Apps Redirect Text Messages, and Profits, From Cellular Providers

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For a long time, opening a cellphone bill was scary for the parents of teenagers. Charges for texting could reach hundreds of dollars a month, prompting many families to sign up for unlimited plans. But at perhaps $20 a month for each family member, that quickly added up, too.

Relief is on the way. Cellphone users are sending more text messages than ever, but increasingly they are free -- thanks to the Internet. While that is good news for consumers, it could cost the world's wireless companies tens of billions of dollars in lost revenue.

Standard texting, the kind where you send abbreviation-filled messages over a cellphone network, has been in decline in many parts of the world, and now appears to be shrinking in the United States. That is because smartphones can use free Internet-powered services that send messages over data networks instead, and those services are attracting millions of users.

The shift is opening an opportunity for big companies like Facebook and Apple and smaller start-ups like WhatsApp and Kik, which are making aggressive grabs at this market, aiming to put themselves at the center of how people communicate in the smartphone era.

Peter Deng, a product director at Facebook who oversees its Messenger software, said that text messaging was "ripe for innovation" because it had been held back by outdated technology.

"It's limited to 160 characters," Mr. Deng said, "and it's not at all rich in its expression. People want to connect deeply with each other, and they don't want to be constrained by various technical boundaries and decisions made 20 years ago."

Unlike ordinary text messages, Facebook's messaging service allows people to see when their friends are typing a reply and when messages are received, among other features, he said.

Standard texting is still popular. CTIA, the wireless industry trade group, said that in the first half of this year, Americans sent 1.107 trillion text messages. But that was down 2.6 percent from the 1.137 trillion messages sent in the first half of last year. Ovum, a mobile communications research firm, estimates that by 2016, Internet-based message services will have eaten up $54 billion in revenue that carriers could have made from text messaging.

For years, text messages have been a source of pure profit for carriers because it costs nearly nothing to deliver them. In response to the rise of Internet services, they have been overhauling their pricing plans to stay profitable.

Verizon Wireless and AT&T, for example, offer new plans that include unlimited texting and phone calls, while charging bigger fees for using Internet data, which is likely to be their main source of growth. (Internet messaging over a carrier's data network does use up some of a customer's monthly data allotment, but it is a tiny amount relative to, say, watching a video.)

John Walls, vice president for public affairs at CTIA, said carriers were always expanding their services by offering things like all-you-can-eat texting plans and the ability to donate to charity via text. He noted that 72,000 text messages were being sent every second of every day.

"I hardly think the end is in sight for texts," Mr. Walls said.

For Internet companies, messaging will never be a cash cow. But they have other reasons to get excited about this market.

Facebook benefits if more people use its messaging service, because those people are likely to spend more time on its Web site and mobile apps, seeing more ads. On Tuesday the company said it would allow Android users in some countries to sign up for its messaging service with just a phone number, no Facebook account required, partly because this might eventually persuade non-Facebook users to cave in and sign up for an account. That feature will come to the United States at some point, Facebook said.

Apple's free texting service, iMessage, comes installed on iPhones, iPads and iPod Touch devices, where it automatically routes messages over the Internet if they are being sent to another Apple device. The service also works with the Messages app on Apple's computers. That could encourage people to continue buying Apple products to keep in touch with family and friends cheaply and easily. Even the design of iMessage makes people feel like they're in a special clique: an iMessage shows up on an Apple device as a blue bubble, while a normal text message from a non-Apple phone is green.

Perhaps the most talked-about player in texting right now is the small start-up WhatsApp, based in Mountain View, Calif. The 30-person company, founded by Jan Koum and Brian Acton, two former Yahoo executives, says its service is used in more than 100 countries. Its app is one of the most popular in the world on iPhones and Android devices, and on the BlackBerry it is even bigger than Research in Motion's own messaging service.

Unlike other companies that provide messaging as just one of their many services, WhatsApp does nothing else. Its apps do not show ads. Instead, the app costs $1 for iPhone owners up front, and owners of other smartphones pay $1 after using the app free for a year.

Mr. Koum and Mr. Acton say they want to make messaging accessible to anyone, regardless of what phone they own, where they live or how much money they make.

"We are providing a richness of experience and an intimacy of communication that e-mail and phone calls simply can't compare with," Mr. Koum said. The two founders say they work throughout the day on keeping the service running smoothly. Mr. Acton focuses on the servers, while Mr. Koum looks at the overall product and makes sure it looks and acts the same across different devices.

WhatsApp received about $10 million in financing when it was getting started in 2011, and it quickly became profitable. It now moves 10 billion messages a day among its users. Facebook, a bigger company with a billion daily users, would not disclose the number of messages it handled each day, perhaps because the number was not yet worth bragging about.

But what makes WhatsApp so appealing if all it offers is messaging? Just that, said Tero Kuittinen, an independent mobile technology analyst: the service is pure and reliable, without all the noise.

"They can solve the problem Facebook is now facing, which is that many people hate Facebook," he said. "People think it's juvenile, and all the 40-year-old people think it's only for kids. Facebook has a lot of different issues, and WhatsApp doesn't have them because it's naked."

It's not the phone carriers that should be sweating about the changes in texting, said Chetan Sharma, an independent telecom analyst. Instead, he said, companies that have not made a smooth transition into mobile, like Microsoft, Dell and Hewlett-Packard, are the ones that should worry about their relevance in a world that is moving to smartphones and tablets.

"These guys had their eye on mobile, and they haven't really moved fast enough," Mr. Sharma said. "There's a big question mark about whether they can actually make an impact and how long that will take."

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This article originally appeared in The New York Times.


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