Definition of Mobile Instant Messaging (MIM) Systems

J son & Partners Consulting Company presents the results of the research Mobile instant messaging systems as a direct threat to SMS. Definition of Mobile Instant Messaging (MIM) Systems MIM (Mobile Instant Messaging) is a service of message transfer allowing to receive and send text messages using mobile devices in real time. Mobile Internet access (3G, 4G, or Wi-Fi) is used as a communications channel. Generally, MIM services support such a function as Presence (subscriber s status). Features provided by the service vary depending on a specific MIM application and may include various functions, for example: text messaging, file interchange (audio, video, images, animation), organization of group chats and video conferences, voice communications, integration with a mobile phone s book of contacts, integration with SMS/MMS services and e-mail, transmission of data about the location and changes of statuses in social networks, etc. There is no direct tariffication of the messages by mobile operators in the MIM system (they belong to the so called OTT services 1 ); the presumed cost of a message may be influenced by the amount of payment for a MIM application (if it is paid), and the cellular operator s tariff plan for Internet access. Demand and Indicators of Popularity of MIM Services According to Informa Telecoms & Media, the revenue from MIM was $5.9 billion in 2011, or about 4% of the revenues from all types of mobile messages (SMS, MMS, E-mail, IM), and the worldwide MIM traffic (operators and OTT providers) was 1.6 trillion messages, which corresponds to 17% of all mobile messages annually. In 2012, the number of MIM messages is estimated at 2.2 trillion, which is 20% of all mobile messages. The increase in the MIM popularity is indicated by the following facts: 1 1

425 million of the 920 million users of Facebook accessed the network via mobile phones and was able to use Facebook Messenger in 2012, The number of imessage users amounted to 140 million people in 2012; they sent about 1 billion messages a day, The number of WhatsApp users varied within 200 to 300 million as of the beginning of 2013; in August 2012, daily traffic was about 6 billion messages, The Viber service had 160 million users as of the beginning of 2013, The KakaoTalk service had 72 billion users exchanging over 3 billion messages a day at the beginning of 2013. MIM Development in Various Countries of the World The level of usage and the development of services of mobile instant messaging systems fluctuate in relation to such indicators of social-economic and technological development of a country as the level of cellular communications penetration, mobile broadband Internet access, smartphone usage, development of 4G networks, operators strategies in the pricing of mobile communications services, including data communication and the mobile messaging services. The level of the usage of mobile instant messaging systems in Europe is relatively high. By Onavo s estimates, 97% of iphone users in Spain, 84% in Germany, and 83% of the mobile users owing iphones in the Netherlands used the WhatsApp service at least once a month in 2012. Table 1. Share of iphone users utilizing MIM monthly, 2012 Facebook Messenger WhatsApp Line KakaoTalk Austria 26% 59% 0,6% 1% Australia 17% 19% 3% 2% Canada 16% 16% 1% 1% Switzerland 13% 69% 1% 0.25% China 1% 11% 4% 2% Germany 31% 84% 0.5% 1% Spain 13% 97% 0.3% 1% France 18% 14% 0.4% 0% Great Britain 14% 39% 0.4% <0.25% Ireland 15% 31% 0.3% 0.4% Italy 32% 81% 0.4% 0.4% Japan 15% 6% 44% 6% South Korea 3% 2% 6% 88% The Netherlands 12% 83% 0.3% <0.25% New Zealand 19% 19% 2% 2% Russia 4% 34% 1% <0.25% The USA 11% 7% 1% 1% Source: Onavo 2

