2012 was the year it really tipped for instant messaging (IM). There were 3.5 billion SMS users vs. 586 million users of messaging apps but messages sent via third party applications, such as Tango, Viber and WeChat, equalled and finally overtook SMS volumes.
The phenomenon of IM has been staggering with Japan’s LINE and China’s WeChat both acquiring over 500 million users within 2 years of launch and the future of instant messaging is looking promising.
Forward to 2014 and the volume is more than twice of what it was at 50 Billion, versus 21 Billion per day for IM vs. SMS volumes. (Deloitte)
Whatsapp alone is now 50% bigger than global SMS with 30 Billion messages per day, as opposed to the global SMS volume of 20 Billion a day. The statistics for Apple’s iMessage are also unknown, but we know that there are over 400 million iPhones in use today.
“It seems to me that there are two interesting questions now: how much these will settle down, and how much they will become more than just messaging. But actually, those are two sides of the same question.” – Ben Evans
While IM and SMS are both text based messaging, there are fundamental differences that encourage different behaviours.
IM is largely two-way communication with many quick-fire responses in contrast to SMS, where individual paid-for messages are used to send information. IM has highlighted the growing demand for more personalised and interactive communication.
There are low to zero costs for the user when using IM. An example would be Apple’s iMessage that is a feature of the device ecosystem with no subscription involved.
There is a growing disparity between traffic volumes and revenues in the mobile messaging market. IM will account for 75% of the traffic, or 63 trillion messages by 2018, but will only generate 2% of the mobile messaging market’s revenue, at just over $3 billion. (SMS generated $100 billion in 2014, according to Deloitte). This is one aspect that will be interesting to watch in the future of instant messaging and its growth.
Travellers also stick to using SMS as it is cheaper than purchasing a mobile data package or subscribing for a data roaming plan, adding to the large proportion of the global IM user base not generating substantial revenue.
Mobile operators are uncertain about the shift in the industry with SMS revenues slowly dropping. They are still significantly higher than IM revenues, but operators have changed their focus to data traffic for revenue as a short term strategy.
While consumers clearly see it as an opportunity, many operators also regard IM as a huge threat to their business. Angsty telcos have taken it one step further and asked for the rules to be changed in their favor.
Indian operators took a collective stand and challenged the Telecom Regulatory Authority of India (TRAI) to provide a more level playing field against OTT players, while Singapore’s SingTel infamously called on regulators to allow operators the right to charge IM providers.
In spite of the fears, 80% of operators are still confident of generating new revenue streams from over-the-top communication (OTT) services through partnerships.
Low monetization fears are clearly unfounded with major acquisitions and investments with IM clearly here to stay.
Apart from WhatsApp, almost all other IM providers from Tango to WeChat have monetized their app through more features and services for personalization such as premium stickers and in-app purchases
We recently stumbled upon an open secret on creating the ultimate sticky combination for apps using gamification but the trend appearing is that IM itself is the proxy to monetization.
The IM platform is built first, a substantial user base is formed and then, stealthy monetizing attributes are deployed following financial investment/acquisition. Facebook is a good example where it may use WhatsApp’s user base and link to their Facebook account where advertising is shown, thereby not disrupting the flow of chat on IM.
A key feature of IM apps are the access to an individual’s social graph, highlighting the potential for highly contextual, personal and interactive communication.
SMS is common to all smartphones but the market for IM is fragmented by different services which cannot communicate with each other. (Ex. Whatsapp and Tango can not be used together)
Users also choose IM apps based on their geographical base of users. While WeChat is clearly the leader in China and Line for Japan, WhatsApp is also far bigger in East and South-East Asia than the USA.
We appreciate the value of single-purpose apps, and as we connect with different groups of friends based on hobbies, interests and locations, it would increasingly make more sense if we could chat with gaming friends within the gaming app or dates within dating apps?
“Single-purpose apps are wedges that get on to a person’s phone and into a person’s mindset and daily workflow, and can then be built into far larger products and value propositions afterward.” – Taylor Davidson
Davidson also highlights the potential for messaging apps to be broader platforms themselves. If we’re spending all our time in a messaging app, why shouldn’t we be able to accomplish other things inside of them and vice versa?
More than 1 Billion smartphones were sold in 2014 and most of them were shipped to emerging market consumers.The increasing penetration on the lower end of the market was helped by inexpensive, smartphones (such as Huawei, Xiaomi) being made available in developing economies.
Data cost however, remains the biggest barrier in the developing world, holding up mobile internet adoption. A Nielsen study of 10,000 smartphone users in India found that 50% had deactivated the internet capability of their phone. According to Jana, the average 500MB data plan also costs the equivalent of 5 days work in some countries.
Instant Messaging will most probably find delayed opportunities in these untapped markets when costs for data becomes more affordable.
Communication is a core social need and we communicate to multiple interest groups differently in various situations, so why should it be limited to one app that tries to do everything at once?
We see communication in all apps as the future, with more and more apps starting to bring instant messaging into their own apps.
While OTT players will continue to take a large share of the market, apps for dating, travel, and marketplace are starting to use instant messaging in their own apps for a richer app experience.
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