Advanced SMS offer the fastest, lowest-cost route to revenue growth, subscriber recruitment and churn reduction, says Gavin Ray
Operators in saturated and highly competitive markets have only a limited number of levers to pull if they wish to stay top of their league, or displace those that are. The largest and most common lever in marketing is pricing and the second is innovation.
The trap laying in wait for those who seek pure innovation is that it's easy to burn cash on the latest fashionable technology, but much harder to generate revenue growth, acquisition or churn control that justify the expenditure. Great ideas like instant messaging and mobile TV may be headline grabbers, but serious income generators they are not. Even when an operator corners exclusive rights to a new technology, for example handsets or Web-portal deals, there is a big difference between a bump in revenue growth and measurable and sustained bottom-line contribution.
The majority of mainstream subscribers have proved stubborn, and even when global economic conditions were buoyant demonstrated a consistent appetite for the two established "killer apps" in mobile, talk and SMS – and a distinct apathy for anything else. Now times are tougher, operators are looking at what really powers their businesses and finding that, as always, it's still talk and SMS, the twin pillars of service and the two prime generators of revenue.
Effective strategies for future success in mobile will therefore include, most probably, extending these primary revenue generators into other fashionable services, leveraging the daily habit subscribers already have to use and pay for the core of the mobile phone proposition.
SMS is a huge element of network service value, has minimal delivery costs and generates $1 billion a year or more in pure profit for major networks. And yet many operators have been busy undermining this remarkable cash-cow by over use of the competitive lever called "bundling", which equates simply to price cutting. Worse still, it breaks the linkage between SMS volume and revenue growth. This strategy only has one endgame: revenues heading relentlessly downwards, unless the model of extension and linkage to innovation is adopted.
In time, some operators will look back and wonder how they could have been so careless with SMS. But for now their focus should be on undoing the damage and tapping into the potential SMS still has to generate new revenues, boost subscriber acquisition, and cut churn. To do so, they will need to ensure two key enablers are in place: a gold-standard SMS transport layer, and complementary service layer technology that allows advanced SMS applications to be readily created, rolled out and managed through their entire life-cycle.
Network performance is critical
The mobile industry has long understood that voice network coverage and quality are critical KPIs. Rightly, operators have invested billions in achieving gold-standard performance against those two benchmarks. Now, as the focus shifts to encompass the support of SMS revenue, there is growing recognition that it too has two equally critical KPIs; messaging speed and reliability. Like voice quality and network coverage, they are a major influence on subscriber behaviour and choice of network.
Evidence is building that operators getting their messaging networks right are driving rates of SMS traffic growth way above those of their peers and rivals, while those still ignoring their second largest revenue generator are watching helplessly as unit price erosion eats steadily into profit. The dividing line can be drawn between operators that have deployed SMS Routers, the next generation messaging network technology, and those still using legacy SMSC store-and-forward architecture.
SMS Routing's distributed architecture creates a co-ordinated network view and optimises cross-network traffic so that it can smooth over the peaks and swells in traffic that can overwhelm traditional and uncoordinated SMS networks. SMS Routing is also built for the modern world where most mobile handsets are both switched on and in coverage, meaning more than 90% of traffic can be delivered immediately to target handsets – and so direct delivery functionality routes all messages for near instant delivery, storing messages only if necessary and turning on its head the 15 year old SMSC principle of always-store-then-forward.
Since SMS Routing separates routing and service logic, it is a far quicker and less expensive task to increase network capacity as demand grows, simply by adding routing engines. Lifetime costs are also low since each service update and maintenance task is carried out and executed centrally just once, rather than at each site individually.
A further compelling advantage of the centralised router control concept is that the total network view allows for the optimisation of routing flows in real time in response to traffic loading, directionality and the performance of other service providers' interconnect capacity. It means existing infrastructure is sweated for maximum efficiency, maximum performance and maximum reliability – and that the entire messaging infrastructure constantly delivers the best possible performance under all real world conditions. Subscribers experience SMS exchanges so fast and so reliable that real-time conversations become possible. The strong emotional connection created by such instant and dependable communication drives the texting habit and becomes apparent to the network operator as increased, organic traffic growth.