In 2009 2011, the US market showed decrease of SMS traffic growth rates because of the use of alternative messaging services, such as IP-based mobile instant messaging systems. The data presented in the report by Ofcom International Communications Market Report 2012 registered a decrease in SMS traffic and the revenues from the service in Spain and the Netherlands in 2011. The size of SMS traffic in Spain has been decreasing by an average 3.2% per year since 2006. In 2009, the WhatsApp service was established in the Netherlands. In 2011, the SMS traffic and revenues fell. In its financial report for the 1st quarter of 2011, the Dutch telecommunications operator KPN reported decrease in revenues from SMS by 10% as compared to 2010. In 2011, the size of SMS traffic in the country decreased by 4%. As of January 2013, the number of the users of the WeChat MIM application reached 300 million in China. In 2010, a popular mobile instant messaging service KakaoTalk was launched. Almost every smartphone user in Korea uses it; as of the beginning of 2013, the total amount of users of the service is 72 million. In Russia, the effect of alternative mobile instant messaging services is not so significant yet as in developed countries; to a large expense, this is due to the relatively low level of smartphone penetration (37% as of the beginning of 2013) and poor development of 4G networks. Changes in the Mobile Ecosystem. Main Players of the MIM Market Traditionally, SMS is an operator service, while MIM services are delivered by various players of the ICT market. The value chain for the mobile user experiences evolution; equipment manufacturers, social networks, Internet giants, platform developers and others, offering to end users their own services including mobile instant messaging services, start taking an active part in this chain. The players try to expand their roles and provide users with services at several loops of the chain. For instance, the Apple Company produces not only terminal mobile devices but also develops applications, and has an application store where the company makes the content available for the company s users. Apple launched the popular MIM service imessage for its users. Social networks launch instant messaging services for their mobile users, and the huge amount of the users assures an unprecedented level of usage of these services. IM service providers adapt their applications for mobile platforms, thus extending mobile phone users opportunities of messaging. 3

Table 2. Examples of some MIM services provided by companies of various types Type of Company Name MIM Service Social networks Facebook Facebook Messenger and Chat Equipment (mobile phones) manufacturers Major Internet companies and software developers Web service providers, application developers and others Myspace Apple RIM Google Microsoft WhatsApp Tencent Viber Media Nimbuzz MyspaceIM IMessage BlackBerry Messenger Google Talk Windows Live Messenger, Skype WhatsApp WeChat Viber Nimbuzz Source: J son & Partners Consulting, Gigaom PRO Converged-mobile-messaging analysis and forecast, 2013 There is a risk of marginalization of a mobile operator to a transport provider, which, combined with the forecasted substitution of SMS services by mobile instant messaging services and the decrease in SMS revenues, makes mobile operators extend their roles, modify their strategies and pricing in order to occupy the central position in the mobile ecosystem. Operators Business Models. SMS Substitution Risks Openness of the Internet, open smartphone platforms, combined with flat rates for data communication services offered by cellular operators, have played an important role in changes of the market and the shares of its main players. To decrease or prevent the risks of the traditional SMS revenues decline, caused by the use of mobile instant messaging OTT services, operators use various strategies: implementing MIM services separately, lowering the appeal of third-party services usage by changing the data communication tariffs, creating industry-wide projects and initiatives for the implementation of mobile messaging IP services, blocking or banning the usage of OTT services by their subscribers. For example, in the USA, the AT&T and Verizon Wireless operators abandoned flat rates for data and implemented tariffs limiting the volume of data communication traffic, but at the same time their tariffs may include unlimited number of text messages. By doing this the companies try to lower the consumer appeal of instant messaging OTT services. Seeking to neutralize the risks of losing revenues due to OTT services, the mobile operators of Great Britain implemented post-paid tariff plans for data communication, meanwhile offering to their users bundled SMS offers including a fixed or unlimited quantity of text messages. According to Ofcom, the volume of SMS messages sent by the users of the post-paid plans grew by 22.3% in 2011; 4

