Making Sense of the biggest data app on the planet: SMS text messaging

(This posting disappeared due to technical problems at Typepad. It was originally posted on 12 July, am reposting it now)

The International Herald Tribune yesterday (11 July 2006) wrote about SMS text messaging and IM Instant Messaging. I was very surprised, as often the IHT reflects in its writing its American parents, and does not really understand mobile. But this piece written by Eric Sylvers from Milan Italy, was very insightful, factually correct, and had me thinking.

We see all kinds of fascinating online data services and applications getting a lot of coverage and hype, from MySpace to VoIP and Flickr to Skype. Analysts marvel at user numbers in the tens of millions, and the cannibalization of various industries. And we applaud all that and report those also here at this blogsite.

Hidden in all the hype about the iPods and Blackberries and PSPs is that juggernaut, by far the most used online data app. By far the largest data service by revenues, and one that delivers over half of the total online industry profits. SMS text messaging. This is a service that needs to be covered and one that is so badly misunderstood.

There were those who again last year tried to argue SMS was dying out, that somehow mobile e-mail (like on Blackberries) would dominate; or that IM would take over for SMS. Or that MMS picture messaging would supercede SMS. Most analysts argued that SMS revenues would plateau, and the service would end up being a fad. Not us. Alan Moore and I have read the reports that SMS is addictive. We've been reporting continously that SMS is the dominant, superior messaging platform; and it is actually the fastest way to communicate invented by man. In 2005 there were over 1 Trillion (1,000 Billion, or one million million) SMS text messages delivered across the globe. If you want to catch up on what I wrote about it a year ago, here is the link to how I tried to explain the issue a year ago, that SMS was not about to die out in "Mobile e-mail is so 1990s, so West-Coast and so beyond pointless"

Texting further brings all manner of new business models introducing interactivity for TV and other media; allows advertising and branding for the marketing industry; enables mobile commerce and banking; even brings micropayment abilities to online internet services.

So now we have numbers for 2005. The industry analysts Gartner report that SMS text messaging delivered 70 BILLION dollars of revenues last year.

Hold on. Hollywood box office (not DVD sales and video rentals) revenues are about 20 billion dollars worldwide. Videogaming software (not Playstation, Xbox etc console sales) are about 20 billion dollars in revenues. Music sales are about 30 billion dollars globally. SMS text messaging alone in 2005 is bigger than all Hollywood movie box office, all videogaming sofware sales and all music sold globally, combined.

With 1.3 billion users of SMS text messaging at the end of 2005, we've already reported at this blogsite that SMS is the most used data application on the planet. For comparison, the biggest app on the internet, e-mail, has only 668 million users, with 1.2 billion e-mail boxes. After I originally wrote about it in my second book, M-Profits in 2002, SMS was found to be addictive by the benchmark university study by the Catholic University of Leuwen in Belgium in 2004, then independently verified in many countries. The latest study by Queensland University in Australia last year found mobile phone services twice as addictive as PC based services, and text messaging to be as addictive as smoking.

THERE IS NO GOING BACK. E-mail will never ever ever overtake SMS. More and more users abandon using e-mail and only use SMS (and IM) for their messaging communication needs. Like the Korean youth say, e-mail is used only for communication with the old fogies. We've reported here at this blogsite that SMS is already preferred OVER VOICE calls. And yes, even Americans are warming up to SMS, they only are doing it with the exact same 4 year delay as all other mobile phone behaviour in North America.

SMS text messaging returns over 90% profit margins. That means that 63 BILLION dollars of profits were generated by SMS text messaging last year. Of the total online (fixed and mobile) revenues of about 260 Billion dollars last year, well more than HALF of all profit was earned by SMS text messaging.

Lets start to give credit where credit is due. If you take the total annual revenues of all the internet darlings, Google, eBay, Yahoo, Amazon and AOL. And you add the biggest internet service provider NTT DoCoMo's internet revenues, you arrive at 36 billion dollars. SMS alone earns almost exactly DOUBLE that.

Oh, and yes, did I mention SMS is addictive? What will happen to SMS revenues user numbers and total traffic this year? OF COURSE they will go UP !!!  Don't be shocked again next year when SMS starts to knock on 80 Billion - 90 BIllion numbers in revenues, and SMS user numbers approach 1.8 billion and total traffic something like 1.4 Trillion SMS text messages sent.

Comments

[alan moore]

I'm an addict.

And my daughter is in SMS rehab as are her friends

haha :-)

Alan

[Heiko Wengler]

Hi!

How long do think will the telcos get so much money for 160 Bytes of data???

The first company that can give the customer an almost free sms service for all networks will surely stop this madness ( for me : paying 19 euro cents to deliver 160 Bytes is a really bad joke and should be punished by the EU.)

Heiko

[Tomi T Ahonen]

Hi Alan and Heiko

(thanks Alan). Heiko - good point. Let me throw a few thoughts at you. First, for an individual text message, even at the European average prices of 10 cents per SMS, that is well below our pain threshold.

So if I am in a taxi cab, suddenly in a traffic jam, and need to inform my meeting colleagues that I'll be 15 minutes late - the SMS is perfect. And 10 cents for that speed and efficiency of delivery is perfect (note that they probably have their phones on silent and would probably not take a phone call, but the SMS goes through every time, which is why SMS is better than trying to call and then playing voicemail ping-pong).

So yes, for the cost of 160 characters, 10 cents is quite a lot. But for its speed, secrecy and reach - you can send an SMS to over 2 billion people today - twice the number of active users of the internet - the SMS is unmatched.

I would also argue that most active users of SMS have at their disposal free e-mail access. At work, at home, at their university or school, or via the library etc. It may be a bit cumbersome at times, but almost all current users of SMS - definitely in the Western world - also would have free access to e-mail. Or at least such access that it would not cost incrementally more to send an e-mail.

