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Karl Whitfield |
Many media reports over the last 12 months have presented a picture that OTT messaging apps are cannibalizing SMS use and that carriers are losing billions in SMS revenue. But Portio Research has found this to not be completely true. It is true that some SMS markets, including the U.S. market, have peaked and shifted into a decline phase, and growth in some other markets has leveled off, but many other SMS markets around the world are still enjoying solid growth.
- Worldwide, SMS is generating $254,664 dollars every minute, in messaging revenue for carriers.
- SMS traffic worldwide will peak at 8.3 trillion messages annually, reaching that peak in 2015
- In 2013, around the world, carriers will generate revenues of $133.9 billion from SMS.
North America – Canada and the US:
Total SMS traffic in North America declined in 2012 and is declining again in 2013. The total number of messages sent declined by 10 billion during 2012 to reach 2.375 trillion, from the market peak of 2.385 trillion in 2011. This represents a drop of one half of a percent (0.5 percent) in total traffic decline. But this is not at all the disastrous scenario of doom and gloom that many industry pundits were predicting two years ago.
The figure below shows the historic and forecast SMS traffic in North America from 2010 to 2017.
Canada is a very healthy market, growing fast every year and looking good; both organic growth and usage-per-month are up, showing very strong growth. In fact, Canada has just edged into 2nd place behind the U.S. as one of the world's highest-usage (Per-Person-Per-Month,or PPPM) SMS markets. Canadians now send roughly the same number of texts per month as mobile subscribers in The Philippines (for years, The Philippines has been known as "the SMS capital of the world" until the U.S. took over that title more recently). The major difference being usage in Canada is still trending up, while usage in The Philippines is trending down.
The U.S. contributes around 96 percent to the regional SMS traffic, so obviously, SMS trends in North America are broadly governed by SMS trends in the U.S. market. Total SMS traffic in the U.S. has finally stopped growing, and 2011 represented the peak of the market. Total SMS traffic and average SMS use PPPM both slightly declined in 2012, signaling the beginning of the decline in the U.S. market.
The U.S. saw "peak year" for SMS in 2011, when texting reached an unsustainable high. We have now seen that both the U.S. and the Philippines, the only two markets in the world to ever reach such high levels of average monthly usage, have been unable to sustain that high use for the long haul. Average-subscriber SMS use-per-month peaked in the U.S. market in 2011, at more than 600 messages PPPM, and then declined marginally in 2012. Similarly, total SMS traffic declined by 1.5 percent to reach 2.27 trillion in 2012, down from 2.3 trillion during the full year 2011. This is shown in the figure below.
But so far, these drops are very small, with total 2012 traffic remaining comfortably higher than 2010 traffic, and with 2012 usage per-person remaining higher than 2010 usage per-person. Do you remember those predicted "drop off a cliff" scare stories in the press? That didn't come true, at least not yet.
When studying the U.S. market, which remains the largest SMS market in the world by a very large margin, it is important to remember how inflated the market became. Even if the U.S. market (total traffic) declined 30 percent from its 2011 peak, it would still remain above its own 2009 traffic figure, and it would still be the world's largest SMS market by a factor of about 80 or 90 percent. If average SMS usage per-person declined the same 30 percent from its 2011 peak, the U.S. would still remain by far the most intense, high-usage SMS market in the world and again still ahead of its own 2009 figure.
So we must accept that over 2009-to-2011, the market became unsustainably inflated and this drop-off was always going to happen. This is a market correction, not the end of the SMS world as we know it.
At Portio Research, we believe that this declining traffic trend in North America will continue for the next few years and SMS traffic will gradually decline to approximately 2.0 trillion by the end of 2017, still above 2009 levels. U.S. SMS has not and will not "drop off a cliff," but it is now "slowly rolling down a hill."
As with traffic, SMS revenue peaked in North America in 2011, at $24.5 billion. This revenue is forecast to ultimately decline from $23.9 billion in 2012 to $18 billion in 2017, falling at a CAGR of 5.4 percent over that time period. The figure below illustrates SMS revenue in North America from 2010 to 2017. SMS revenue in North America was $20.9 billion in 2009, and the figure below shows that the market will return to this level at the end of 2015.
So we can see the OTT didn't "kill SMS" in North America. Now let us see how SMS and OTT messaging services are performing elsewhere in the world.
The EU Big 5:
The EU Big 5 show a mixed picture--healthy strong growth continues in France and Germany, with overall SMS traffic growing consistently year on year, and usage-per-person-per-month also growing. The UK was growing from 2010 through 2011, but seems to have leveled off in 2012, possibly suggesting the start of "the WhatsApp effect" as OTT services arrest what was growth in SMS use. Only full-year 2013 data will reveal the true picture. Italy continues to grow, but slowly, suggesting saturation and leveling off.