Finally and crucially, SMS Routing also encompasses Home Routing which directs inbound SMS messages via the service provider network instead of allowing other networks to deliver directly to their customers without their knowledge and outside of their control. Home Routing is a globally ratified change to SMS traffic flows that brings GSM architecture in line with that of all other data and voice technologies – traffic flow to and from the user is always via the service provider's network. It is the enabler that allows inbound SMS traffic to be enhanced with value-adding applications created and managed in a complementary advanced services layer.
A small step with large returns
But why bother with advanced SMS? In short, because it's a short, low-risk step in terms of new equipment, and yet offers the potential of high rewards.
Today, SMS is underdeveloped and yet massively popular with subscribers. By offering advanced SMS, operators will be extending revenues from an established proposition with both established subscriber usage patterns and a proven billing path – and all the while sweating existing infrastructure. In the mobile industry context it would be hard to construct a more favourable opportunity/risk profile.
What's more, SMS price erosion makes it even easier to construct a sound business case. An operator with $1bn a year of SMS revenue declining by 4% is risking a direct hit on the bottom line of $40 million if they do not arrest the trend. Advanced SMS services that re-establish volumes or maintain SMS prices against downward pressure will very quickly generate a clear net benefit. Add in the potential uplift to subscriber acquisition and possible reductions in churn that useful new services can generate and the business case clicks into focus quickly.
Operators can be confident that subscribers do want clever SMS. A recent independent survey in three European cities showed strong, positive "I would use it" responses from people offered a range of available-now advanced services. Five hundred people in each city of London, Rome and Madrid were asked a series of questions about their current texting habits, and which advanced text applications they might like and use. Interviewees were segmented by operator, age, average number of texts sent/received per day, and percentage of business/social usage. They were 'offered' five advanced applications.
– Copy SMS to another phone
– Divert SMS to another phone
– Archive SMS in network, available via the web
– Auto-reply ‘I am away' SMS
– Send my SMS to e-mail
The responses proved what some in the industry have long suspected: that lack of market research until now has led to the false conclusion that consumers don't want advanced text. In fact, the reverse is true.
In Madrid 54.2% said they would use SMS-to-e-mail. More than 40% said they would use the auto 'I am away' application followed by 28.8% for copy SMS to another phone, 24.9 for SMS archive and 18.7% for divert.
In Rome, consumers again showed great enthusiasm for an SMS/e-mail interconnect with 67.9% for SMS-to-e-mail. Auto respond polled 62.3%, archive 54.7% and divert 45.2%, with 26.6% of those interviewed saying they would use copy.
In London responses were markedly more evenly spread between the most and least popular, and showed a different bias. Divert proved the most popular service at 40.3% followed by auto respond with 35.4%. SMS to e-mail was next with 33.3%, followed by archive 31.5% and copy 31%.
The applications offered in the survey are not hypothetical, they are among a portfolio being actively trialled by a number of operators globally as the first steps into the value-added SMS world are taken. Many of them – like archiving as an example – mirror the kind of functionality long familiar to users of voice services and email.
But second generation advanced services layers of the type now featuring in operator trials are about more than pre-loaded off-the-peg applications; they are built to enable the rapid creation, roll-out and management of fully custom applications. Using a graphical drag and drop service creation environment, applications can be created in days, not week or months, and fine-tuned while in service as user-feedback is received. Operators will be able to target multiple subscriber segments – some of them larger than their entire customer-base was five years ago – with applications built specifically for each one. Examples include sport fans, parents with school-age children and business.
The marketing of advanced services – and in particular fully custom ones – will enable agile operators to create strong differentiation, putting clear blue water between themselves and the competition. Because SMS is already so much a part of peoples' lives, some advanced services will instantly fit into peoples' daily routine, offering the potential for a storm of viral marketing as new users share their experiences through social networks, voice calls and, yes, by SMS. Take-up will drive take-up in a self-sustaining upward curve that pulls in new subscribers, bears down on churn, and quickly generates strong new streams of profit.
About the author: Gavin Ray is Head of Product Marketing at Telsis