The number of messages sent using mobile devices is staggering: trillions a year globally and rising. Two types of mobile messaging services are battling for users’ thumbs and wallets: mobile instant messaging (MIM) and traditional text messaging (short messaging service or SMS). In 2014, MIM will win the battle for volume, generating over double the number of messages, but global revenues from SMS should be upwards of 50 times higher.
Mobile network operators, such as AT&T and Verizon, provide SMS using the same infrastructure that carries mobile phone calls. SMS was once the only way a mobile phone user could send a message to another person’s mobile phone. That changed with the arrival of mobile broadband and MIM apps offered by third-party providers, including startups like Line, WeChat, and WhatsApp. These services let users send messages from their smartphones via fixed or mobile broadband (an approach also known as “over the top,” or OTT). Facebook’s purchase of WhatsApp for $19 billion has drawn the business community’s attention to a fact that many teenagers and other users already knew: MIM services are rapidly gaining popularity as an alternative to SMS, but also as a substitute for email, social networks, PC-based instant messaging, phone calls and face-to-face conversations.
Deloitte predicts that MIM services will carry in excess of 50 billion messages per day this year, compared with 21 billion messages per day sent via SMS. This ratio of nearly 2.5 to 1 compares to near parity in 2012. However, SMS is expected to generate more than $100 billion globally in 2014, compared with about $2 billion from all MIM services (including value-added services offered via their platforms).
There is a simple reason for the vast gulf between revenues for SMS and MIM. “Users often incur tariffs for SMS services (up to 10 cents per message when charged individually, and up to 50 cents when roaming), or else part of most user’s monthly subscription includes a quantity or unlimited text messages. In contrast, the median cost of MIM services is typically zero,” says Paul Lee, director and head of global technology, media, and telecommunications (TMT) research, Deloitte Touche Tohmatsu Limited (DTTL). “SMS should continue to generate significantly greater revenues than MIM in the short term.” Meanwhile, MIM services should continue to capture additional volume from all other forms of communication.
"MIM’s surging popularity is already extending into the workplace, where growing numbers of employees are informally using it. CIOs will also need to ensure that security and privacy protections are in place if employees use third-party MIM apps.
What’s Behind the Numbers?
“MIM services’ popularity arises, at least in part, because they can handle rapid-fire conversations among two or more parties, whereas an SMS conversation has a slight lag time and is limited to two parties,” says Lee. MIM users often rely on “presence awareness” features (which indicate someone’s availability) to know whether it is a good time to start conversing with another user—or multiple users.
Would-be users of MIM encounter some headwinds, however. “Although SMS is the messaging standard common to almost all mobile phones, there are many different MIM apps and they are not compatible—people need to have downloaded the same MIM app to have a conversation,” says Duncan Stewart, director of TMT research for Deloitte Canada, a member firm of DTTL. “The most popular MIM service has hundreds of millions of monthly users; SMS has billions.” MIM cannot be used on a basic mobile phone, he adds. It requires a smartphone, tablet, or mp4 player connected to a mobile data network or a Wi-Fi network. Moreover, some MIM services only work with a single operating system.
“The fact that MIM services are typically available for free or only a small fee goes a long way toward explaining their high popularity and low revenues,” says Lee. Some MIM services are a value-added offering to all users of a manufacturer’s smartphone. For example Apple’s iMessage service is included on every iPhone and there is no charge for using it. Other MIM services charge a nominal amount for a subscription—for example, WhatsApp charges subscribers a dollar a year, but the first year is free and the provider has also waived subsequent year’s fees for some users".
