"Harvesting" Might be All Most Service Providers can Do About Messaging and Voice

Service providers face a few recurring strategy issues related to their legacy products, including the problem of how much to invest, and how to invest, in legacy products. When VoIP first became a commercial reality, the issue was whether service providers should become VoIP providers themselves, immediately and on a wide scale, or do little, while investing capital elsewhere.

The advent of email provided even fewer options, as email accounts initially were an amenity tied to the use of a particular access service. Many would say it was email that drove adoption of dial-up Internet access.

But users quickly figured out they could avoid the hassle of constantly-changing email addresses by switching to web mail. And that largely has converted email to a non-revenue feature of an Internet access service, used mostly only to communicate for customer service purposes, with a service provider, if used at all.

Now mobile text messaging is facing pressures from third party, over the top apps. So once again, the issue is how to respond. In some cases, service providers are essentially choosing not to respond by entering the over the top messaging business. In other cases, service providers have launched their own branded services.

In either case, the issue of how to create revenue has been an issue. In most cases, a rational service provider executive would conclude there is no way to create a viable revenue model in competition with the other well-known OTT providers.

In a growing number of cases, ISPs choose to partner in some way, hoping for indirect benefits.

In the U.S. mobile market, up to this point, service providers have concluded that they cannot compete, that there are some small benefits to partnering with OTT providers and therefore a “harvesting” strategy makes the most sense (hopefulness about Rich Communications Service notwithstanding).

These days, most service plans--and all the lead offers--of the four leading mobile service providers essentially make unlimited domestic calling and texting a feature of access to the network, with most of the revenue driven by Internet access fees.

In other words, voice and data are part of a basic $30 to $40 “right to use your phone on the network” fee. The variable costs are dictated by consumer choices about Internet access.

That does not mean every service provider faces precisely the same set of circumstances. In many markets, so much messaging market share has been lost to OTT providers that some mobile operators think they must compete, at some level, with their own branded alternatives.

Still, a key strategic problem for service providers is that it is difficult to compete, and earn revenue, with new OTT voice and messaging alternatives. At least in part, consumer preference for the alternatives seems to be based on features of those services, and at least in part, on the “no incremental cost” feature of those services.

A standard response to any challenge to a legacy service is to “add more features,” to make the legacy service more desirable. At least so far, the returns from such strategies are hard to pin down.

Nor, some might say, does a new survey offer absolutely clear guidance in that regard.

About seven percent of surveyed U.S. users prefer social messaging to carrier-provided messaging, while 13 percent of respondents in the United Kingdom prefer over the top, third-party messaging apps. For some observers, that will suggest that carriers still have an opportunity to enhance carrier messaging and retain user allegiance.

The issue, perhaps, is just how much operators can afford to invest, and how much better the experience has to become, to wean users off “free or cheap to use” alternatives, especially when the over the top alternatives have obtained the necessary network effects and scale.

Of respondents who prefer to communicate using social messaging applications, the majority in both the U.S. market (43 percent) and U.K. market (39 percent) say they prefer them because they have more enhanced features.

But users who prefer social or over the top messaging also prefer the lower costs. Some 34 percent of respondents in the U.S. and U.K. indicated they prefer social messaging
applications because they  are free or cheaper.

That suggests an opportunity for service providers to maintain market share if they can enhance the messaging experience, Infinite Convergence Solutions suggests. But users also will consider application prices or fees as a key part of the decision to use a particular messaging mode.

In contrast, 45 percent of survey respondents in the United States prefer mobile operator-provided messaging services for communication, compared to social messaging applications, a bit more than the 42 percent who also prefer mobile operator-provided messaging services.

About 22 percent of U.S. respondents say their preference depends on the situation, and 27 percent in the United Kingdom likewise say preference depends on the use case.

Some 26 percent of U.S. respondents have no preference, as well as 18 percent of  U.K. respondents.

Although social messaging applications are threatening mobile operators' revenues and customer base, mobile operators still have an opportunity to provide a more compelling messaging experience to subscribers, argues Infinite Convergence Solutions, a next-generation wireless messaging and mobility solutions provider that sponsored the survey.

The strategy implications are not completely clear. Respondents say both enhanced features and lower cost are attractive. So should service providers work to enhance the experience or simply harvest revenues as long as possible, on the assumption users will gravitate to third party apps in any case?

Or should mobile service providers simply assume users will choose to use both types of services, and simply work to provide the carrier services at low cost, while emphasizing the universality of carrier messaging (everybody can send and receive text messages)?

The study found 35 percent of smart phone owners in the United States and 43 percent in the United Kingdom say the inability to chat with people who aren't using the same social messaging application is their least favorite aspect of using such apps.

Some might argue the third party apps already have adoption wide enough to make it tough for carriers to regain share.

In the United States, Facebook chat or message threads are used by 60 percent of respondents on their phones. Some 42 percent use  iMessage while 25 percent use Skype.

In the United Kingdom, 56 percent of respondents use Facebook messaging features on their phone. Some 36 percent use WhatsApp and 27 percent use Skype.

When asked what feature is most important for mobile messaging, 45 percent of U.S. respondents and 40 percent of U.K. respondents rank the ability to communicate with all contacts regardless of device or carrier service highest.
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