Research Notes

Instant messaging

– differentiated data traffic prices is the road to success
It is common knowledge that Instant Messaging (IM) has been a very large success on the Internet for quite a while. IM allows real-time messaging and also it is possible to see the availability (online presence) of other users. It is an obvious idea to transfer this success over to the mobile market – not just because of the possibilities on the mobile market, but also because of the dynamic new possibilities that are created with IM when you mix the Internet and the mobile market. There are however large barriers that are standing in the way of a widespread business success for IM on the mobile market.

Currently, as most people in the mobile business know, there are no IM-standards on the market. Having a common mobile IM-standard would be an advantage for both the users and the operators, as it would ensure that the mobile IM service will function across different mobile operators and networks. But it would not necessarily be an advantage for the Internet markets instant messaging providers. This is because they have invested large sums in their respective standards – if another standard was launched this would fragment the IM market even more than it is today.

The lack of standards for mobile IM services has led to third-party mobile IM services today using the Internet to transfer data between the mobile operators/countries/end-users and in this way actually avoiding the mobile operators billing systems. By using the Internet, end users are only paying for the data that is transmitted and received and as this is a very small amount per message, this type of messaging is significantly cheaper for end users than sending SMS messages. This means that many operators perceive IM as a possible threat to their SMS moneymaking machine

This is because that by using the Internet for transmitting messages, the mobile operators are prevented in billing high prices for IM data traffic, as the operators cannot differentiate their price on the type of data traffic being sent by the end user. This problem becomes even greater for the operator when data is being sent across multiple operators and/or across countries, as the operators cannot charge a termination fee for delivering messages – as is the case with SMS. This is a dilemma for the mobile operators, as many users value the mobile IM services, but the mobile operators cannot transform that appreciation into a corresponding higher price for delivering messages.

As Strand Consult describes in the new report – ”How to get success in the 3. Generation VAS market” – one of the reasons that the mobile operators are so vague about launching mobile IM services, is the current battle on the IM market on the Internet. The network effect on the Internet IM market makes it probable that there will be two or three clear winners over time – and if operators partner with one of the losers, those operators have a lot to lose.

But if the operators do not want to miss out on the data traffic and revenue from mobile IM messaging they will have to start working with the instant messaging solution providers. Then they can price the IM traffic higher, as operators will be able to bill IM traffic separately. In return, the IM solution providers will gain access to the attractive mass of mobile customers, which give them better possibilities in the future to demand payment for instant messaging services – also over the Internet.

This model also opens up for the possibility for operators to share the increased revenue with the IM providers, who thereby can earn money by sending traffic through the mobile operators’ networks. This is therefore a win-win situation for both parties. There is no doubt that the operators should focus on partnerships rather than proprietary solutions, because only in this way can instant messaging become a profitable business on the mobile services market – for both the mobile operators and the Instant Messaging solution providers. 

the 3. Generation Value Added Service Market

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