Mobile Messaging: Part I - Voice Makes Room For Text, MMS

Voice makes room for text and Multimedia Message Service.
It's an odd characteristic of the mobile landscape that devices and networks originally designed for voice are increasingly being used not for talking on the phone but for sending messages; either text only, or with pictures, sound or even video. The mobile messaging market has grown by leaps and bounds in the last ten years with more and more users demanding that their mobile devices emulate network-connected PCs.

The market is still dominated by SMS (Short Message Service), the text messaging service first developed in the GSM (Global System for Mobile communications) world in Europe and launched commercially in most markets in the early 1990s. But as we'll see in this multi-part series on mobile messaging, newer mobile formats - MMS (Multimedia Message Service), instant messaging (IM) and e-mail - are beginning to have an impact.

"New messaging formats will emerge and generate significant revenues in the next few years," predicts French-based JupiterResearch analyst Thomas Husson. "However, SMS will remain the cash cow. Altogether, Jupiter estimates that these new formats will represent up to 36 percent of P2P messaging revenues by 2010."

It seems likely that the new mobile messaging markets will evolve differently in different regions. That has certainly been the case with SMS. European and Asian users latched on to it early. Texting has become a part of the culture in many overseas markets, especially in Europe and certainly among the young; in a way it hasn't until very recently here.

Numbers tell the story.

In the U.S., according to JupiterResearch senior analyst Julie Ask, 40 percent of mobile subscribers - out of a total population of 200 million - were using SMS by the end of 2005, sending 43 billion messages a year. Jupiter expects that by 2010, the adoption rate will climb to 51 percent of a forecasted total population of 250 million subscribers. They'll be sending 68 billion messages a year by then.

Europe vs. U.S.
Those are big numbers to be sure, and growing at a respectable pace, but they're small compared to Western Europe, where 79 percent of the mobile population on average uses the service. In some countries, it's higher - 86 percent in Sweden, for example. "All demographics and not only teens use the service," notes Husson. "However, teens and young adults tend to be the most intensive users."

Usage patterns vary from country to country, he says. In France, for example, subscribers send 25 SMS messages per month on average, while Danes send more than 100.

Despite the high usage rates, JupiterResearch is forecasting a drop in SMS revenues in Western Europe, from €15 billion in 2005 to about €13 billion by 2010. This is mainly due to price pressure, the result of new competition from mobile virtual network operators (MVNOs) - wireless resellers. Prices are already very low in some markets: €0.06 per message in Denmark, for example - no doubt one reason usage rates are so high in that country.

Why the differences between Europe and the United States?

European operators were quicker to respond to consumer demands that their SMS services interoperate so that a subscriber of one carrier could send a message to a subscriber of another. It was easier to do in Europe because virtually all carriers use the same GSM-based network technology, while operators in the U.S. had to overcome the GSM/CDMA divide. Cingular and T-Mobile use GSM technology, while Sprint and Verizon's cellular networks are built on CDMA, for example.

Voice tends to be more expensive in Europe as well, so subscribers there have more incentive to use lower-priced text messaging to communicate.

"There are also things like the fact that the U.S. is a more PC-centric environment," Ask says. "Teens here are more likely to have a PC at home with instant messaging on it [and use that for texting rather than a mobile phone.]" Europe may also simply be a more pedestrian and mobile culture, with young people especially spending more time out of the home and the car.

Multimedia messaging, meanwhile, has been something of a disappointment to operators on both sides of the Atlantic. In the U.S., 6 percent of subscribers used MMS in 2005, Ask says. JupiterResearch believes that will rise to 21 percent by 2010, however. Applications include mobile bloggers posting photos, dating applications and people sending photos or videos to each other. But activity is still small in the U.S., especially compared to markets such as Japan and South Korea.

So what are the big inhibitors to MMS taking off? Until 2005, there was little interoperability among U.S. or European carriers. Also, phone cameras mostly offer very poor quality imaging. Consumers may initially have been impressed by the fact that they could get a phone with a camera in it, but they soon found that the pictures they could take weren't much good.

Husson cites other inhibitors. Many subscribers don't have devices that can receive MMS messages and this frustrates users who can send MMS because their messages often don't get through. The low penetration of camera phones until fairly recently meant few subscribers could easily send impromptu MMS messages. The services are too often difficult to use, and prices are too high - €0.45 per message on average in Europe. "That's too high a price to drive usage," Husson says. MMS should turn the corner this year, though, he adds.

Mobile e-mail is a hot topic in the enterprise world but still represents a small piece of the mobile messaging pie. "It's not a lot in the grand scheme of things," Ask says. In a recent JupiterResearch consumer survey, only 2 percent of respondents said they had wireless e-mail capabilities. The main inhibitor: most subscribers don't have devices with alphabetic keyboards for inputting messages.

Market watchers believe e-mail is about to take off, however. Research In Motion (RIM) announced last May that the number of subscribers to its market-making e-mail service had passed the three million mark, a number that has growth considerably since then. Market research firm In-Stat says four to five million business people in the U.S. alone are already using mobile e-mail or messaging, with a potential market of 20 to 30 million mobile workers - though In-Stat doesn't say what portion of that is e-mail.

Enterprises will drive the market, but they are concerned about security - often an exaggerated concern, some observers say - and they tend to take a long time deciding on a platform. A number of platforms are vying for supremacy: RIM, Windows Mobile, Symbian and Palm.

RIM is the market leader, but it had been under a cloud for more than a year, fighting a recently resolved patent suit that could've conceivably resulted in service disruptions for U.S. subscribers. Before RIM's $612.5 million dollar settlement - announced close to two weeks ago - with litigant NTP, analyst David Via of San Francisco-based Ferris Research correctly forecast, "I think most of the industry opinion is that there is almost no chance that will happen. The worst case for RIM is that they'll have to make a very expensive settlement."

Still, RIM's difficulties gave competitors an opening. Microsoft, potentially the most lethal, recently introduced a new version of its mobile messaging technology that would theoretically make it easy for enterprises to develop e-mail systems that use the same push techniques - sending messages out automatically without users having to check for them - that have made BlackBerry so popular.

Some mobile carriers have been offering instant messaging for awhile, but few have marketed it aggressively - despite recent survey data from JupiterResearch suggesting there is significant consumer demand for such services. Carriers are concerned about cannibalizing their SMS revenues, Husson says, though he believes this is a needless concern. "They answer different needs and are different communication tools."

The carriers also need to figure out which business models make sense, and how to take advantage of - or avoid obliteration by - Internet-based brands such as MSN, AOL and Yahoo. French carrier Bouygues Telecom showed the way by launching a mobile MSN Messenger service in partnership with MSN last November. It announced it had signed up 45,000 subscribers in the first three months - although that was partly a reflection of heavy discounting for charter subscribers.

As more IM-ready handsets appear, as interoperability issues are resolved and carriers figure out how to make money from IM, it will take off, Husson believes. The real trick may be to get IM-capable devices - PDA and smartphones with big enough screens and alpha keypads, which tend to be expensive - into the hands of young people who are the most likely users.

How will the mobile messaging world unfold? Stay tuned. We'll dig deeper into the new messaging services as the series continues.

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