SMS versus MIM (Mobile IM) Business Models
This blog entry on a Portio Research report claims that SMS revenues will hit $67bn by 2012. I couldn’t help but wonder what global IM revenues are right now. I’m guessing it would be less than $67 million/year - 1,000 times less than this report projects for SMS in 2012. Why is SMS making so much money and IM (though widely used) presumably making so little by comparison? I have a couple theories:
First, it may be related to the nature of the technology. With mobile phones the device is effectively attached to the network - making it difficult to switch to another network with the same device (at least in the US). An analogy would be if ISP’s controlled operated (and charged for) email service - for example if ad-driven webmail, deployed enterprise email, and email hosting services were all impossible. You can imagine that ISP’s would charge per-email (or even per-byte of email).
Second, fixed costs of operating wireless networks are much greater than fixed costs for operating an ISP. As a result there are far fewer wireless network providers than there are fixed broadband providers, and mobile operators have more monopoly/oligopoly pricing power. With current wireless technology it is much harder for an upstart to burst on the scene and undercut the incumbents (or offer an ad-based business model).
One has to believe that the current super-high mobile bandwidth costs will fall - possibly as dramatically as fixed broadband costs have been in the recent past. Competition from other wireless technologies (EV-DO, WiMax, 3G, even conventional Wi-Fi) will erode the monopoly of mobile networks. Eventually mobile network operators will no longer be able to charge $.05 for a 100 byte message. The report hints at these changes, using the term “mobile IM” which I was not familiar with, until now…
By 2011, the report predicts, mobile instant messaging (MIM), especially in markets such as North America, will supplant SMS as the mainstream messaging service as smartphones and wireless Internet proliferate.
MobileIN has a description of MIM. It does not contemplate the business/revenue models of MIM in detail, but it does say that “SMS is a bearer that can be used for MIM”. I assume that this would imply the same per-message charge levied by the mobile operator in MIM as in SMS.
Currently, people expect per-message charges for SMS, but they expect IM to be free (the vast majority of IM use is ad-based public IM use). Will people be willing to pay for MIM in the future if they do not now pay for PC-based IM? Will mobile operators lose their ability to levy per-message charges? Will disruptive new technologies put market changing downward pressure on mobile bandwidth prices? If so, why will customers be paying $67 Billion for SMS in 2012?
Graham
I haven’t seen the report but the “market” estimation must include the commericals of the message to make a transaction (like make a payment, buy a good or service, etc…). If not, it’s grossly inflated.
Nick,
My inclination is to agree with you. I just re-read the blog excerpt and found the report itself (http://www.portioresearch.com/MMF07-12.html). Unless I’m reading wrong, it does seem to discuss SMS strictly in the context of ‘messaging’ - alongside other messaging technologies such as MIM and mobile email. The title of the report is “Mobile Messaging Futures 2007-2012″. If they are including the broader mobile commerce space in the scope of the report, they are doing a good job of hiding it. If anyone has $3,000 to donate for the report, I’ll tell you for sure…
Graham,
Haven’t read the report, but I would not doubt the figure. UK figures just hit 4bn messages in a month. Although usage is increasing operators are trying to migrate customer revenue and usage into IP based services which is difficult to do when people expect the internet and msn for free like it is on the PC. People are still paying the prices for SMS premium services which can be £1 to £1.50, particularly TV voting.
Also the network bandwidth needs to be in place to support IM to work in mass market. Not sure what the increase data factor is for additional prescense information to be constantly pushed, whether it by over SMS or IP network.
Ben
http://www.iotasphere.com
Interesting, thanks for the comments Ben.
I had a persona experience in this area last week. I was shopping for a new phone and noticed that many of the new phones available from my provider (T-mobile) have built in IM capabilities (AOL, Yahoo and ICQ if I recall correctly). I asked how IM messages are charged, and was told (after some debate among the T-mobile staff) that IM messages are charged the same as SMS messages. If this is true and if people are still using/buying this service then perhaps we can see evidence that consumers are willing to pay for IM over mobile. Perhaps the distinction in consumers minds is between mobile and desktop - as opposed to between SMS and IM. They are willing to pay for messages (on any protocol) from a mobile device and they are not from a PC.
Just a thought.
Graham.