Tuesday, June 07, 2011
SMS are going away, so are the revenues
The amount of news out of the WWDC keynote is staggering. Apple has announced three different products, all interconnected, threatening dozens of startups and lifting some (glad to be in the second category ;-)
One thing that did not get much visibility, as one of the 10 features of iOS5: iMessage. It is a built-in instant messaging product, one that will work on all iOS devices (and, I am assuming, Mac and PC down the road).
What is it? Simply: texting. It is the new SMS. It replaces SMS. And it does it transparently, because you receive a message that looks like an SMS and you reply with a message that looks like an SMS. The UI on the iPhone is exactly the same (and it works on iPads too, also the wi-fi only ones).
The difference? It uses your data plan. Very few bytes of it. It is practically free for the end user.
Nothing new: one of the most used feature of BlackBerry is BBM or BlackBerry Messaging. It is what is allowing RIM to stay afloat in emerging markets.
I know this announcement seems small. It is just an instant message product, right? However, it is huge, not only for RIM (sorry for them) but mostly for the mobile operators. Because it comes from the big gorilla.
SMS is by far the most lucrative product ever conceived by a mobile operator (it was an accident, BTW ;-) The amount of money they make with texting is insane, considering the network is practically not used at all.
It is all going away. It will happen slowly, of course. And there is an issue with interoperability between devices because it will work only within the Apple silo. But it is a sign. The direction is clear. SMS are going away, and so are the revenues attached to it.
Years ago I mentioned to a mobile operator that SMS were going away, eventually, and that they would have to move up the food chain (I went all the way saying that voice is a data type and that it will go as well, just wait...). He told me it was not going to happen. The carriers had too much control to let this slip away from them. "They can take everything, but not the cash cow". My answer was: "I spoke a few years back to a fax manufacturer who said the same thing about email"...
Guess what? The cash cow is going. If you are a carrier, you better move up the chain fast, because it is not going to last.
Posted by Fabrizio Capobianco at 10:52
19 Comments:
ARJWright said...
I don't know that SMS is going away, at least not just yet. There's nothing about BBM or iMessage that allows people to speak across ecosystems. Now, what Apple seems to be doing though here is interesting - apparently (based on what I've read so far of iOS5) no matter if the message is SMS or iMessage, its always filtered through the iMessage app. This *could* mean that inside of iOS5, they figured out how to use SMS almost as an API comm protocol, rather than the protocol and the message. If this is the case (and its a smart one) it would allow them to "become" the mode of comms transport within their ecosystem, without carriers feeling like they are totally left out. Of couse, in doing this, carriers will want to have the data and any IP revenue of those chats that might have started as SMS, but ended as iMessage or even FaceTime (the two have to be connected).
That would change the idea of revenues towards messaging services, and if RIM is smart, they'd pull the same thing off with BBM - add the piece of associating a number ot a PIN so that its seamless for those in the ecosystem of RIM to chat, but if they were to leave (as the numbers say they are) then they'd still stay in the comm stream of those they talk to whom haven't left RIM's "nation."
Hard to monetize there if you are a carrier, not impossible. Definitely can't keep the same revenues had before though. That part will hurt them a good bit.
Comment Posted at 11:39
I disagree in a sense Fabrizio, SMS will not go away, just maybe as we know it. It won't be a cash cow thats for sure, agreed 100% because they'll have to compete, but the thing is SMS is supported by every single mobile subscription plan and device... while data is not and even if you say that it eventually will be because everyone is moving to smartphones, we still have the issue you mentioned of interoperatability (iMessage is just for iphone, BBM for Blackberry, and whatsapp well thats a different story). THe thing is, SMS will always be available, and I don't think it will be phased out, its cheap, its useful, and all the customer needs is for it to become free or at least MUCH cheaper.
