Research Notes

It Would Be A First, If Premium SMS can survive

by staying exactly the same!

Some products have managed to stay on the market for decades, generation after generation, but not without constant improvements through product development. It would therefore be an illusion to believe that premium SMS services can continue to be a significant source of income for the mobile industry players, unless those SMS services are continually improved. In other words: it would be a first if Premium SMS could survive by staying exactly the same!

Constant product development is often an undisputed requirement if a product is to stay attractive to customers over a longer period of time. An example of this is the television, that today basically delivers the same service as it did 80 years ago – but constant product development has over time made the actual television technology much better and the selection of programs has increased. In the same way radio today basically delivers the same service as it did 100 years ago – but product development has meant that radio receivers have become significantly better and there is a much larger selection of radio programs.

Premium SMS services have been on the market for a much shorter time than for example television and radio, but mobile services are still governed by a great many of the same market conditions as the traditional entertainment and information channels have had to live with for many years to survive. So Premium SMS services will also have to react to the demand for constant product development. Because without product development, revenue from Premium SMS services will without a doubt stagnate and finally decrease.

The mobile value chain can however not afford at all to let revenue from sales of Premium SMS services stagnate – let alone decrease. First of all, both the content providers and mobile operators receive a rather significant turnover from sales of Premium mobile services and secondly the revenue from sales of mobile services in the future will increasingly have to compensate for mobile providers earning less and less per sold unit of the traditional mobile services; voice minutes and person-to-person SMS messages.

That the Premium SMS services would over time become a cornerstone in the mobile value chain’s revenue was something that very few people predicted at the beginning of the 1990’s, when mobile telephony moved from analogue to digital. But with digitalisation came the possibility to – amongst other things – via SMS being able to send text messages to and from mobile handsets. SMS messages were also both easy and cheap for the mobile operators to produce. Maybe it was the simplicity in the product that meant that only a few mobile players at that time actually saw the business opportunities that lay in SMS – but the mobile users embraced the possibility to send text messages to each other. At the end of the 1990’s the first mobile operators started offering the content providers revenue models in connection with sales of Premium SMS services. The revenue models meant that content providers for the first time had an actual financial incentive to develop, produce and market these Premium SMS services.

Today the sales of Premium SMS services have become a huge business especially for the European mobile players. Both the handset manufacturers, mobile operators and the content providers create their products and services so they have the greatest appeal to the mobile customers’ still increasing use of Premium mobile services.

But the business area for Premium SMS services has also both limitations and shortcomings – and it is these limitations and shortcomings which will mean that Premium SMS even in the short-term cannot remain the same, if the market is to experience continued growth. Amongst the mobile services weaknesses is especially that there is far too long between new launches of Premium SMS services that can actually offer mobile customers real new functionality! One of the consequences of this is that the mobile operators and content providers are having great difficulty in creating services that appealed to customer segments who, up to now, have not used SMS services.

For mobile operators and content providers of premium SMS services, it will in other words be a necessity in the future to use all the possibilities available to renew and improve SMS services.

It is therefore necessary for mobile operators to increasingly start to offer content providers extensive and advanced service platform environments that will be their base for development of new SMS services with new functionality. Also it is of course necessary for the content providers to incorporate the possibilities from the service platforms into the mobile services, so they can develop, produce and market new advanced third generation mobile services for the end-users. With regard to third generation services, we are talking about mobile services that not only are integrated with the mobile operators billing functionality, but are also integrated with one or more other service platforms from the mobile operators’ service platform environment.

The 3rd generation services of the future will therefore be characterised by having a very close integration between the content providers’ mobile services and the mobile operators’ service platform environments. The mobile operators’ internal service platform environments will consist of a great number of different service platforms that will handle for example customer identification, location, e-mail, wireless Instant Messaging, gaming, streaming, roaming, DRM, financial transactions, billing etc. Having access to these service platforms will give the content providers enormous possibilities to develop much more advanced and user-friendly mobile services.

The integration between the service platforms and Premium SMS services will help ensure that existing Premium SMS customers also in the future will find it interesting to purchase new mobile services. Also the integration between the service platforms and Premium SMS services will help ensure that premium SMS services in the future will be able to appeal to a much wider variety of customer segments, then the traditional Premium SMS services have up to now.

Strand Consult has just completed a new report that analyses in depth precisely this important interaction between the service platform environments and the next generation of mobile services. The new report ”How to get success in the 3. generation VAS market”, is directly focused on a great number of the essential challenges that the mobile market is facing in relation to the importance of the service platform environments for the continued expansion of the market for mobile services. The report contains an in depth analysis of 10 different existing service platform environments with specific focus on each platform’s advantages and disadvantages. This is especially interesting as the complex service platform environments will be the backbone in connection with developing, producing, delivering and marketing the future 3rd generation mobile services.

In this connection it should also be mentioned that Premium SMS services in the future would see an increased competition from for example browser based mobile services. Premium SMS services will have the disadvantage in this competition by the fact that we expect they will be 4 – 5 times more expensive to market compared to browser based mobile services. Premium SMS services constantly need to have marketed the access/short-codes that the customers need to order the services. The same intensive marketing is not necessary for browser based mobile services. This is just one reason why Premium SMS services in the future will need to be much more attractive to be able to handle the competition from other mobile services.
There are many examples of products and technologies that have extended their lifespan on the market by focusing on product development. For example radios are no longer delivered with radio tubes, but instead with transistors and cars are no longer started by hand but with a key. The future will show how long SMS will continue as the mobile value chain’s preferred ordering and payment form for Premium mobile services – but one thing is certain; Premium SMS services cannot stay ahead by staying the same – and the key to their evolution will be the Service Platform Environments.

the 3. Generation Value Added Service Market

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