While SMS declines in The Netherlands--neighbouring Belgium and Germany are enjoying healthy growth in SMS traffic. As Spain is in decline, Portugal is growing. Most of Western Europe is level or still growing, but more of Eastern and Southern Europe is showing SMS in decline or stable.
Overall, Europe is a complete mixed bag, with a third of countries growing, a third of countries flat, and a third in decline. Measured as a whole, SMS traffic and usage across the whole continent is flat, with usage-per-person just showing a very slight decline in 2012. Of the giant SMS markets--France, Germany, Italy, The UK and Turkey, which between them make up well over half of all the SMS traffic in Europe--the only one to worry about right now is the UK, showing a drop in usage in 2012. The others are still growing.
Of all the European markets, SMS usage-per-person-per-month is highest in Belgium, Ireland, Turkey and France. So far, none of these four "SMS-crazy" nations are showing any decline. Ireland has leveled off but is holding steady. In Eastern Europe, clearly SMS is in decline, though many large markets like Russia are managing to hold steady, but generally the picture in the East is not good.
The Asian Giants:
The Asian giants, China and India, show a very visible leveling off in SMS usage. Overall traffic in China continues to grow every year, and China remains the second largest SMS market in the world, after the U.S. However, average SMS use per-person-per-month shows quite a drop over the last few years, slowing growth dramatically. This observed pattern suggests that organic market growth (new mobile subscribers) is "keeping China afloat" as a growing SMS market, but the declining average usage suggests that either a) those new users coming into the market are low-demand SMS users, dragging down the national average level of use; or more worryingly b) the bulk of the existing market are using SMS less, as they migrate to higher-end devices (smartphones) and make use of a wider variety of more advanced ways to communicate (social networks, OTT messaging apps such as WeChat, VoIP apps, etc.)
With 300 million registered WeChat users in China, traffic shifting from SMS to OTT looks likely to be a serious factor in the China story. Again, as with the analysis of European SMS markets, we would expect that a market such as China is subject to price sensitivity – where cheaper/free services are available, more people will use them.
Also, a market like China is still enjoying organic growth. Where mobile users in Europe have had SMS in their hands for over 10 years, establishing set patterns of use, many millions of subscribers in China and other Asian markets are newer to the entire mobile world, and hence adopting OTT messaging apps is less of a cultural shift.
The picture in India is not yet clear, and it will not be clear until we see full-year 2013 data. The Indian market has grown well for several years, and it is by any measure a huge market for SMS, more than twice the size of even the biggest European SMS market, which is France. However, in India, usage and traffic now seem to have leveled off in 2012, so any expectations of future rapid growth are not yet clear.
Average use per person was up from 2010 to 2011, but down again in 2012, suggesting the market has reached a certain level of maturity and is settling. Organic subscriber growth should help keep overall traffic trending slowly upwards for some years to come, but with average usage flat or in decline, the days of rapid growth would seem to be over. OTT messaging apps are gaining popularity in India, as is to be expected in any price-sensitive market, where both BBM and WhatsApp, among others, seem to be very popular.
Summary
The drop in SMS use in the U.S. market must be seen as a market correction back to 2009 levels, and then--looked at in that light--we see SMS decline now very slow and controlled.
The growth in use of OTT messaging apps is dependent on a number of factors: 3G penetration, smartphone ownership and price sensitivity. In markets where price sensitivity and economic pressure are forcing consumers to scrimp and save, OTT services are an appealing alternative to SMS.
However, in markets where price sensitivity is less of an issue, we see SMS and OTT co-existing quite happily side-by-side.
The slowdown in SMS growth has been caused by multiple factors over the last six years since the iPhone came along and started changing the face of the mobile industry:
- The maturing of SMS as a communication platform in developed markets – it's been "king of the hill" for 15 years, and soon it will be time for new technologies to take the helm
- The slowing organic growth in developing markets
- Smartphone penetration
- The creation and growth of the apps business
- The growth in popularity of Facebook, Twitter, Skype, etc.
Any or all of these factors can be blamed for the slowdown of SMS growth. It is simply a case of markets maturing, and SMS is being left behind by newer, more engaging communications options.
However, SMS is still such a useful, effective tool, it will linger on for many years, maybe in the background, because it is a low-network-demand service, and that makes it a useful tool for carriers to use. SMS will remain as an enabler for other services for many years to come.
Karl Whitfield is the commercial director of Portio Research. All data for this column was taken from the company's report on Mobile Messaging Future 2013-2017.