Smith Micro Corporate Blog

RCS vs. OTT Apps: Not Exactly a TKO

smartphones fighting rcs vs ott blogIntrigued by the growing popularity of over-the-top (OTT) messaging services such as WhatsApp, Kik, and Line, I recently participated in an industry workshop to better understand how wireless operators are responding to these new offerings. At the center of the discussion was a focus on Rich Communication Services (RCS), a specification for the next generation of messaging offerings by operators. As the room full of experts discussed the finer points of RCS, a few key takeaways really stood out:

RCS Alone Is Not Enough

Although I expected to walk into something of a pro-RCS political campaign, I actually got the impression that RCS may be too little, too late. In fact, the consensus seemed to be that RCS alone would not be sufficient for operators to compete with the small, young companies that are launching innovative messaging services for free to consumers.

Vaporized Revenue Model

Much has been written about the revenue lost to OTT messaging companies. For example, a recent article from Fierce Wireless stated the following:

Operators stand to lose more than $3 billion (€2.3 billion) in mobile messaging revenues between 2012 and 2017, as consumers are attracted to use OTT messaging services, according to a report from research firm Strategy Analytics.

More importantly, however, is that there has been such a paradigm shift that the revenue based on historical business models is irrecoverable. Now that consumers have been exposed to free services that provide more engaging ways to communicate, it will be challenging, if not impossible, to reinstate traditional service fees that operators have previously relied on.

Finding the “R” in ROI

The success of services such as YouTube and Netflix on mobile is a direct result of operator investments in 4G networks. We may very well see history repeating itself as operators invest in RCS technology, which will further empower OTT vendors that can also use the RCS APIs. Don’t get me wrong—as a software developer, I’m happy that the GSMA specs for RCS include APIs so we can innovate on top of RCS services, but operators will need to master the art of the co-op to share in the success with OTT vendors.

What’s Next?

I left the workshop feeling more strongly that RCS is only a small part of the larger response needed from operators, if they are going to reclaim their position as the innovators of mobile messaging. Here are three ways I see operators making strategic changes to capitalize on this opportunity:

Adopt Agile as a Business

Operators need to stop thinking like telephone companies and start thinking more like Internet companies. Operators have the ability to reach a large user base that can be incentivized to try their service provider’s offerings first. This is a huge advantage if operators have the agility to innovate and go to market in rapid development cycles. It is much better to pilot test new services quickly and allow the market to dictate the direction for subsequent releases, rather than get bogged down; the internal analysis-paralysis method—attempting to define and build consensus on the perfect solution—only delays launch.

Adopt New Business Models and Segment Your Market

Wireless operators should segment their subscribers and provide offerings for each class of user in different demographics, such as professionals, homemakers, and youths. OTT vendors have proven that many consumers are happy to accept “freemium” and ad-subsidized models for messaging services. Operators can take advantage of this trend with highly targeted advertising, while still promoting more selective consumers to opt-in to a premium version of an app for a monthly fee. In addition, content remains king and operators should explore ways to incorporate content monetization within their services. This will drive recurring revenue streams while enabling new ways of personalizing communications.

Leverage Your Real Estate and Infrastructure

Operators are well positioned to utilize the on-device real estate they already control for basic services such as voicemail, SMS messaging, etc. Leveraging existing services provides instant exposure to introduce new value-added services, and also eliminates one of the biggest challenges faced by OTT vendors: app discovery. Further, the integration of new services with legacy services provides a convenience factor to subscribers (e.g., one app that does the job of three or four). It also adds trust, reliability, and scalability factors that small OTT vendors can’t match.

It’s clear that operators need to get creative in their offerings, while using their unique position as the trusted curator of mobile services, to drive adoption. Consumers are hungry for ways to better express themselves, so it’s the perfect time for operators to strike while the iron’s hot.

What is your opinion on RCS and OTT? Sound off below.

 

Topics: wireless, mobile strategy, OTT, RCS, Value-added Services