Asian mobile operators cash in on SMS success, Internet convergence
Madanmohan Rao reports from the Mobile Messaging Services summit in Singapore
One of the most remarkable success stories in the world of data communications has been the explosive growth of SMS (short messaging service) traffic on GSM networks. And its successor, MMS (multimedia messaging service), is expected to give the budding 2.5G and 3G networks a major shot in the arm in the form of provable business models and strong synergies with the Internet.
According to the GSM Association, an estimated 15 billion SMS text messages were sent over the world's GSM networks during the month of December 2000 - as compared to 3 billion in December 1999. This figure will reach 25 billion in the month of December 2001 - or 200 billion messages for the entire year 2001. Estimates for December 2002 range up to 100 billion messages.
Delegates from across Asia, Europe and the U.S. gathered in Singapore recently for the Mobile Messaging Services Asia summit, hosted by market research and events firm IQPC (www.iqpc.com). Asia has one of the highest regional levels of per capita SMS messaging in the world.
"One of the biggest markets for SMS services is person-to-person messaging, especially among teens," said John Whittington, senior business consultant for Nokia Networks in the Asia-Pacific.
The company recently conducted a survey of mobile usage in six countries, and segmented them into four groups: highly saturated (Singapore, Italy), very strongly established (UK, Germany), rapidly growing (U.S.), and embryonic (Brazil).
Individual SMS users fall into three categories: phonaholics (who cannot live without their mobile phones), enthusiasts (keen advocates of SMS), and pragmatists (who use SMS only as a basic tool).
"PCs are the dominant messaging device in the U.S., but mobile devices are more dominant in countries like Italy," Whittington said. And while P2P messaging is strong among Asian consumers, business applications (eg. via PDAs) are particularly strong in the U.S.
SMS is experiencing rapid growth due to low cost of messaging, ease of use in noisy environments, unobtrusive communication during meetings, communication options during urban traffic gridlocks and long train commutes, roaming agreements across nations, and the proliferation of premium services (eg. downloadable ring tones, news alerts, sports scores, stock updates, targeted ads).
Users now expect mobile operators to deliver messages faster, make message composition easier (eg. via predictive text input, dictation or screen keyboards), offer better mailbox services, and introduce multimedia capabilities, said Whittington.
Colour-screen phones, built-in cameras, Bluetooth connectivity, Internet plug-in features, and location-based services are already mushrooming in markets around the world. Siemens' new cellphones come with an English-Chinese dictionary; Ericsson's T39 is the first GPRS handset with Bluetooth connectivity.
Mobile operators are seeking to increase ARPU (average revenue per user) via promoting P2P traffic (which accounts for an estimated 90 per cent of SMS usage today) as well as premium SMS offerings (such as group chat, buddy lists, permission marketing, machine-to-machine communication). Payment plans can be per message, by data volume, by subscription, or some combination of the above. Pre-paid plans are taking off rapidly for budget-conscious parents who want to control children's usage of mobile phones, for traveling businessmen, and for premium services.
Location-aware applications will be the unique killer app for the wireless world, said Nokia's Whittington. So will permission marketing (as with Internet email) -- but concerns over spamming, privacy invasion and profitable monetising models still remain.
"Lots of SMS messaging is indeed about coordinating location - for business meetings or parties," said Kirk Mitchell, Asia Pacific general manager for Webraska (formerly a part of Netscape).
"Our mission is to turn wireless devices into personal co-pilots," said Mitchell. The company offers billable location-based services (LBS) such as drop-off point coordination for delivery service companies, traffic alerts, directions to specified locations, and database querying services for yellow pages information.
"LBS has proven that it can be packaged as a premium service," Mitchell said.
"The real killer application of course will be the 4Gs: girls, gambling, games and God," joked Sarah Kochling, a Hongkong-based wireless services developer.
In terms of SMS traffic volumes, the Philippines leads the Asia-Pacific region with an astonishing average of 336 SMS messages sent per month per user - followed by Singapore (75), Australia (42.9), South Korea (27.3), Malaysia (24.9), Taiwan (12), and Thailand (3).
China leads in terms of overall subscribers - the user base for mobile phones is a staggering 120 million, and could reach 290 million by 2005. Its GPRS networks are being upgraded by companies like Motorola, which is also offering similar upgradation to Orange in Thailand, TCSB in Malaysia, and Bharti in India.
