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How Social Messaging Services will Displace SMS

Mobile phone short messaging service (SMS) has been a huge windfall for most telcos. That said, here in the U.S. the inter-carrier deployment was late to market and SMS benefits were rarely promoted effectively by service providers.

Regardless, SMS was a success due mostly to the eager early-adopter subscribers -- typically young girls who used word-of-mouth to increase adoption among their friends and family.

Meanwhile, the revenue generated was a cash cow -- even for the most inept telcos. But in the absence of any meaningful service enhancement, and with pricing that was high relative to the perceived value, it was just a matter of time before this party was over.

New estimates from Ovum indicate that increasing use of alternative IP-based social messaging services on their smartphones has cost mobile network service providers $8.7 billion in lost SMS revenues in 2010, and $13.9 billion in 2011.

According to Ovum's latest market study, they expect the SMS decline -- representing nearly 6 percent of total messaging revenue in 2010 and 9 percent in 2011 -- to accelerate as the popularity of free messaging apps continues to grow.

Ovum says they have warned network operators to rework their legacy SMS offerings, and secure their future position in the mobile messaging market. But given the unimaginative approach that most mobile service providers use to market their value-added services, I believe that there's little hope they can stop the loss of revenue.

"Social messaging has disrupted traditional services, and operator's revenues in this area will come under increasing pressure," says Neha Dharia, consumer analyst at Ovum.

However, despite the threat to messaging revenues, Ovum believes that the strong presence of social messaging should still be looked upon as an opportunity.

"This threat will drive telcos to consider alternative sources of revenue, such as mobile broadband. And now the market has been tested, operators know what types of messaging services work," said Dharia.

Theoretically, operators should be in a position of strength -- because they control the entire messaging structure through their access to the user's phone number and usage data.

The established billing relationship is a great advantage, as is the fact that operators control to a great extent the services to which the user is exposed.

However, offering innovative messaging services and aligning revenue schemes with models in the social world will not be enough to win the battle against social messaging. Industry-wide collaboration and co-operation will be the key to growth in the messaging realm.

Operators must remain open to partnering with app developers, sharing end-user data with them and allowing integration with the user's social connections. Working closely with handset vendors will also be important; they control some of the most popular social messaging apps, and can also provide preloaded applications.

"The most important factor, however, will be co-operation between telcos. They are no longer competing merely among themselves, but must work together to face the challenge from the major Internet players," concludes Dharia.

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