Messaging is the dominant activity on the phone and how every consumer and (soon) business, will communicate — making it the most valuable technology asset on the planet. The recent explosion of news about messaging platforms highlight their growing value and influence over every aspect of society.
For perspective, businesses worldwide paid $45 billion to send consumers messages in 2020. Telecoms currently take a dominant share through SMS, an outdated technology. There is a massive opportunity to make this market multiples of its current size.
Tech giants have and are acting accordingly, while many telecom operators are still developing their next strategies on messaging. Some have built their own competitor or announced plans to build, some are deciding, while most are punting given messaging tech is not their core competency.
OTT messaging apps have dominated consumer messaging but ones with SMS access like iMessage, Facebook Messenger and Signal can have an immediate route into business SMS. We’ve been offering to operators their own equivalent. Any operator without a platform will be left out of the race and how giants like Facebook and Google have entered the telecom space in India is a case study for what to expect.
Whatever operators ultimately choose, it’s becoming clear an operator’s ability to convert their current subscriber base to messaging app users will their most valuable asset.
Messaging is the best way for telecoms to transition their current business model and multiply APRU. Time is limited and the risk of being cut out permanently is real. In this article, I explain why operators need to act and what they can do.
Big 3 Dominate Messaging Market, With Operators as 4th “Wildcard”
To date, the go-to strategy for new messaging apps has been land-grabbing, or acquiring the most users, by geography (e.g. WhatsApp in South America/Europe, WeChat in China, etc.) or niche (e.g. Slack/Teams for professional, Discord for gamers, etc.). Once the flags have been planted worldwide, grabbing more land leverages scale.
Today, the messaging map is largely dominated by 3 massive players: Google, Apple and Facebook. Telecom operators, collectively, are a 4th wildcard player thanks to the scale of SMS.
Despite its flaws, SMS is still the largest global messaging network with 5+ billion users. It dwarfs each of the Big 3’s messaging services (i.e. Facebook’s 2 billion+ users across WhatsApp, Messenger and Instagram DM, Google’s RCS and Apples “blue bubble” messages in iPhones) giving operators a great position, especially in these early days of business messaging. But that won’t last if they stand still.
Facebook and Google have been focused on messaging for years, and are accelerating efforts and investments. Each are now in the final stages of developing their OTT alternative to SMS. Google completed rollout of its RCS worldwide in November. Facebook’s most recent privacy ultimatum for WhatsApp users was the final hurdle integrating its 3 messaging platforms. Apple, having had their solution (“blue bubble”) has been relatively quiet.
The strategy for the next phase is gathering alliances, which comes in the form of interoperation.
The Interoperation Race: SMS is Still Key
Interoperation is really important, so it’s worth taking some time to explain it. Interoperating or interconnecting means one platform can message another without both users being on the same platform. E.g. WhatsApp interoperating with Facebook Messenger means their users don’t have to switch apps or download the other app to chat. This allows each platform to keep their existing users or territory from the land-grab.
Extending this further, all of Facebook’s apps interoperating with each other and say iMessage or Signal or Telegram means they are plugged into a larger messaging network. If all messaging apps interoperate, we have the next “internet of messengers” that will overshadow usage of the current internet. The messaging app will become the new “browser”.
Which “browser” will win? The few that have SMS access. Why? SMS is one of the few native functions on any phone. Every phone can text another phone through the phone number, making the SMS texting app more of a utility than an app (which not everyone needs). If your native texting does everything WhatsApp and Telegram can do, you wouldn’t need to download a messenger.
Since Google and Apple combined control the operating systems of 98% of the worlds smartphones, this combination while unlikely soon, is the most powerful. Interoperability between their respective SMS apps, iMessage and Google’s Message, would ultimately leave Facebook and all other messaging platforms at a competitive disadvantage.
On iPhones, iMessage is the only app that is allowed to access SMS, shedding light on FB’s renewed pleas for Apple to open up.
On Androids, third party apps are allowed, but Google has been restricting SMS access with several rounds of Play Store permission changes. The first round narrowed access to only one default app, removing SMS access from 98% of apps in 2019. The most recent round went into effect in December 2020, clarifying permitted usage which may have massive ramifications for how Facebook and all other apps can get involved in SMS and business messaging.
As it stands, only a few OTT messaging apps in the store maintain the default SMS permission. Amongst them are Signal, Facebook Messenger (the only of FB’s 3 apps), operator-developed apps like BiP, our apps (Messaging Improved and Mei), and our apps branded for operators.
Time Is Limited For Operators To Enter
As soon as any of the Big 3 announces interoperation, the timer starts on operators being cut out from messaging. Why? The combination of any two will force the 3rd to act and once they do, SMS is done. If a business can use WhatsApp business to create a messaging campaign and send that message to every iPhone (as blue bubble) and Android (as Google’s RCS), then nothing falls back to SMS.
The piece of the messaging pie left for operators/SMS will only be the crumbs from the dwindling set of feature phones. Business messaging and all the aggregators’ markets for SMS will evaporate. More M&A activity like Facebook’s $1 billion acquisition of Kustomer will likely continue if not accelerate.