Markets like the Philippines have been particularly successful thanks to aggressive pricing, promotion and bundling of SMS services by cellcos (cellphone network companies). One minute of airtime in the Philippines is equivalently priced to 8 SMS messages - as compared to about 4 messages in Europe. Japan's iMode draws on the publishing model - the 300 yen monthly fee for SMS messaging is equivalent to the cost of a magazine subscription.
THE MOBILE VALUE CHAIN
As with the case of the Internet economy in the last decade, the mobile economy is opening up a whole range of opportunities for startups along the entire value chain - content creation, content aggregation, user authentication, m-payment, horizontal applications (eg. email), vertical applications (eg. m-banking), client operating systems (eg. based on J2ME), terminals (eg. colour screens), roaming services, mobile messaging data centres, m-advertising, MVNOs (mobile virtual network operators), Web-SMS gateways, and systems integrators.
For instance, MobileWay acts as a 'roaming broker' between network operators and global companies who want to send SMS messages to their employees and customers across the world irrespective of which network they are using - such as flight timing alerts for international passengers of airlines like Cathay Pacific and Air France.
"There isn't yet a seamless global wireless cloud the way there is a seamless Internet cloud for email messages across all sites and users. We are positioning ourselves as the DHL of the wireless world - for inter-operable technical and billing services," said Cyrille Evan, general manager of MobileWay Asia Pacific. The company has signed agreements with 95 cellphone networks around the world, including BPL, Orange and AirTel in India.
One of MobileWay's more innovative services includes a mobile gateway to gaming sites like BattleMail.com, a UK company with P2P games in soccer and kungfu. "We are signing agreements with 50 operators worldwide for this paid-for game service," said Evan.
Value-added services for mobile users will account for a $100 billion market by 2004, when the mobile user base will have crossed a billion consumers, Evan predicted.
Major datacentre players in the SMSC (SMS centre) market include Logica and CMG. "SMSCs have become business-critical devices for wireless operators due to the pressing need for services like billing, roaming, profiling and analysis," said Boudewijn Pesch, managing director of CMG Wireless Data Solutions Asia Pacific.
SMSCs need to be able to handle sudden spikes in traffic and also manage rapid response generation in interactive messaging applications, Pesch said. For instance, some German game shows allow TV viewers to send their responses via SMS - and receive instant feedback if their answers are too high or too low, in which case the viewer can again respond with a new answer.
Other major players in mobile systems management include Portal Software, which offers customer billing and content services management tools for mobile operators in over 40 countries and supporting 10 languages, such as Vodafone, China JiTong, and Sprint.
Content services offered for mobile users work best if they are useful, personalisable, up-to-date, entertaining, and billable, said Norliza Kassim, chief marketing officer of Virgin Mobile Asia, the MVNO joint venture between Virgin and Singtel which also plans to expand elsewhere in Asia.
"A popular slogan of the Internet era was that geography does not matter - but geography is everything in the wireless world," she observed.
"Our core competency is customer interaction and the lessons we have learnt from multiple markets around the world," Kassim said. The company is developing location-based promotions such as SMS ads for free sushi in Japanese restaurants in Singapore.
In terms of definitions, mobile messaging involves at least one wireless terminal in the communication process. As SMS evolves to MMS, an intermediary stage is enhanced SMS, or SMS with longer text capacity, simple audio (eg. ring tones) or simple graphics (eg. business logos).
CROSS MEDIA SYNERGIES
Cross-fertilisation between SMS and other media like television and the Internet is providing new sources of SMS traffic and new kinds of lucrative business models.
"Interactivity via SMS is becoming a huge draw for game shows and MTV," said Francis Lee, VP product development at Singapore's wireless operator StarHub.
The show "Who Wants To Be A Millionaire" drew over a million SMS messages from viewers in just one day for a network operator in Europe, Lee said. In some markets, MTV lets users vote via SMS for which video they want to watch next.
At a P2P level, over 150 million SMS messages were sent this year on Father's Day in the Philippines. Valentine's Day is another big draw for SMS users, said Lee.
Other notable exemplars include include SMS news alerts and discount coupons offered by the Straits Times newspaper in Singapore, Coke vending machine payments via SMS in Malaysia, exam result notification via SMS by Australia's Monash University, and even political activism by the Labour Party in the UK and anti-WTO protesters in Genoa.
"Some of the most mobile-savvy brands today include Nike, Sony, Nokia, McDonalds, Cadbury, Guinness and MTV," said Adrian Ng, marketing manager at Gemplus Technologies Asia, a leader in the smart card and SIM card market.
