The converged-mobile-messaging market: analysis and forecast

1Executive Summary

Over-the-top (OTT) messaging applications have upended the mobile operators’ highly profitable short messaging services (SMS) business. The traditional mobile-messaging value chain is changing as upstart OTT players attack the carriers’ control of the value chain and drive down cost.

Many players participate in the mobile-messaging market, including carriers, handset original equipment manufacturers (OEM), platform vendors, social media players, stand-alone IP-based messaging services, aggregators, and SMS wholesalers. Each player competes in at least one of the primary areas of the messaging value chain: user interface, message delivery, and directory management.

The flexibility and extensibility of IP technology enables compelling and innovative user interfaces for mobile-messaging services. The use of application programming interfaces (APIs) has allowed IP-based messaging providers to synchronize their user directories with contacts within a user’s embedded address book, simplifying the interface and driving use. Carrier control of the mobile network and the ability to push messages to any phone across any network ensures that carriers will remain the key players in the delivery segment of the value chain.

While OTT players have experienced significant user adoption, their reach is still limited to smartphones and current subscribers. The carriers’ influence over the universally used phone number and its function as the foundation of interconnectivity has helped them retain an extremely influential position in the directory-management segment of the value chain. Regardless of carrier influence, however, the emergence of virtual phone numbers presents opportunities for IP-based messaging players to compete and cooperate with carriers in the mobile-messaging ecosystem, adding interoperability to their services. This trend will redefine the concept of OTT messaging, as the convergence of SMS and IP messaging is routing messages through carrier infrastructure as well as over the top. This convergence also allows market players to leverage one another’s strengths in the value chain, with carriers providing scalability and delivery while IP-based messaging apps develop compelling and innovative interfaces.

The ability of mobile messaging to support mobile marketers and enable consumers and the enterprise to communicate in real time when voice is not the best option will continue driving demand for mobile messaging. Consequently, we forecast there will be 27.7 trillion messages by 2016. We expect most of the growth in messaging traffic will come from IP-based messaging services, which will account for 60 percent of messaging traffic.

Mobile-messaging trends vary across the globe, so some markets are responding more effectively to the changing environment than others. In the United States, carriers are reducing the cost of SMS while aligning their business models with their expenses. Other carriers are partnering with OTT players or offering free IP-based messaging services of their own. Carriers that are ill-prepared to benefit from this inevitable shift to IP-based messaging will unwisely cling to the ways of the past and become less competitive. Successful carriers will embrace the new technology and use it to extend the value they are best-positioned to provide: reliability and scalability.

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Peter Crocker

Founder and Principal Smith's Point Analytics LLC

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