is still person-to-person. The power of SMS can get magnified if combined with IM. An extract from Pulver’s report:

The next big ‘thing,’ exploiting the potential of wireless networks together with text messaging, is called WIM – Wireless IM, or MIM – Mobile IM. It is a hybrid of IM and SMS, possessing attributes of both. So, how will IM and SMS features be merged in Mobile IM:

  • SMS has a store-forward capability, so sending messages is possible even when the recipient is not ON. The user gets notified when there is a message waiting, as with Voicemail.
  • Presence improves the user experience, knowing when a recipient is available. What’s more, choosing name from recipient list, instead of a number, is far more intuitive.
  • IM accommodates multi-party chats. Voice networks find it hard to bridge several parties, and the radio bandwidth is a limiting factor for multiple sessions reaching the handset. It is yet to be seen whether multi-party Voice conferences can be accommodated before true 3G networks are in place.
  • But the most interesting part of this is that the interworking between Internet IM on PCs and IM on mobile devices marks a true convergence. This will connect not only anyone with a mobile phone, but also any PC user who can be associated with a telephone number.

SMS and IM are two options for real-time communications. Let us now integrate it with the third pillar: email.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.