Apple’s iMessage Cannibalizes SMS But is No Threat to Operators
A major part of Apple’s new iOS software update is iMessage, which replaces the iPhone’s standard SMS app. The iOS5 software is compatible with approximately 200m of the 250m total iOS devices sold, including both the older iPhone 3GS and iPhone 4 models, as well as the iPod Touch and iPad. It’s also installed on all new devices including the iPhone 4S. As of today, over 25 million devices now have iMessage installed and Apple sold 4m iPhone 4S handsets on its first weekend on sale.
The way iMessage works is extremely interesting. In so doing, iMessage cannibalizes carriers’ SMS and MMS services:
- Any messages sent from an iPhone to another iPhone with iMessage installed are automatically sent by iMessage over the Internet rather than via SMS. This bypasses carrier text messaging (SMS) charges but requires a working data tariff.
- Similarly, any photos or videos sent over iMessage bypass costly operator MMS systems. There’s even an iMessage preference option for users to switch off MMS so they do not inadvertently incur MMS charges when they’re intending to send for free via iMessage.
- Messages can be sent to or from iOS devices that lack SMS capability, such as the iPad and iPod Touch.
- Users can address messages to an email address rather than a phone number. This is essential to send messages to an iPad or iPod Touch. New iMessages sent to a phone number only appear on an iPhone. Any messages addressed to an email address are sync’ed to all iOS devices tied to that Apple ID.
- Users can change their iMessage “Caller ID” to be their email address so that any replies go to all of their devices. This is very similar to the way Apple’s video chat service, FaceTime, setup works. Additionally, users can attach multiple email addresses so that iMessage will receive messages sent to any of a selection of email addresses.
- By default, iMessage does not report whether a message has been read but there’s an option to set this to “on”. There’s also an optional ‘Subject’ field that starts out “off”.
iMessage is clearly Apple’s take on BlackBerry Messenger (BBM), small messaging players such as Whatsapp or eBuddy, and Internet instant messaging systems such as Microsoft Live Messenger or AIM. But iMessage does not the deliver the precise same mix of product benefits as any of those alternatives.
Apple has a number of differentiated twists on their execution that guarantee iMessage will be a success:
- iMessage setup is automatic. The user does not have to do anything for iMessage to work. I can’t overstate how important this will be to driving uptake. An iPhone will automatically detect if a recipient is also using an iPhone with iMessage. To signify that iMessage is in use sent messages appear with a blue paper background, rather than green for SMS, and in the text field where users write new messages the word “iMessage” appears faintly. This ensures that all iOS5 users will end up using iMessage without having to install any extra app or alter any setting.
- It’s completely integrated with SMS and the rest of Apple’s OS. On the iPhone, only Apple has this capability to effectively replace a standard app. With Android, other messaging app creators could mimic iMessage. They should.
- iMessage’s support for the iPod Touch will extend its appeal to young consumers unable to afford an iPhone. The installed base for the iPod Touch is over 60m (we’ll know how much more when Apple announces its Q3 2011 results). This will act as an acquisition driver to encourage iPod Touch users to switch to the iPhone.
- Message sync between devices enhances the value of owning an iPad. When Apple announced the iPad it pitched it as the third device. But without great sync there’s always a danger that the iPad is the Gooseberry to the iPhone and notebook PC. iCloud and iMessage’s sync removes this convenience barrier to increased iPad use.
So, why is iMessage not a threat to telecom carriers now?
Because Apple is playing a bigger game than competing in telecoms. Plus, operators are already moving on from SMS. They’ve known this day would come for years. Specifically, iMessage isn’t a major issue to carriers because:
- The quantity of SMS messages bundled with iPhone contracts is so great that there’s virtually no revenue cannibalization risk. In the UK, Vodafone and O2 offer unlimited texts with all bar the cheapest of their iPhone contract tariffs. With such large bundles, carriers have nothing to lose if some users send some texts via iMessage across the Internet rather than through SMS. Operators also continue to have the option of tweaking the amount of subsidy they offer new iPhone owners if they are concerned about ongoing revenues.
- iMessage iPhone users still need an SMS tariff. Text messages are used behind the scenes by Apple to set-up iMessage connections, so users have to have SMS capability to use iMessage.
- Apple is focusing beyond the phone and beyond the mobile industry. iMessage’s support for non-phone devices such as the WiFi-only iPod Touch and iPad shows that Apple is competing with Internet players and not carriers.
- iPhones will comprise a minority of any carrier’s user base. Even with the massive success that Apple enjoys, most phone users will not use iPhones. So, the universal support that SMS enjoys — a benefit of being able to text anyone anywhere — will continue to be essential for all phone owners, even those with iPhones.
- Apple still needs the carriers. Almost all iPhones are sold with operator subsidy in countries where phones are sold that way, for example the US, France and the UK. As the iPhone is such a very expensive phone this won’t change any time soon. Carriers still have the ability to influence Apple, for example to ensure that iMessages addressed to a phone number are always delivered to a phone and to ensure that fall back to SMS continues to exist.
- iMessage could help grow photo messaging. Operators could lobby Apple to remove the option for users to switch off MMS fall back, in which case iMessage could actually help drive stalled MMS revenue growth by making photo messaging easier. A precedent to this is the way iPhone’s handle WiFi tethering or APN settings: What options a user has visible in the iPhone interface depends on which carrier’s SIM is inserted into the iPhone (interestingly, this remains the behaviour even with legitimately SIM-unlocked iPhones).
So, iMessage places Apple in the unusual position of replacing a cash cow mobile operator service, SMS, with their latest app but does not make Apple any more of a threat to carriers than they already are.
Instead of operators, the companies that should worry about competition from iMessage are those that have been trying to replace SMS with instant messaging for many many years: Notably RIM, because of the importance to them of BBM, and their vulnerability due to the large service outage they had last week; and the numerous messaging-centric start-ups such as: Whatsapp; eBuddy; Nimbuzz; Fring; Palringo; BeeJive IM; Xava’s Yak Messenger; Shape’s IM+ and many many more.
Written by Ian Fogg
October 17, 2011 at 11:33 am
Tagged with AIM, AOL, Apple, Apple ID, BBM, BeeJive, BlackBerry, BlackBerry Messenger, eBuddy, Facebook chat, Facetime, Fring, Google Talk, IM+, iMessage, iOS, ios5, iPad, iPod Touch, IRQ, Jabber, Live Messenger, Microsoft, Microsoft Messenger, MMS, MSN Messenger, Nimbuzz, Palringo, photo messaging, RIM, SMS, text messaging, Whatsapp, XMPP, Yahoo Messenger, Yak Messenger
Subscribe to comments with RSS.