"iMessage Killed The SMS Star"

Yeah, the tune is playing in my head. Video Killed the Radio Star. But in this case, it's Apple's iMessage service that's killing the SMS cash cow. For those of you haven't experienced it yet, check out this picture.

It's my riding buddy Joe sending me a text message, or in this case, an iMessage. The blue box is the giveaway -- it came over Apple's texting service, not AT&T's SMS service. It's "free." That is, it travels over the Internet, not the SMS network, and it's free on Wi-Fi or included in my wireless data plan. And while I have unlimited texting, I do pay $30/month for the family plan, about $0.10/message last month. (I know, some of you text so much that it's probably a penny a message or less.)

So, let's do the math:

100 million iOS users.

Sending 50 messages a month to another iOS user. (iOS users move in packs.)

Each person pays for the SMS message, so that's 100 messages per person.

Each SMS message costs (let's say) $0.05.

So 100,000,000 iOS users x 100 iMessages/month x $0.05/message = $500,000,000/month.

Said another way, that's $6B taken out of the SMS value chain by the iOS iMessage service every year. Then there's the BlackBerry Messenger service for inter-BlackBerry messages. And the Magic SMS app for iPhone and Android. And probably a hundred other SMS alternatives that I'll never know about. Add it all up, and 10 billion dollars in SMS value (not revenue) could be siphoned off to the wireless data market in 2013.

I'm guessing that the SMS services from the major carriers will start to feel the pricing pain if not the falling message-volume pain in 2012 and cause enough financial pain that it's cited in some carriers' 10-K filing by 2013. Am I wrong?

Comments

Pain relief comes in the form

Pain relief comes in the form of new data users from upgrading devices and existing data users consuming more. But headaches persist in the need to upgrade networks to support increased capacity and deliver speed. And the deals that carriers must strike to offer device exclusives is more like lower back pain - a deep, long-term suffering.

it's Apple's iMessage service that's killing the SMS cash cow

your statement is maybe correct for all countries where SMS are payed one by one from enduser point of view, but in those countries (e.g. germany) where mostly sms flat rates are used it is a good case for the operators cause the calculated SMS usage will go down and the revenue stream grow up.

Asia

Great post!

BB usage in Asia is actually quite sizeable where users have networks of contacts communicating via Messenger. I don't expect many people in that region turning in their BB's for iPhones anytime soon, assuming the status quo.

Some important comments here

Great to see some chatter here. I think BBM is one of the bright spots in RIM's portfolio right now. I also think that device-specific solutions are limited by . . . Metcalfe's law of course. If your contact isn't using your device, then it defaults to SMS.

So, let's do a hierarchy of messages. At the top are device-specific solutions like BBM and iMessage. In the middleware the technology-proprietary solutions like Magic SMS.

Next is SMS, the standard (though expensive) network- and device-agnostic solution.

What Apple does nicely is make it easy for someone to use iMessage when they can and SMS when they can't without ever having to think about it. That's what the photo in the post communicate so clearly. I didn't have to care or know whether it was iMessage or SMS. (And now the send color even tells me which message it's going to be before I click send.)

As far as "value" versus "revenue," I do believe that over time, the declining perceived value of SMS will cause pricing pressure on that service. I do not expect that to happen quickly or violently. But at some point, that cash cow will start bleating. When 10 cents/minute drops to 5 cents a minute (in the US) or when the bundled 10 Euro SMS service drops to 5 Euros, the revenue hit will become more apparent.

But no worries to the carriers, because they are all figuring out variable rate plans based on data usage and latency. So we'll all be writing nice-sized checks to carriers that offer the value, flexibility, and choice that we need.