Yet all these people happily send billions of SMS text messages, and PREFER to do that, even though every SMS costs, and the e-mail is free.

Which is not to try to defend the pricing. I think yes the basic retail price of SMS text messaging is too high. And quite unfortunately, as mobile operators are quite inept at their pricing strategies, they very shortsightedly offer big bundles of SMS with huge discounts, rather than lowering the base price gradually.

Remember what we wrote - SMS is addictive. Heavy users will send lots of SMS no matter what. Now we have plans that allow 1000 messages for free for example - and this is not necessarily much, as 10% of British youth send 100 SMS text messages PER DAY. In South Korea that percentage is 30% of under 20 year olds. But my point is, that by giving big discounts for big bundles, the operators are actually cutting their revenues and profits from only the heavy users who would use the service much anyway, but not then bring in the price lower at the "regular user" end for the more casual users - who may not be addicted yet.

Bad math bad math mad math says this consultant.

But I'd definitely agree with you that there is plenty of room to lower the prices - in India, Hong Kong, China, Philippines, Singapore etc the average SMS price is around 1-2 cents per message, not 10 cents like with us in Europe. And those operators are still making a healthy profit on that traffic. But if we dropped the (retail) prices significantly - say to half - we could easily see more than double the usage. In the Philippines the usage is at 15 SMS text messages per day across the whole population. Singapore is at 12 and South Korea is at 8 SMS per mobile phone user per day.

European leaders Norway and Ireland are at nearly 3 SMS per day. We have a long way to go....

Thanks for writing. Lets see how this evolves for our industry

Tomi Ahonen :-)

[Harsh Dhundia]

Tomi,

That's a very very interesting post. Just out of curiosity, what is annual revenue for the blogging industry? I mean what do all blogs combined generate out of advertising? I would like to see how that compares to SMS.

I have absolutely no doubt that SMS is here to stay and there are plenty of reasons for it. However, I have always believed that we need to look at cell phones different than PCs when we look at them as data applications. The kinds of things that we'll do on phones with data connections will be unique. It won't be about a PC with mobility. SMS is a prime example...I'd rather SMS sitting in front of the TV instead of having to go to my PC and write something and check if my friends are online or not. It's about instant gratification and that's why, I believe it is addictive.

However, in terms of sheer volume of the number of messages exchanged, I have a feeling that IM would beat SMS. Yes, there is no RPM (revenue per message) in the case of IM so we don't talk about the money potential of the IM market that way. Now, if there was an effective way to monetize that we may see something interesting.

[Gio Bacareza]

I also am a believer in SMS.

I keep on hearing about the Philippines being the SMS capital of the world with SMS traffic estimated to range from 300M to 750M daily. Do you have a source that could substantiate or negate this?

I have several theories on why the adaption of SMS in the US have been slower than the rest of the world. One is the idiosyncratic practice which is unique here in the US of RPPA (receiver party pays also). Two people here spend more time driving than anywhere else. When they're not driving they're at work facing a PC or at home facing a PC or the TV. What do you think?

Gio

[cheap jewelry]

I like what you have said,it is really helpful to me,thanks!

[wholesale designer handbags]

I like what you have said,it is really helpful to me,thanks!

[designer chanel shoes]

very good for my look it.
i see it first to like it so much.

[ugg boots]

Remember what we wrote - SMS is addictive. Heavy users will send lots of SMS no matter what. Now we have plans that allow 1000 messages for free for example - and this is not necessarily much, as 10% of British youth send 100 SMS text messages PER DAY. In South Korea that percentage is 30% of under 20 year olds. But my point is, that by giving big discounts for big bundles, the operators are actually cutting their revenues and profits from only the heavy users who would use the service much anyway, but not then bring in the price lower at the "regular user" end for the more casual users - who may not be addicted yet.

[sheepskin ugg]

I have absolutely no doubt that SMS is here to stay and there are plenty of reasons for it. However, I have always believed that we need to look at cell phones different than PCs when we look at them as data applications. The kinds of things that we'll do on phones with data connections will be unique. It won't be about a PC with mobility. SMS is a prime example...I'd rather SMS sitting in front of the TV instead of having to go to my PC and write something and check if my friends are online or not. It's about instant gratification and that's why, I believe it is addictive.

[cheap coach handbags]

Thank you for sharing good articles, posts and more are waiting.I will read another time. Nice to see you back. And again with an interesting post.

[designer chanel shoes]

This article was written well. This is an interesting twist of history in many different ways.

[Designer Chanel Shoes]

as 10% of British youth send 100 SMS text messages PER DAY. In South Korea that percentage is 30% of under 20 year olds. But my point is, that by giving big discounts for big bundles, the operators are actually cutting their revenues and profits from only the heavy users who would use the service much anyway, but not then bring in the price lower at the "regular user" end for the more casual users - who may not be addicted yet.

[Cheap Designer Handbags]

Traces a long time ago there was a little girl, she lives comfortably, then it, like she hit a person, she rebelling against her family, now a man living outside.
Life outside is very difficult, especially now that prices such high, would like to out to dinner should be make good consider the following, alas, cups. .

[Cheap Handbags Outlet]

It is well known that unity is strength, a chopstick is very fragile, ten chopsticks hard reality, not so fast can be broken. So, no matter how many contradictions, we should be united together, is not it, Oh, I hope to peaceful coexistence.

[Cheap Coach Handbags]

Traces a long time ago there was a little girl, she lives comfortably, then it, like she hit a person, she rebelling against her family, now a man living outside.
Life outside is very difficult, especially now that prices such high, would like to out to dinner should be make good consider the following, alas, cups. .