The Future of Messaging and its Role in Mobile Advertising

As we discussed back in August, it's been 15 years since the first txt msg pinged into humanity's consciousness, between two engineers at a company we used to know as LogicaCMG but now call Acision. LogicaCMG's Telco Products division, which has now been spun off into Acision, is best known as the world's leading maker of SMSCs (Short Message Service Centres), the machines that handle SMS messages.

But it's not all they do.

Below is a Q&A with Steve Van Zanen, Acision's VP of Marketing, covering the future of messaging, the role of IP, mobile advertising and strategies for saturated vs emerging markets. (Steve and colleagues will be joining other expert stimulus presenters at the Digital Advertising & Marketing Summit, and the Product Innovation Summit - Voice & Messaging 2.0 - both on the 16th October in London.)

Telco 2.0: How far do you think subscriber growth in mobile has still to go? We're already well into the majority phase of the Bass diffusion model; at what point will all the people who can have phones have them?

SVZ: I think there is still a huge amount of growth ahead of us. In terms of subscriptions, for instance, we can expect at least another billion net adds over the coming 4 years as penetration levels are soaring in regions like the US, China, India en Latin America. If we take SMS, as an example, volumes are expected to double from 2 to about 4 trillion per annum. Even in highly penetrated markets the 'basic' SMS service is still growing in terms of both penetration and frequency of use.

We shouldn't forget that the mobile device, in the end, is just a channel for a rapidly expanding range of services. In markets where everyone already owns at least one phone, it is service innovation which represents the key area of growth. From our point of view, enabling operators to provide innovative services at high volume and performance levels is a definite growth area.

Telco 2.0: Text-messaging is the mobile industry's gift that keeps on giving. Your infrastructure products are already migrating to IP. How rapidly do you expect messaging traffic to migrate to its own IP-based solutions, such as the various instant messaging apps? Will we see widespread adoption of IP-based SMS origination bypass services (e.g. Vyke, smsbug)? How might it affect operator pricing and revenue?

SVZ: Because SMS uses the core signalling network as a bearer, it is the only network embedded mobile data service not requiring any 2.5 or 3G overlay networks. This means it will simply work on any phone, however simple that phone may be, requiring no configuration whatsoever. This inherent ease of use will remain a key differentiator of SMS for some time to come.

With 4G networks, where the connection is IP all the way, this unique advantage will be lost, but we'll have to wait till about 2015 to see that happen. Until then, internet originating SMS services, such as the ones you mention, will occupy a niche position as it either requires the sender to be behind his PC or, in some cases, users to download java applications on their phones. Although there is always a niche market for these types of approaches, they will never reach any mass appeal.

But we are of course making sure our platforms fully support IP and IMS based solutions. As the enabler of the biggest mass market mobile data service, we need to ensure full interoperability so operators can put together any combination of services as part of their communications portfolio.

Telco 2.0: Do you expect alternative forms of carrier messaging, such as Voice-SMS, to be complements for SMS or substitutes for it?

SVZ: We do believe that, especially in saturated markets, operators need to offer much more differentiated and personalised types of services. Some of these will enhance the intrinsic messaging service itself such as auto reply and external message storage & retrieval, or will still be messaging based such as voicemail to SMS or MMS. Some services could be taking more of a substitute position, such as Mobile IM. These services could, however, stimulate core messaging traffic as well, for instance when IM messages get terminated as an SMS or MMS. Overall, therefore, we see these types of developments as complementary to the core messaging experience.

Telco 2.0: Acision seems to categorise some rather surprising applications as "messaging"; for example, context-dependent advertising. How do you plan to integrate these functions within the messaging infrastructure?

SVZ: It is important to realise that Acision offers a wide range of mobile data services platforms, including a full mobile internet portfolio. We believe that increasingly operators will be looking to differentiate themselves across their entire services portfolio, and advertising is a good case in point. Only by controlling the advertising experience across all channels will operators be able to make the business model work. For this they will need network resident intelligence and access which is able to handle enormous volumes and respond to service requests within milliseconds. We provide such cross-channel applications. An interesting example, especially important for operators focusing on differentiation, is our customer intelligence portfolio which continuously extracts user behaviour data from SMS, MMS, Prepaid and Mobile Internet platforms providing a live feed to operational customer data stores.