I personally prefer SMS specifically because of the etiquette people use with those data services.. BBM etiquette has moved on to whatsapp and the others, its the most annoying thing in the world because people no longer care about how many messages they send, they will send one word in a message! I will literally get bombarded with 10 messages in 1 second from the same person! haha sorry for the rant
Comment Posted at 12:17
"bytes"
Comment Posted at 12:20
Fabrizio said...
Thanks! Typo fixed.
Comment Posted at 13:05
flinter said...
So, how whatsapp/kik is a different thing? It's exactly the SMS technology but brought up to par with the modern times. Also, even though iMessage and BBM are made by gorillas of the industry, it will be one of those little pesky apps like Kik that will be the next SMS. Exactly because data will become ubiquitous and any phone will become a smartphone.
Comment Posted at 13:15
SMS was an accident? Can you explain a bit, please?
Comment Posted at 13:44
martinkepplinger said...
jabber anyone? I use it all the time, on my phone, to text my friends. on their phones.
what's new there?
Comment Posted at 16:05
Fabrizio said...
Martin, no questions there are plenty of of ways to do IM on a phone. The problem is scale. If your friends do not use Jabber (mine don't), you can only talk with a bunch of geeks. Apple has scale. Every iOS device + Mac is huge. And they do a magic matching of people in the cloud, so you do not have to specify your friends or have them sign up. Scale is everything.
fabrizio
Comment Posted at 17:02
Google Voice has been available on iOS for how long? A year? It allows you to send and receive real SMSes to and from any number for free. No ads. If people really hated SMS that much, the would have found it and switched. I predict a slow decline, not a cliff.
Comment Posted at 22:46
Fabrizio said...
Hi Trenton,
the big difference is that people need to install Google Voice, and that your friends need to have it installed as well (and they need to sign up to it). iMessage will be on the device by default and everyone will be signed up. IM is a game of scale. Apple has scale.
On the other side, I agree on the slow decline. But it is an inevitable trend.
Comment Posted at 09:19
Clark said...
I agree on your side points (cash cow, accident, operators need to move up the chain, etc.) but not on the SMS one. In the US, when SMS was available on each operator's network, the take up rate (and revenues) was minimal.
The advent of CDMA to TDMA to GSM SMS translation services (and interconnectivity) created the market overnight (literally: before any advertisement on its availability, the number of SMS had doubled in the first weekend).
I don't think it's a matter of scale. I think it is exquisitely user's awareness of actual deliverability and possibly delivery confirmation. I don't know if you have an iPhone (I suspect you do...:-D) but I used to have one, now in my wife's hands, and I moved to an Android (and at times I move my SIM to a different phone to try it out, as many of my friends do). I may move again later this year. I don't keep a messaging application of any kind always on in the back, as each app would give me access only to a subset of the people I may need to text to (and I don't keep track of who has what phone even less!).
SMS covers texting on any phone, anywhere in the world, with orders of magnitude less bytes than any IP-based messaging (which is why there is a standard protocol for SMS-over-IP, but the opposite, although possible, does not make business sense).
And I do get, if the signaling networks are properly configured, delivery confirmation...
After all, in GSM, SMS is the only teleservice, apart from voice.... That is, a service conceived from ground up end-to-end... Everything else is just a bearer service...
So, in short, much more standardization on the UI between competing applications is needed before any service can compete with SMS...
And we know standardization (or open source) is not exactly Apple's "forte"....
Comment Posted at 09:20
Fabrizio said...
Hi Clark,
I agree on all your points. However, SMS revenues between iPhones will disappear overnight because the device will pick iMessage over SMS if you are about to text a friend (the UI is the same, they only change the color of the bubble from green to blue). That chunk of money will be gone forever, as soon as all the iPhone will be upgraded to iOS 5 (e.g. the first week ;-)
I am expecting Google to copy this fast, so you will have the same among Android devices. And the same is already true withing the BlackBerry world (although discoverability is a problem).
SMS will quickly be relegated to a interconnection between different silos, which will be still big, do not get me wrong. Eventually, though, the user will demand a free interconnection and the big boys will sit and agree.
