“Over-The-Top” messaging apps like Viber and WhatsApp are dominating the app store charts. They disrupt mobile operators by offering low-cost, feature-rich voice and text services over the data channel. Some industry executives think that SMS revenue could drop 40 percent by 2015 and one report claims operators lost $14 billion in 2011 alone. The reality is more complex – and more promising for operators.
Skype, AIM, and eBuddy have offered OTT mobile apps for years, but they’re really mobile versions of their desktop clients. They never did a good job of telling you which of your phone contacts were using their apps, so they didn't take a big bite out of voice and text. Since they haven’t asked users for their phone numbers from day one, they may not even know that “cyberwarrior” in their namespace is the same person as “555-234-5678” in your phonebook.
The new generation of OTT apps, use your mobile number as your “handle” on their network and your phone contacts as your buddy list. Just download one of these apps and you will see a list of people in your contacts that you can call or text for free. This simple innovation has led to explosive growth for apps like WhatsApp, Viber, Voxer, and Tango, and wounded operators like KPN. Last year KPN blamed WhatsApp for a revenue shortfall and tried to introduce discriminatory pricing for data – prompting the Dutch Parliament to pass the first network neutrality law in Europe.
Things are very different in the US. The European operators rely on high tariffs for international calls and texts and can't change pricing plans unilaterally without bleeding cash. US operators already offer unlimited or huge buckets of calls and texts for a flat rate. Many Americans don't care about “free” OTT apps because the marginal cost of a domestic text is zero and they rarely dial foreign numbers.
OTT apps can still win on features. Apps like Kik beat SMS when it comes to speed, delivery and overall design, and Voxer does push-to-talk better than Nextel ever did. But each OTT network is an island, so you have to switch between multiple apps to reach all of your friends. Even Facebook, with almost 500 million mobile users, has captured only a fraction of mobile messaging traffic.
There is another strategy: embrace and extend. The app sends a message or places a call in-network when it can and falls over to SMS or regular voice when it can't. You can use one app to communicate with all of your friends and you get cool extra features if your friends use it too.
This is how iMessage works on iOS devices. If the other person is on iOS, the message is free and you both get delivery and read-receipts – and the pleasure of knowing that you are members of the same club. Apple has done the same with FaceTime. It’s not a separate app; it’s right there in the dialer, but it only works for iOS-to-iOS calls.
No one else can do this on iOS because Apple doesn't allow third-party developers to manage calls and texts. It’s possible on Android and BlackBerry, but it's tough to get consumer adoption when your app is locked out of iOS – unless you're an operator.
Operators should follow Apple’s lead and offer enhanced voice and text services by default to their own customers, falling over to SMS and PSTN for out-of-network traffic. Operators already know the value of free in-network calls and texts, which lowered churn dramatically. Today price is less important and it's time to compete on features.
For example, Verizon Wireless could extend its exclusive Droid brand into Droid Messaging, offering rich features like read-receipt, video calling, or push-to-talk on every Droid-to-Droid call or text. Third-party developers can try, but Verizon controls the stock dialer and text messaging app on the phone.
Operators have spent years negotiating standards for IMS and RCS so that they can roll out new services that work across all networks – with zero competitive advantage. Standards are vital, but Google, Apple, and Mozilla don't wait for the W3C to sign off before introducing new browser features. Successful tech companies ship innovative new products ahead of standards and clean up later.
OTT apps pose an existential threat to some mobile operators, but they also show how to compete and thrive in an all-IP world. Don't give up, and don't try to shore up a business model based on charging more for some bits than for others. Surprise and delight your customers. Or die trying.
Jason Devitt is CEO and co-founder of Mr. Number. Previously, he co-founded Vindigo, one of the first companies in the U.S. to publish content and applications for mobile phones. Products included Mapquest Mobile, MovieGoer, and the Vindigo City Guide. Devitt led the company from inception to over $12 million in revenue and profitability in 2005. An advocate for open networks, open devices, and open development platforms, Devitt has testified on these issues before Congress and the FCC. He holds a U.S. patent related to location-based services.
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