Trends in Mobile Messaging and Data Services

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As the number of mobile devices continues to grow in North America and usage beyond voice and basic text messaging continues to broaden throughout the world, the number of vendors supplying content, software and services to the variety of carriers and infrastructure providers has also multiplied. Indeed, with forecasts for mobile data services usage increasing for consumer and business users, the need for carriers and other mobile data technology and service providers to offer robust differentiable capabilities is paramount.

It’s useful to examine the current state of the mobile messaging and data services market:

  • According to an ABI Research report in October 2006, “…the global mobile devices marketplace is on target to reach one billion devices by the year’s end.” In the U.S. market, eMarketer estimates that by 2010 there will be approximately 300 million mobile subscribers representing some 95% of the population;
  • According to Portio Research, “In the space of just a few years, mobile messaging has become an immense global industry generating over $55 billion in 2005. The largest portion of this revenue comes from simple SMS, worth an estimated $35 billion in 2005. Since hitting mainstream use in Western Europe in 1999, SMS has quickly grown to the levels we see today with an estimated 1 trillion SMS messages worldwide this year;”
  • In the U.S. market, total mobile data revenues are expected to grow from $5.4 billion in 2006 to $37.5 billion by 2010 (eMarketer), with content in its many forms comprising the lion’s share of growth by that time.

Industry Trends: Monetizing Mobile

Along with strong market growth, there are movements afoot related to converging communications technologies, consumer electronics, content distribution, advertising, search and media which suggest significant developments and investments ahead. These include:

  • The secure delivery of both audio (ringtones, music, podcasts, etc.) and video to mobile devices: acquisitions supporting this activity should occur from the infrastructure level, to applications for content creation and management, to service providers such as CDNs, and to Internet portals;
  • The delivery of content of any type to any customer regardless of client platform, wireless standard or carrier: technologies here include infrastructure, content management, billing, analytics, performance monitoring and management (audio, video, VoIP, etc.);
  • The participation of advertising agencies, global brands, infrastructure providers and carriers in marketing programs to mobile users: this ranges from advertisers seeking measurable results within targeted demographics to traditional television and media companies attempting to capture new sources of revenue. Messages, sweepstakes, voting campaigns, search, rich ad content are all being intermingled to reach mobile subscribers;
  • The growing interest in providing a robust customer experience regardless of the platform used has numerous software companies (e.g., CRM, ECM) considering mobile plays to ensure that their capabilities extend well to that environment.

Clearly, mobile communications have become a significant part of the fabric of personal and business infrastructure, and the mobile data market is a burgeoning and increasingly important component. As prices continue to decrease and margins thin for ever-commoditizing voice and basic SMS, higher value data services and increased ARPU (average revenue per user) are vitally important to carriers and other providers. Such services include the following:

  • Content such as ring tones, graphics, photograph distribution, video, and music;
  • Mobile commerce and portal capabilities to aggregate, transact and distribute as well as to enable a broader mobile experience;
  • Mobile advertising, search and nascent mobile social networking;
  • Enhanced messaging capabilities such as audio/video messages, interactive TV, speech-to-text, voice mail;
  • Mobile device management that includes support for configuration, provisioning, firmware updates, diagnostics and security, particularly as the range of device types expands;
  • Location and tracking services based on GPS but delivered through mobile networks.

There are numerous technical capabilities that are critical to creating and managing the infrastructure required to support the variety of products and services noted above (as well as to maximize the user experience locally at the hardware device(s) receiving mobile services and content). These include:

  • Content management: capture, storage, transcoding, search, etc. of content destined for delivery to mobile devices;
  • Infrastructure and platforms: converged messaging systems, security and digital rights management for content, access and mobile application development;
  • Delivery: just as companies such as Akamai have enhanced the performance of delivering web-based content, so too must mobile content be optimized for delivery. Ensuring that content demanded from the client is available and can be obtained as quickly and efficiently as possible – with no loss of quality – is critical to the ability of new services to thrive;
  • Billing and Reporting – Enabling carriers and service providers both to understand usage patterns and user requirements while being able to bill customers for the ever-growing variety of services available is obviously critical. There have been several acquisitions in this area, and we believe that it will continue to see action along with provisioning and other customer service/transaction management capabilities.

There have been a number of recent notable M&A transactions and there will continue to be a wide range of companies from various sectors that will participate in mobile messaging and data services M&A, particularly given the variety of technology convergence, entertainment, consumer electronics and other trends noted above that are affecting the market. These range from communications and mobile focused companies (e.g., carriers, other service providers and software vendors), technology infrastructure companies (Cisco, Akamai, EMC, Level 3, etc.), platform companies (e.g., Sybase, Oracle, IBM) and Internet age providers and information/media companies (e.g., Yahoo, Google, IAC, News Corp., Thomson). Additionally, private equity/venture capital firms will continue to maintain a strong presence as growth and consolidation opportunities abound.