|Issue:||Asia-Pacific I 2012|
|Topic:||A Wake-Up Call to Carriers – Twitter is About to Eat Your Lunch (and they aren’t the only ones!)|
|Title:||Founder, President and CEO|
Lynn Liu is the Founder, President and CEO of Aicent Inc. She founded Aicent in October 2000 with the vision of bridging the IP world and the wireless world through innovative mobile data services. Aicent serves more than 2.5 billion mobile users in 114 countries through more than 150 mobile operators.
Prior to founding Aicent, Ms Liu was a co-founder and COO for GRIC Communications (IPO in Nastaq in 1999). In 1994, she co-founded and held COO position at Aimnet, a leading Internet service provider in California. Aimnet was acquired by Verio in 1996, now a subsidiary of NTT Communications. Throughout her distinguished career, Ms Liu has established a long string of successes in IP data service development, rollout, market penetration, and corporate leadership.
Lynn Liu has a B.S. from National Taiwan University, and M.S. in Computer Science from the State University of New York at Stony Brook. She has also attended Executive Programs in the Graduate School of Business of Stanford University.
Twitter’s phenomenal growth is powered by SMS, with the 140 character tweets carried by the 160 characters of SMS. However costs of bulk SMS are prohibitive and Tweeter is seeking alternatives, perhaps revenue sharing agreements with mobile operators. In the meantime, Twitter and other social messaging are gaining momentum via data services on smartphones, threatening mobile carriers’ future business. In response to this, the RCS initiative is driven forward as an alternative carrier grade social messaging, but can carriers get it right and attract the tweeting crowds? This is their wake-up call. If they do not find their way, the messaging giants will effectively become mobile players, while carriers will be left managing a fat dumb pipe of data.
With coverage in over 84 countries and just about as many mobile operators, Twitter feeds via SMS have become a lucrative business for many mobile network operators. In many cases they can collect texting fees on both the send and receive ends. However, with the continual evolution and acceptance of smartphones globally, mobile operators are starting to realise that alternative methods of sending and receiving Twitter and other social media updates are now available to their customers, allowing them to bypass SMS and ultimately resulting in decreased revenues for the operator.
However, mobile operators will not stand idle and watch their revenues decline without taking some form of action. Operators will begin to fight back with strategies designed to regain this lost SMS traffic. Some are already in play.
With 140 character limitations, tweets are ideally suited to be delivered via a 160 character SMS, making them a natural extension of a mobile carrier’s SMS content and thereby driving increased two-way traffic. Tweet volumes have been growing globally since 2007 and by Jan 2010 already exceeded 50 million tweets a day. This large volume emphasises the commercial relationship between the mobile carrier and social media giant Twitter.
Interestingly, during the early part of 2008 when the social media duo Twitter and Facebook started gaining popularity worldwide, mobile carriers in only eight countries had two-way SMS relationships with Twitter. This number quickly snowballed to over 84 carrier relationships in 80 plus countries, as carriers realised the power of social media sites. Twitter in particular suddenly became a popular outlet not only for personal communities, but also for communicating world events from political arenas like the protests in Iran, to sporting events including the Olympics and the FIFA World Cup. These global events drove a significant increase in messaging volume among micro blogging sites with Twitter leading the way.
Now with a greater understanding of the market forces that have been drawing Twitter and mobile operators closer together, what can we determine of the nature of these private commercial relationships? In 2008 Twitter made a financial decision to suspend outbound SMS notifications in the UK and other European countries due to the prohibitive costs for bulk SMS delivery charges. Since then, Twitter has moved to direct relationships with local carriers in individual countries. It is difficult to fully understand the commercial constructs between Twitter and these operators (a noted example would be O2 UK, stating that they do not charge any interconnection or termination fees to Twitter). However, this author surmises that some of these direct operator relationships are likely to be revenue sharing in nature developed under the umbrella of a broader commercial context.
So, why would a discussion of these private commercial arrangements between Twitter and mobile carriers be important in the context of this article? Simply, because these arrangements underpin the symbiotic relationships balanced between the two. Twitter needs to reach its subscribers, but cannot afford to absorb the costs of paying for each Tweet sent by its users via SMS. Operators want to drive more messaging volume within its subscriber base — in many cases exceeding the monthly bundled free message plans, thereby increasing ARPU. Once one is able to understand this simple relationship, it is possible to understand the risks that a mobile carrier would face under the following trends:
1. Increasing Smartphone penetration within its subscriber base especially ‘data guzzling’ iPhones
2. Increasing use of over-the-top (OTT) apps to send and receive Tweets instead of an SMS
3. Twitter improving the usability and friendliness of its web and app based features.
Given that these trends are real and very apparent, one could gaze into the immediate future and make a premise that the day Tweets get delivered via smartphone apps, will be the day that mobile carriers become increasingly a dumb fat pipe, transporting immense amounts of data. This is becoming evident with the recent surge of apps, including apps that have full integration with Twitter, circumventing the need to utilize SMS and instead pushing instant messages across the data pipe.
Twitter itself continues to push this envelop with the development and refinement of its own app, as well as making their web interface friendlier to smartphone users. As this happens, Twitter will become more of a service provider with the ability to establish direct commercial relationships with the end user. As if there haven’t been enough analysts out there predicting the demise of the traditional mobile carrier, this nightmare scenario for mobile carriers would be ranked right up there within the top five the others being Facebook, Google, Apple and Skype. Certainly, Twitter has never commented nor demonstrated significant moves into behaving like a mobile virtual network operator; however, when looking at the underside of the broader scheme of Web and Phone 2.0, these are worrisome times to be a mobile carrier.
So…what is a mobile carrier to do? Certainly there is still a lot of stickiness and value in the mobile ecosystem to retain subscribers and drive down churn. Some examples would be the Rich Communications Suite initiative (RCS) within the GSMA community, piloted by the likes of Vodafone. The RCS initiative was developed, in part, to help carriers evolve and take advantage of the trend of subscribers becoming more community-centric. As a result, this initiative promotes converged communications and interoperability among mobile carriers. At its simplest level, these new RCS services now constitute the mobile carrier’s way of embracing social media and messaging. One could call this, “carrier grade social messaging”…
It’s encouraging to see that tier-1 mobile carriers have taken social media and mobile IM to heart, with features like presence enabled phone books, video chats, and shared white boarding. Of course, it remains to be seen whether they are able to price these features at attractive enough bundles to make them compelling and if these features by themselves are enough to attract the crowds. So far, we believe that these services are still priced at too high to draw critical mass. It might be educational to note some lessons learned resulting from the failure of 3G Video Calling and why that never gained any traction.
Yet other carriers have also demonstrated success working with Skype, by offering special Skype embedded phones. A case-in-point being Hutchison 3 UK which has served to demonstrate that a mobile carrier can successfully embrace an over-the-top IP app and use it to grow subscriber customer base and its ARPU. Some key lessons that one can draw in such an exercise are to never double charge your customers and to never be unduly worried about revenue cannibalisation. Other mobile carriers in the Asian markets have started to market their own house-branded phones preloaded with Facebook and eBuddy (a popular MSN Messenger IM app), aiming to drive up data ARPU (These house phones typically emanate out of factories in China).
For now, the jury’s still out deciding who and which types of MNO social media models will eventually win out. Some predictions we (how dare we?) would like to make: Consider this as a wakeup call. MNOs will take too long to truly understand the dynamics of Web and Phone 2.0 and by the time they do, one of the social media giants, perhaps Twitter, will have already taken the world by storm by becoming a global MNO, using content and social media to drive amazing adoption rates. Cloud Phones anyone?…