A large number of customers are migrating to free or cost-effective social messaging apps. This is dampening SMS revenue growth and causing operators to worry about monetizing messaging services, says global analyst firm Ovum.

In a new report that examines the findings of its Consumer Insights Survey, the independent telecoms analyst firm reveals that 31 percent of respondents to the survey said that using social messaging services has led to a decrease in their SMS usage. Countries such as Australia, Brazil, China, and France have experienced the highest adverse impact on SMS, although respondents from Germany, Russia, and the US stated that they had actually increased their use of SMS.

"Based on Ovum's research, there is a clear substitution effect in the early stages of social messaging adoption. This will increase as more social messaging players come into the market, mobile broadband becomes more affordable, and smart devices become even more popular," says Neha Dharia, consumer analyst at Ovum and co-author of the report. "However, the fact that social messaging does not always infringe on SMS suggests that services with stronger operator relationships can even grow SMS traffic, creating opportunities for operators and OTT players to bridge the gap between online and offline users through paid SMS."

In responding to Ovum's survey, 34 percent of Skype users and 51 percent of WhatsApp users indicated that their SMS usage has decreased due to their use of social messaging. "Clearly there is a need to identify services that will promote the use of SMS to bridge the gap between offline and online services, which could lead to a revenue-generating opportunity," comments Dharia.

According to Mark Ranson, consumer analyst at Ovum and co-author of the report, social messaging is proving to be a great foundation on which to grow a social media platform. This is because the sticky nature of messaging drives high engagement and increases customer retention. "This stable foundation can form the basis of a range of monetizable services, including games, utility payments, personalization, and communication."

Ranson suggests that operators will need dynamic, multifaceted business models to capture new opportunities in the rapidly evolving social messaging market. Numerous microtransactions can add up to large revenues; the South Korean social messaging service Line, for example, generated approximately US$30m in 2H12 from the sale of premium emoticons. "The trick is to continue to find micro-opportunities, because allied to other forms of revenues such as advertising and more premium services and multiplied by a huge scale they can be extremely lucrative," Ranson states.

"In a nutshell, social messaging can be monetized, and achieving scale and creating loyalty are the keys to unlocking services' potential," he concludes.

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