SMS and its successor MMS (with full audio and video) also share crucial synergies with the Internet. Many of the leading portals (eg. Tencent in China, Yahoo in Singapore and India) have launched SMS services for instant messaging via gateways on their Web sites, and downloadable ringtones as well (eg. Catcha in Malaysia). News sites (eg. Mid-Day and IndiaTimes in India) are also expanding SMS alerting options. Internet banking sites offer updates and transactional notifications via SMS.
Net4Nuts offers integration and alert services for Web and mobile platforms, such as tracking services for online market researchers. Java-enabled cellphones in the future will allow users to download content directly from PCs and the Internet - and not just from their network operators.
"We offered SMS messaging services during the September 11 plane attacks in the U.S., so that our users in Singapore could communicate with people in the U.S. We received a lot of thanks for this," said Ricki Mulia, senior producer of Yahoo Asia in Singapore.
"Among all our global properties, our Asia site has been the first to launch SMS features," according to Mulia. The SMS features were first launched as part of the "Available Anywhere" campaign in Singapore, followed by Malaysia, Hong Kong and India. Yahoo's relative penetration in Asian markets like Singapore and Taiwan is much greater than in the U.S.
"The new killer app is combining PC-based instant messaging with mobile-based SMS messaging. Mobile users who have also signed up at Yahoo send more messages than other mobile users, thus increasing ARPU for wireless operators," Mulia claimed.
MOBILE MARKETING AND ADVERTISING
At a brand marketing level, permission marketing via SMS can help a company reach its most valuable customers 24 hours a day. "Mobile relationship marketing is good for in-store promotion and for driving traffic to the point of sale," said Jerry Smith, interactive managing partner for OgilvyOne. McDonalds in Australia has effectively used permission-based SMS marketing to promote incremental sales during lean periods, Smith said.
"SMS - and not WAP - is spearheading the mobile advertising industry," said Andrew Ng, vice-president of EdgeCom, a subsidiary of Ericsson. Such ads need to be effective for the advertiser, offer value for the operator, and be non-intrusive for the viewer. The opt-out feature for such permission marketing must be easily available, advised Ng.
An innovative SMS ad campaign was launched by Ogilvy One for a group of churches in Singapore who wanted to promote church going activities among its members. They resorted to a permission marketing campaign nicknamed God (www.god.org.sg), where users signed up and received catchy SMS messages from a fictitious user called God - such as "You don't need the phone for a direct line to me," "Come to my place tomorrow" (sent on Saturday) and "Thank me it's Friday" (sent on Friday evenings)!
"Many users eventually came in via viral marketing effects," said Graham Kelly, regional creative director of Ogilvy One in Singapore.
Other notable examples in Singapore include Buzzcity's SMS prayer
alerts for Muslims, a 24-hour interactive automated chat service called
Gamma, and a drink-ordering service at the popular Newsroom Bar on
WIRELESS SUCCESS IN JAPAN AND SCANDINAVIA
The biggest success story in mobile consumer data services is Japan's DoCoMo, whose iMode wireless Internet service grew to a staggering 26 million users in just 30 months, with 900 million messages now being sent every day.
"DoCoMo has succeeded thanks to its superb mass marketing of mobile brands, and a very wide variety of content offered by thousands of providers," said Giles Richter, CEO of Mobile Media Japan. The mobile sets are inexpensive and often given away free to subscribers; content providers get as much as 91 per cent of the revenues. This Japanese model has been to grow the whole mobile cake rather than fight too early for a slice of a small cake.
DoCoMo has about 1,700 official partner sites where the operator handles the billing; there are 50,000 unofficial content and partner sites where a third party (eg. a bank) handles billing. It has already launched interactive videoconferencing facilities for its mobile users in Tokyo.
Sony manufactures cellphones in thousands of colours; many come with built-in MP3 players and are also Java-enabled. DoCoMo's rival J-Phone (now part of the Vodafone global network) offers a photograph-enabled email service called Sha-mail; over 2 million handsets with built-in cameras are already in circulation.
Despite Japan's initial success, it may actually be South Korea that leads in terms of ARPU for network operators, according to John Strand, managing director of Strand Consult in the UK.
Scandinavian markets in Europe are particularly innovative as well: some car parks in Denmark let drivers pay for their meters via SMS messages, and the drivers also receive SMS alerts when the meter is about to run out. Location-based dating services are also available in Denmark. Payment services are well integrated so that all notification comes on the mobile phone bill. In Norway, the average lifetime for a mobile ringtone has dropped from 6 months to 3 months.
"Much opportunity for innovation still exists. Mobile operators can help turn cellphones into global payment devices for bus fares and parking tickets around the world," said Strand.