the analogous indicator among the users of pre-paid tariff plans amounted to 11.7%. According to Informa Telecoms & Media, the SMS traffic of three of four mobile operators in Great Britain grew in 2011, thus increasing the quarter growth indicators. In 2012, to lower the risks of losing revenues because of competing technologies, the major mobile operators in Spain, Germany, USA, South Korea and other countries launched the Joyn project which is a part of the Rich Communications Service (RCS) program. Inter alia, RCS enables the mobile users to exchange instant messages, video and other files during conversation. It is suggested that the service will become inter-operator, and specialized software will be preinstalled in mobile phones. In 2007, the incumbent Chinese mobile operator China Mobile launched the Fetion project, a free mobile instant messaging service. The operator service Fetion accounts for 21% of the accounts registered from 3Q 2010 to 3Q 2012. MegaFon is the most active among Russian operators in the sphere of implementing alternative message transfer services. In 2010, the operator launched the Multifon project which, among other things, supports mobile instant messaging service. In December, 2012, MegaFon also started testing the UMS application (Unified Messaging Solution), which combines many communication technologies (e-mail, SMS, MMS, IMS, social networks, etc.) and allows a subscriber to use all the communications channels available for him/her in one application 2. MIM Barriers and Drivers The development of mobile instant messaging services is stimulated by the growth in using smartphones, development of high-speed mobile networks, and the growing popularity of Internet communications (social networks, instant messaging systems, etc.). Users start using their mobile devices and MIM services that provide extended possibilities for messaging and communications more extensively. Unlimited tariff plans and the low cost of mobile Internet access offered by mobile operators also positively influence the MIM service consumption. The constraints of the MIM market are: low penetration of the broadband mobile Internet and smartphones, disadvantageous tariffication of mobile data communication services in respect to users, low cost of traditional SMS messages, not enough appeal of MIM consumer characteristics for end users, market fragmentarity and low interoperability of different MIMs. 2 http://msk.corp.megafon.ru/press/information/20121210-2259.html 5

Table 3. MIM and SMS advantages and disadvantages Service Advantages Disadvantages SMS MIM popularity and availability of the service on every active phone on any network high coverage of users, interoperability, reliability, low cost, simplicity and easiness of sending. real-time communication, fastness of communications no apparent cost, sense of a free-ofcharge service, interactivity, integration with various systems and services, enhanced functionality and communication abilities (subscriber s status, message transfer, voice communication, group chats, videoconferencing) the number of characters in a sent message is limited, limited abilities of the service (transmission of text messages only) necessity of the Internet access; moreover, voice communication and particularly video calls and multimedia file transmission require an Internet channel of considerably high quality, requires a MIM application installed on the phones of both sender and recipient and being available for the time of the communication, requires a phone (smartphone) that is sufficient by its functionality Trends and Prospects of Development Source: J son & Partners Consulting As of March 2013, globally SMS remains the key service among other types of mobile messages (MMS, E-mail, IM). There is demand for the service of traditional short messaging, and it demonstrates a positive dynamics of revenues and traffic worldwide. According to Informa Telecoms & Media s forecast, SMS will remain the leading technology of mobile messaging at least until 2015. The worldwide revenues from SMS will grow, however, the share of this service in the structure of revenue from all types of mobile messages will continue to decrease: from 80% in 2010 down to 68% in 2015. Analysts of Informa Telecoms & Media also forecast decrease in the share of SMS traffic within the world traffic of mobile messages from 66% in 2011 down to 45% in 2016. Active advance and popularity of the services of mobile instant messaging systems will become the main cause of the change in the market s structure. In 2010, traditional SMS between subscribers (P2P SMS) accounted for 90% of the revenues ($95.3 billion) and 96% of the traffic (4.8 trillion messages) of all SMS. The increase in the usage of mobile instant messaging systems will be the main factor to cause decrease in P2P SMS usage. A2P (Application-to-Person) SMS, in which a specialized application automatically sends a message to one or several subscribers, are characterized by the growth rate higher than that in the P2P SMS segment. As a result, the segment expands its share in the revenue structure and the total SMS traffic structure. A2P SMS have a good potential of growth 6

