Going Over The Top: MXit
Mixit is the root of all evil whether controlled or not...Hermanus - (creator of mixit) I hope you sleep at night cause I've prayed many times that the fleas of a thousand camels with infest you!! (Link)
Surprisingly, this remark about South African hit mobile messaging app MXit didn't come from a telco marketing director. Neither did it come from a telco data network engineer struggling to cope with demand. In fact, its author was more worried about the content of messages than their quantity; but being common carriers, of course, telco people should be quite the reverse.
And MXit should be giving you nightmares. Since its launch in 2005, the service has been recruiting users at a rate of 10,000 a day. It's one of the first examples of a really successful over-the-top strategy in mobile; the heart of the service is an instant messaging client that uses the mobile packet data channel and the Internet. But as you will see, it's far from being "just" mobile IM.
MXit is coded in Java2ME and is therefore broadly cross-platform. Messages are limited to 2000 characters, slightly but significantly more than an SMS, but sufficiently small that it works on all levels of mobile data service - all the way from HSDPA down to circuit-switched data. It leaps over several of the major advantages of telco products; for example, it's interoperable, dammit.
MXit's developers chose to base the system on the open-source Jabber protocol and the ejabberd server implementation of the same, which means that it can exchange messages with a full range of commercial IM products - MSN, Yahoo!, ICQ, AOL and Google Talk. This also means that it leaps the PC/mobile boundary; there's a version to run on a PC (in an emulator, it has to be said, but there are people working on it in the developer community). On the most recent version, traffic is AES-128 encrypted.The commercial upshot is dramatic. Consider these quotes from users:
The point that needs discussion is why aren't the Cell Operators reducing theirs SMS/MMS tariffs? How much can it possible cost to relay a couple of text characters across the network? 80c?? That's INSANE. It should be around 1-5c, if not completely free!Even at typical cellular data prices (i.e. not 3UK!), it's becoming impossible to disguise that although SMS is cheap, there is a vast gulf between the price charged to users and the cost of production. This is a classic Telco 2.0 phenomenon - as the cost of bandwidth falls, more and more of operators' revenue consists of economic rent, and as subscribers become aware of this, it is competed away. From the unofficial MXit blog:
MXit fan has found the following regarding MTN, Cell C, Virgin and Vodacom's internet data rates.Even at 2000 characters, there are a lot of messages in a megabyte; the fact that Virgin, a MVNO, can make money selling data traffic at 25 per cent of the mainline network price should illustrate more than anything how much rent there is for MXit and others to attack. (Leaving aside the eerie similarity in pricing between South Africa's allegedly competing operators.)
MTN charges R2 per megabyte of data tranferred.
Cell C charges R2 per megabyte of data transferred.
Vodacom charges R2 per megabyte of data.
Virgin charges us 50 cents per megabyte of data.We are now able to chat using MXit at 75% cheaper rates than before using one of the above Mobile Service providers. Guess which sim card I am going to buy?
Here is the rub; over-the-top applications and communities are a powerful competitive advantage for bit-pipe operators, because their users are fanatical about cheap data. But, of course, that doesn't mean you can necessarily make money out of them...
So, if MXit doesn't make money from the client (it's free), or the messaging (it's free, and the data charges go to the operator), what's the business model? Well, the news is that it seems to be emerging as a platform; MXit already has its own currency, Moola (it's equal to one South African cent), and an e-commerce portal called Tradepost. To begin with, this is mostly used for bonus services (transferring files, mass messaging, and saving data on a central website). But the potential for a wider commercial ecosystem is clear.
The userbase currently stands at 4.9 million and 200 million messages a day, which compares not too badly to some operators. In November, 2006, roughly half the then 2 million users were between the ages of 12 and 25, with roughly half this group being between 12 and 18. Now that's what I call digital youth. MXit management has a stated mission of reaching 2 per cent of the GSM phone population by 2008; that sounds unlikely to say the least, but perhaps they mean GSM phones in South Africa. There are 38.7 million subscribers in South Africa, so either their expectations have been blown to pieces, or someone's missing a zero.
Further, MXit's most recent version shows signs of taking over the device's interface with the user; you can now play back MP3 and MP4 files from within the client, access the phone's local filesystem from it, and (if you're a Nokia S60 user) use the phone camera from within it. They're not just going over the top of the telco, but the handset vendor too.
More on how to deal with these threats at our Digital Product Innovation Summit next week...