The exact question should have been: will they kill SMS worldwide? However, it may be a bit too early to ask that. OTT (over the top) messaging apps are a rage in Southeast Asia at present and the fire is spreading to South Asia too. If Chinese Tencent chose the Indian Premier League (IPL) this year to bombard Indian television with ads for its messaging service WeChat, it’s time for Japanese messaging app Line to entice the Indian youth.
If WeChat is much popular in China, Line is a favourite in Japan. The Indian web saw significant ad noise on Nimbuzz for quite some time, however, it was WhatsApp that caught the fancy of the Indian youth quietly, without any promotion. WhatsApp came in at a time when BBM (BlackBerry Messenger) divided the world between the haves and the have-nots and WhatsApp gave the have-nots an alternative of an OTT that could be tethered to their number.
While many Android users in India would have various OTT apps downloaded on their smartphones – led by WhatsApp, WeChat, Viber and the much necessary Skype, it’s the usage of WhatsApp that has been growing at a phenomenal pace. While Skype still is in circulation, WhatsApp scores over the fact that it doesn’t give the user the Logout option and is always active at least till the Internet is active over the phone.
The switch from SMSes to OTT is happening fast and happening virally. According to a report by McKinsey, markets like South Korea tipped over to OTT messaging apps as way back as late 2011. The report released in September 2012, said that from January to September 2011, cumulative downloads of the mobile messaging application Kakao Talk, in South Korea increased by a multiple of five (approximately) – from 5.4 million to 25.4 million. Carriers in South Korea indicated a substantial decline in P2P (person to person) SMS volume in 2011, potentially as much as 55 percent.
According to McKinsey, besides South Korea, other countries in the Asia Pacific hastening to tip-off over to OTT apps are Japan, Singapore, Malaysia and Thailand.
However, what divides the world are not the OTT apps but the internet connection. Thailand saw introduction of 3G only in May this year; Pakistan is yet to see introduction of 3G; in India if companies like Reliance are gearing to launch 4G, adoption of 3G has been slow and much of the 2G world is not even connected to the internet; and is contended with P2P voice communication.
The rise of the OTT apps has posed a threat to carriers who are searching for alternatives in order to remain relevant in the mobile communications space. Mobile operators’ SMS revenues may be under pressure from mobile messaging apps, but global research agency, Informa Telecoms & Media forecasts that mobile operators will still generate a total of USD 722.7 billion in revenues from SMS between 2011 and 2016.
While Informa is forecasting either slowing growth or even a small decline in P2P SMS revenues in some developed regions and countries, total global SMS revenues will increase at a compound annual growth rate of three percent till 2016. Western Europe will generate the highest amount of SMS revenues globally between 2011 and 2016, totalling USD 174.1 billion, followed by Asia Pacific Developing, where SMS revenues will total USD 173.8 billion between 2011 and 2016.
A spoilt for choice market
But there’s also no doubt that carriers are losing their dominance in the SMS market. According to Strategy Analytics, over USD 3 billion in carrier messaging revenue will be eradicated because of OTT messaging between 2012 and 2017.
So is this money going to the OTT apps? Not yet. The market is spoilt for choice. There’s been switchover from BBM to WhatsApp, because the latter comes for free at least for the first year. WhatsApp promises a fee only from the second year (as low as Rs 50 per year in India). It comes at a cost in European countries, on iPhones from the first year itself. Viber promises to keep its revenue model ad-free – with basic text and voice messaging free, but would like to monetise its video services in the future. WeChat has already integrated ads in the app along with social plugins like Shake It and would like to integrate monetisable games too.
In India, the second largest OTT app after WhatsApp is not WeChat but Hike from Bharti SoftBank, which boasts more than five million users. WeChat, which worldwide boasts of the largest userbase of more than 300 million – has largely risen on the absence of Facebook in China. It has already added more than 50 million users in other Asian markets like Singapore, India, Malaysia and the Philippines.
It’s still investment time for these apps. WeChat has integrated with Indian movies and actors Parineeti Chopra, Sonakshi Sinha, Varun Dhawan and Ranveer Singh have been seen endorsing the app. In other markets it has a TVC featuring football star, Lionel Messi. Aside from that, Tencent (WeChat’s parent company) is also looking to collaborate with celebrities in Malaysia too, where it hopes to open an office soon.
Line, which has launched two TVCs right now in the Indian market is promoting its stickers, which could become the revenue model for it in the future.
The bigger question is, if WhatsApp is free for the first year, will consumers subscribe to it in the second year or switch over to Viber or WeChat. Consumers, particularly Indian consumers, are unlikely to mind some advertising if that brings them a service for free.
Hold on. Have we discounted the IMs like AIM. Google Talk, Yahoo Messenger or even Facebook Messenger out already? Not yet. Google is fast replacing its Talk with Hangouts on PCs, tablets and smartphones. Hangouts is being developed to keep the OTT messaging service in mind which can be tethered to a mobile number. With deeper pockets than anybody else and with a userbase larger than anybody else talked here, and an advertiser base wider than anybody else, Hangouts could possibly kill everybody else. But the consumer has never been loyal. For that matter the consumer did desert Orkut too, even though it was bought over by Google, and the giant couldn’t do much but see the user switch over to Facebook.