owing to the development of mobile and Internet advertising and their active application in the banking and financial sector; SMS notification messages are utilized by social networks, commercial companies and state institutions. One of present day trends is a possibility of substituting SMS with such instant messaging applications as WhatsApp, imessage and others that are provided through an Internet channel without participation of an operator. As a consequence, the risks of cellular operators losing revenues grow; the Ovum Company has estimated the losses to be $13.9 billion in 2011. According to a forecast by Informa Telecoms & Media, the number of transmitted MIM messages from 2013 to 2015 will double from 3.2 trillion up to 6.3 trillion messages, respectively. Therewith, the share of MIM in the volume of the world traffic of mobile messages will increase to 32%. Nevertheless, MIM traffic, according to Informa Telecoms & Media, will be still less than SMS traffic. Portio Research s forecast promises more radical changes of the mobile message traffic structure. The company estimates that OTT traffic will grow from 3.49 trillion messages in 2011 up to 20.29 trillion messages in 2016, exceeding the number of SMS more than twofold as of the end of the forecasting period. Representatives of Juniper Research estimate that mobile operators initiatives like the Joyn project will not prove very successful and by 2017 operator services will account for less than 1% of message traffic (83 billion messages in absolute terms). On the whole, the level of substituting traditional SMS with MIM services will depend on a set of factors such as the penetration of the broadband mobile Internet and smartphones, as well as the product strategy chosen by mobile operators and their pricing for services, and particularly, for SMS services and mobile Internet access. 7

List of contents of the Full Version of the Report Mobile Instant Messaging Systems as a Direct Threat to SMS List of contents of the Report Executive Summary 1. Mobile instant messaging systems definition and classification 1.1. SMS/MMS standard systems 1.2. Mobile instant messaging systems (MIM) 1.2.1. Embedded clients 1.2.2. Clientless platforms 2. Overview of the mobile messaging systems market: trends and forecasts 2.1. History of creation and development of mobile messaging systems market 2.1. Market trends 2.2. The world market of traditional SMS 2.2.1. Person-to-Person (P2P) SMS 2.2.2. Application-to-Person (A2P) SMS 2.3. The world market of mobile instant messaging systems (MIM) Ошибка! Закладка не определена. 2.3.1. Overview of mobile instant messaging systems 2.4. Development of mobile messaging systems in different regions of the world 2.4.1. The USA 2.4.2. Western Europe 2.4.3. Great Britain 2.4.4. China 2.4.5. South Korea 2.4.6. Russia 2.5. Development forecasts of mobile messaging systems market, 2013 2016. 2.5.1. SMS market 2.5.2. MIM market 2.6. Main drivers and barriers of mobile instant messaging systems (MIM) market 3. Marketing communications in mobile messaging systems 3.1. Main trends of mobile marketing communications 3.2. SMS marketing and its evolution 3.3. Communication effectiveness through short messages 4. Adjacent markets 4.1. Market of short message services on the Internet 4.2. Smartphone market in Russia and in the world 4.3. Tablet PC market in Russia and in the world Conclusion and recommendations 8