It is not going to happen in a week, but there is a first cliff and then there will be another one (2012, I guess) and eventually it will be game over (I give it five years).
Comment Posted at 09:31
martinkepplinger said...
Fabrizio, of course it's about scale, you're right on that one. But we'd be pretty bad off if that was all we cared about. I mean, I should go make an account at facebook in that case. Instead I won't.
I think it's equally much about motivation and passion and education, to make the web a place where you can feel comfortable, like you would meeting a friend in real life. Don't you know people who use GMail, GMX, web.de, fastmail or whatnot else may already be a jabber provider they already "have"? Thats just an easy start and I can only say, I had _only_ positive experiences in bringing jabber to people.
By the way, I may come to a point where I could even throw my SIM-Card away because I can talk to "my" people on jabber over Wifi. (and maybe just check every now and them whether someone tried to contact my SIM card). I say, what _you_ really want to scale, scales.
Sure, Apple may push SMS further away but their try is, well, a try to include something like skype only with more lock-in. And I doubt that people who are so glad when I show them an alternative to microsoft's skype, will now run to Apple, don't think about it and be happy.
Comment Posted at 09:41
Fabrizio said...
Martin, no doubt about the lock-in. I am all for open and I demonstrated it over the years. We should push Apple to open it up and I hope it will happen, we should all fight for it.
Comment Posted at 09:47
Not only you Are absolutely right, but It seems to me that we Are going on a packet data only future for voice too.
The problem is, how much will we pay for a damn packet??
Comment Posted at 12:29
Julien Buratto said...
Well, as my company sells SMS, I'm quite happy to see that most of the comments generally have doubts that the SMS cow will stop soon to feed people (me) :-D
Anyway, I do agree with you that the ground is ready and the weather is good, but iMessage or Whatsup will not be the magic seed for a new giant to come. Market is very fragmented at the moment, still iPhone, BB and Android are not conquering the real user's world. They have a small % of users and the path to have new communication protocol standars is far from becoming real.Without one, no interconnection between people will happen and no one want to talk only to his iMessage's friends. People want to chat globally.
In the past it was too easy: GSM rulez. Now there are no major groups that are able to provide such a strong aggregation feeling and Apple is too selfish to collaborate with others to create standards.
Nokia's finnish attitude of cooperation, with long-sigh american companies made SMS to happen. Imho, the real challenge today is to create collaboration, not products. Think social.
Comment Posted at 23:28
Clark said...
Hi Fabrizio,
I see your point about the relegation of SMS to silos intercom. And I tend to agree.
There will be, though, even more a role for Value added (read: not free) for interconnectivity, although the overall pie will be significantly lower, as you state... Unless one or more of the OS players (Apple, Google, BB, MS and maybe Palm?) try and make a business case for their texting apps (read: not free, ad supported or something else to force my use behavior away from my preferences)...
Then my family SMS flat fee AYCE would make more sense than fragmenting my texting costs/bills.
My question then becomes: isn't there a void possibly to be filled by an app that joins multiple texting options (à la Adium for Mac or IM+ for iOS and Android) with SMS, MMS and email?
That would be jabber, twitter, skype, facebook, iChat, LinkedIn, Plaxo, MS live, etc. all together with your operators' (wireless, email, google) messaging. Now, this may progressively force to open interfaces (and source? :-D) and THAT, I see as one of the main areas for wireless carriers to move up the chain or die....
Comment Posted at 12:18
Fabrizio said...
Hi Clark, the void - in my opinion - is filled directly by Apple. If the client cannot send an iMessage, it will send an SMS. It will be visible to the user (the color is green vs. blue) but that is it. Hard to believe there is room on the device for a separate messaging client, in the long run (in the short run, there is, of course).
fabrizio
Comment Posted at 14:07
Interesting points above. In the end - inter device and carrier transparency, in addition to instant delivery, will allow SMS to stay alive for a while, but not forever.
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