Google interoperation efforts with operators via RCS has be rocky. RCS being the telecoms industry’s current solution, it will need to get that up to be the 4th party to interoperate (my company is working with partners to help).
If RCS development slows, alternative standards like Signal’s could gain adoption. In November, 2020 Google signaled end-to-end encrypting their RCS, a condition that Facebook stipulated for interconnecting, suggesting discussions may be under way. It’s worth noting that several OTT services like WhatsApp, Facebook, Telegram, Skype and now Google’s RCS already adopt Signal’s protocols.
However this plays out, operators should, at the minimum, have their own SMS texting app (preferably through us) to be in the race.
Facebook & Google Investments In Jio
As the interconnect saga continues, Facebook’s recent play with operators in India may serve as a glimpse into what operators can expect.
In April 2020, Facebook made a $5.7 billion investment in India’s largest telecom, Reliance Jio. The investment was Facebook’s 2nd largest after acquiring WhatsApp and made Facebook the largest single shareholder in Reliance with a 10% stake and a board (& observer) seat. Google followed, investing $4.5 billion for a 7.7% stake and a board seat.
Facebook’s stated rationale: They want users for WhatsApp Business and Jio had already made significant investments into messaging (& e-commerce) that give them a running start. CEO Zuckerberg said “A big part of the partnership that we have with Jio will be to wire up and get thousands of small businesses across India on-boarded onto WhatsApp, to do commerce there”.
It’s clear the most valuable asset Facebook saw in Jio over peer operators was its ability to convert subscribers to app users. Jio had a messaging platform from the start, with Jio Chat, it’s instant messaging app launching in 2015 and currently showing over 50 million installs in the Google Play Store. Recently, it also added JioMart, its digital commerce platform and JioMeet, its video conferencing competitor.
India being the usual testing grounds for technology platforms, Zuckerberg made it clear what to expect next from Facebook: “Once we prove that [model] out with Jio in India, we’re planning on expanding it to more folds in India and to other countries as well.”
India’s #2 Airtel and #3 Vodafone Idea, without the platform Jio has, are left to fix the holes left by the traditional telco model on their own.
The lesson here: If you don’t get into messaging to compete, at least get into it make yourselves attractive to the ones who are competing.
The news from India is quickly evolving, as it seems the only power they held over tech giants — spectrum — may soon be at stake.
Quick Economics
There are elements unique to the Indian market, but the lessons there apply elsewhere. The investments by tech giants should be a signal to operators they need to start making their own investments in messaging now, if not to compete at least to make themselves an attractive entry for those who want to.
For perspective, Jio has approx. 400 million subscribers. With a 10% stake valued at $5.7 billion, this values every subscriber at $140, without giving value to other assets.
In 2014, Facebook’s acquisition of WhatsApp valued each monthly active user at approx. $50. Unlike an outright acquisition, Facebook’s position as largest stakeholder gives it enough decision-making power, so in effect, Facebook gets to influence users for as little as $14/subscriber (10% stake x $140). Assuming Jio captures market share from the other telecoms, the cost goes lower. This makes economic sense for Facebook who was willing to pay more for a WhatsApp user back in 2014.
What this means is shareholders of any operator currently valued at $140/sub or less is better off if the operator spends all their customer acquisition budget on acquiring messaging app users, not subscribers. This is almost every operator in the world.
Any operator valued at $14/sub or less may be better off stopping their entire core business altogether and approaching Facebook to convert subscribers to users of one of their messaging apps.
This analysis is crude and impractical but is a starting point for each operator to understand the massive incremental value of adopting messaging into their business model now.
What Is The Market Opportunity?
Currently in countries like the US, operators charge businesses approx. $0.01/SMS. But there’s the potential to charge $100/message or 10,000x as much if targeted well enough. Google, for example, charges $100/click on “insurance” search keywords. Therefore, the $45 billion business messaging industry could be $450 trillion, and is limited by the sophistication of algorithms and AI to understand users intents and desires. Done well enough, a message from a business can improve a user’s overall experience. It’s not advertising when a user wants it and the ability understand users through their messages is something my company has built a strong foundation for.
What Are Operators’ Options?
Entering 2020, there were 3 main options for operators to evolve their messaging systems: 1) go with Google’s RCS, 2) do nothing or 3) build your own platform as a joint effort amongst the MNOs, following what operators in Japan, South Korea and the US chose (China followed in April).
Entering 2021, the options have changed.
1) Going with Google is no longer an option as Google is not allowing operators to use their Messages client if they don’t use Google’s backend RCS/messaging infrastructure.
2) Do nothing is still an option and India serves as an example of what may happen.
3) Combine efforts and build. We’ve discussed with operators in several countries looking to adopt this model this year and will play a role in moving this effort forward.
4) We introduced a 4th option: Own/control your own white-labeled version of a consumer ready app. Ours is the only in the Play Store (blessed by Google) that can be branded as the operators’ own with default SMS and encrypted data messaging (RCS or partnering with an open implementation like Signal).
It allows operators to enter messaging with almost no investment of time and resources, and very quickly increase ARPU.
As we go through 2021, the news and interest around messaging will only increase. We’re looking forward to helping operators transition. Please email us at info@messagesimproved.com or es@messagesimproved.com.