List of Figures Figure 1. Significant stages of mobile instant messaging systems development Figure 2. Revenues from voice and data communication worldwide, 2010 2015, $ billion Figure 3. Revenue structure of the world mobile messaging market, 2010 Figure 4. SMS revenue structure, 2010 Figure 5. SMS traffic structure, 2010 Figure 6. А2Р message traffic structure, trillion messages, 2010 Figure 7. А2Р message traffic structure, trillion messages, forecast for 2015 Figure 8. Share of MIM service accounts, cumulative for 3Q 2010-3Q 2012 Figure 9. China Mobile IM active accounts, 3Q 2010 3Q 2012, million Figure 10. Share of message transfer revenues in cellular operators total VAS service revenues, 2008 1Q 2012 Figure 11. Share of SMS revenues in the revenues from all mobile messages, 2010 2015 Figure 12. SMS traffic dynamics (trillion messages) and increment rate (%), 2009-2015 Figure 13. SMS traffic share in the total traffic of mobile messages, 2010-2015 Figure 14. MIM traffic share in the total traffic of mobile messages, 2010 2016 Figure 15. Share of users using the mobile phone for social networking, 2012 Figure 16. Mobile marketing structure Figure 17. Mobile advertising market structure Figure 18. The Russian market of advertising messages, 2012-2015 Figure 19. Main stages of the instant messaging systems development Figure 20. Number of IM accounts worldwide, 2012 2016 Figure 21. Changes in the average time spent in IM and social networks, 2011 by 2010 Figure 22. Shares of installed IM systems, 2011 2012 Figure 23. Volume of the world mobile phone market, 2010-2016 Figure 24. Structure of the world mobile phone market in natural terms, by types of devices, 2010-2016 Figure 25. Volume of the world smartphone market, 2010-2016 Figure 26. Smartphone supply structure by countries, in natural terms 2013 Figure 27. Volume of the smartphone market in Russia, 2008 2016 Figure 28. Structure of the smartphone market in Russia in natural terms, by manufacturers, 2008 2012 Figure 29. Volume of the smartphone market in Russia, 2008-2012 Figure 30. Dynamics of the average retail price for smartphones in Russia, 2008-2012 Figure 31. Structure of the smartphone market in Russia in monetary terms, by manufacturers, 2008 2012 Figure 32. Volume of the worldwide tablet PC market, 2010-2017 Figure 33. Volume of the tablet PC market in Russia, 2010-2016 Figure 34. Structure of the tablet PC market in Russia in natural terms, by manufacturers, 2011 2012 Figure 35. Structure of the tablet PC market in Russia, by OS, 2011-2012 9

List of Tables Table 1. Comparison of the main figures of SMS and MMS Table 2. Comparison of the main figures of SMS and MIM Table 3. Mobile traffic growth rates in different countries, 2011 2012 Table 4. Volume of the world mobile messaging and SMS market, $ billion, 2010-2012 Table 5. Volume of the world mobile messaging, trillion messages, 2010 2012 Table 6. Volume of the world SMS market, $ billion, 2005 2012 Table 7. Popular reasons for using SMS Table 8. Volume of the world SMS market, trillion messages, 2005 2012 Table 9. Volume of the world MIM market, $ billion, 2010 2012 Table 10. Volume of the world MIM market, trillion messages, 2010 2012 Table 11. Examples of MIM services provided by companies of various types Table 12. Comparative analysis of some MIM services, 2013 Table 13. Share of iphone users using MIM monthly, 2012 Table 14. Number of SMS sent in various European countries in 2011 Table 15. SMS transfer revenues in Russia, 2010-2016 Table 16. Forecast of the world mobile messaging market, $ billion, 2013-2016 Table 17. Forecast of the world mobile messaging market, trillion messages, 2010-2017 Table 18. Forecast of the world SMS market, $ billion, 2013-2015 Table 19. Forecast of the world SMS market, trillion messages, 2013 2016 Table 20. Forecast of the world MIM market, $ billion, 2013 2015 Table 21. Forecast of the world MIM and SMS market, trillion messages, 2013 2016 Table 22. Main barriers and drivers of the MIM market Table 23. Comparative analysis of some IM services, 2013 Table 29. Structure of the smartphone market worldwide, in natural terms, by OS types, 2011 2016 Table 30. Top 5 smartphone manufacturers by volume of supply, in natural terms, 2012 Table 31. Structure of the smartphone market in Russia, in natural terms, by OS types, 2010 2012 Table 32. Structure of the smartphone market in Russia, in monetary terms, by OS types, 2010 2012 Table 33. Dynamics of the average retail price for a smartphone in Russia, by operating systems, $, 2008 2012 Table 34. Structure of the world tablet PC market, in natural terms, by OS types, 2013 2017 Table 35. Top 5 tablet PC manufacturers by volume of supply, 2012 10

The newsletter was prepared by the J'son & Partners Consulting Company. We exert every effort to provide actual and forecasting data representing the situation in full and available at the time of the publication of the material. J'son & Partners Consulting reserves the right of revising the data after publication of some new official information by individual players. CONTACT FOR MORE INFORMATION: Pavel Yermolich Commercial Director Pavel@json.ru www.json.ru 11