CORPORATE WIRELESS APPLICATIONS
In the Intranet world, corporate applications can leverage SMS for sales staff support, CRM, inventory updates, broadcasting services, calendaring, email gateways, and product delivery enquiries.
In fact, though corporate mobile users have not been in the SMS limelight the way teens have, they exhibit the highest ARPU - and network operators should target them more seriously, said Tom Sheahan, CEO of wireless business services firm Red Oxygen in Sydney.
Synchronisation of data on the PAN (personal area network), in hotel rooms, and flight lounges will open up new opportunities in wireless LANs, said March Phillips, CEO of consulting firm APT Strategies in Sydney. "Coming under the radar screens is business usage of wireless data - just as B2C in the Internet ear was initially overhyped and the real action turned out to be in B2B," said Phillips.
"Wireless communication will become key for knowledge mobilization in the collaborative enterprise - particularly for workflow notification and call centres," said Alex Ho, director of OracleMobile Asia Pacific.
Mobile data will become increasingly integrated into business processes for clients, employees and suppliers. "We are witnessing a network superconvergence based on the IP (Internet Protocol) platform, at the transport level with GPRS and UMTS as well as presentation level with MMS," Ho said.
MMS (multimedia messaging services) will be the most important new service for consumer and data markets in the year 2002, according to Nokia's John Whittington. The commercial market for MMS will be ready for takeoff in 2002, and it will draw heavily on the success of SMS in the mobile market.
Based on the growth of SMS, many operators seem convinced that there is a business case for MMS as well. Mobile communications is swiftly evolving from a mainly traditional voice-oriented industry into a personal information-oriented one rich in multimedia content - and MMS gives network operators the financial and psychological impetus to return some confidence to industry, according to the monthly publication Asian MobileNews.
But mobile operators will need to invest more in new hosting and streaming infrastructure like MMSCs (MMS Centres), and offer billable consumer services like "multimedia albums" for archived messages and multimedia content.
The vast store of multimedia content and streaming services on the Internet is also expected to help jumpstart the MMS industry, particularly since handheld devices may be less powerful in terms of creating high-quality multimedia content. MMS uses standard Internet protocols such as MIME and (Multipurpose Internet Mail Extension) and SMTP (Simple Message Transfer Protocol).
Early MMS applications may be multimedia enhancements of existing SMS offerings, eg. photographs of highway intersections along with traffic alerts, videos of goal footage along with football score updates.
"It was easy to create SMS text messages by users, and to repurpose existing Web content into SMS form. But MMS content drawn straight from the Web could create new challenges due to smaller screen size of mobile devices, and hence new content management services based on XML will be needed," said Chen Porat, product director at Comverse in Israel.
MMS will help create unified messaging services thanks to the convergence from Internet side (instant messaging, email) and telecom side (SMS, voice mail) services in the 3G world, said Porat.
In fact, Forrester Research recommends the adoption of a new content management style for "pan-purposed content" -- which is produced from the beginning to be viewed on several platforms and exploited in new revenue streams.
Numerous research firms, magazines, books, Web sites and email lists have sprung up, focusing on the wireless market in countries around the world. Useful resources include EMC-Database.com, GSM Association, UMTS Forum, Cahners In-Stat, Wireless Multimedia Forum, and Mobile Lifestreams.
The publishing industry is quickly cashing in on the m-boom as well, with numerous recently-released titles such as "M-Business" (Ravi Kalakota and Marcia Robinson), "The Wireless Web" (Bryan Bergeron), "Wireless Rules" (Frederick Newell and Katherine Newell), "Conquering the Wireless World" (Douglas Lamont), and "The Freedom Economy" (Peter Keen).
THE WAVE AHEAD
Though initially developed for the purpose of machine to machine notification among network operators, SMS messaging has, in a short period of time and with relatively low spending on advertising, proven to be the surprise success story of consumer communication services.
But numerous questions still pose challenges to mobile operators. During hard economic times, will users cut back on SMS usage - or cut back on movies and other recreational spending? What is the optimal pricing ratio for SMS in comparison with voice tariffs? How can the SMS user base and SMS traffic be boosted - while also increasing ARPU? How should the transition be managed between SMS and MMS, between GSM and 2.5G or 3G? What is the best revenue sharing model between content providers and mobile operators?
Moving beyond the SMS surprise, the stakes are high in this Brave New Wireless World -- and network operators will certainly not wish for unhappy surprises.
The writer can be reached at firstname.lastname@example.org
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