Telco 2.0: One problem with mobile ads driven by messaging is the very large volume of extra traffic they might create. In SS7 and IMS networks, this is extra traffic in the signalling channel. How can operators avoid becoming victims of a self-administered denial of service attack?

SVZ: The implicit assumption in your question is that advertising will be pushed to consumers via SMS or MMS. We believe, however, that such an approach would be much too intrusive, making even email spam appear innocent. We therefore strongly advocate an 'in service' approach where advertising is inserted into existing communications events. It is imperative that the customer is fully in charge, able to determine whether to opt-in into the service and, if so, how often and how frequent adverts can be inserted.

Again, in order to achieve this, the operator needs to be in control of all channels, being able to make an instant decision whether the ad insert is appropriate and allowed, without impacting basic service quality.

Telco 2.0: Context-dependent ads are, by definition, essentially programs; rather than placing an advert at some location and point in time, an advert is delivered when several conditions are satisfied. How do you bridge the gap between traditional advertising, media-sales, and media-buying on one hand, and programming on the other?

SVZ: This is indeed one of the key challenges to overcome in this area. In actual fact the problem is even more daunting as we believe mobile advertising will go beyond the contextual advertising the internet currently offers and provide truly personalised advertising. Given the personal nature of the mobile device and the behavioural information operators potentially have at their disposal, this is one of the key differentiators the mobile channel offers against other advertising channels.

What will be required is a fully automated market place where the operator sells its advertising inventory to anyone wanting to place adverts. This should accommodate the professional media buyer as well as the 'long tail' niche player and the local corner shop. An essential ingredient to this sales process will be accurate information on customer behaviour where the operator is able to create an accurate prediction of future inventory availability. Again our customer intelligence platforms are a crucial enabler in this area.

Telco 2.0: And how do you go about pricing such an advert?

SVZ: Given the breadth of the mobile advertising channel, I think we will see quite a mix of pricing strategies ranging from Cost Per Mille for screen based ads, Cost Per Click where fulfilment is via the (mobile) web and Cost Per Action where the mobile channel is used as a response mechanism.

Regardless of the type of measurement, I think the pricing levels will be the most interesting development. The mobile channel offers a unique mix of personalisation, location, interactivity and response measurement which is unparalleled. I am expecting that the average value per ad will be significantly higher than what we are used to on the web.

Telco 2.0: What would be the top three priority actions you would recommend to operators looking to defend and extend their messaging business?

SVZ: I don't think that in today's market there can be a single answer to such a question. The days of the 'one size fits all' approach, are numbered, forcing the industry to take a more differentiated approach to the operators' challenges. For instance, the level of saturation in a market profoundly impacts operator requirements. Also, it is our experience that the demands of 'pure' mobile operators are completely different from those of Fixed Mobile Convergent or quadruple play operators.

For mobile operators in high growth markets (such as the US, India and China) our offering focuses on assuring a high quality of service under extreme throughput and performance. For mobile operators in saturated markets (such as Western Europe and parts of Asia Pacific) we provide a personalised services offering that brings the operator service differentiation and control. To quadruple play and Fixed Mobile Convergent operators we offer high levels of differentiation through a highly integrated, cross channel service offering.

For the development of messaging itself I think the most interesting challenges are in the highly saturated markets. In these markets I would recommend operators to focus on the following:

1. Differentiate the intrinsic messaging service by providing innovative service scenarios such as voice messaging (voicemail to SMS or MMS), message storage and retrieval, Mobile IM, messaging buddy list and so on. There is still a lot of mileage in enhancing the messaging experience and operators should become much more creative in this area.

2. The internet is clearly of importance to the mobile industry. It actually opens up the possibility of very interesting service scenarios where operators could play a key role in truly mobilising internet services. Why not use the intrinsic strength of SMS, such as reliability and security, to extend PayPal or eBay's services to the mobile channel? We have been speaking to some of the major internet players and we know there is keen interest to explore such scenarios.

3. Finally, alternative revenue streams simply need to be part of the operator agenda. Mobile advertising, we believe, will be one of the most important developments in this area. In order for advertising to gain any momentum, it will need to be across all the channels, especially the highly penetrated SMS channel. Operators need to start considering very quickly how they will be able to monetise their assets, including their messaging infrastructures, in new and innovative ways.

Telco 2.0: Thanks very much Steve. See you in a few weeks' time.