OTT, or Over-the-Top, apps, so named for their communicating over the top, or out of the reach of mobile carriers’ services, are catching fire in the mobile app space. The proliferation of internet-connected supercomputers with frictionless purchases available through app stores in every pocket has paved the way for the incredible explosion of growth for OTT apps. Great news for users, great news for OTT app developers, but the outlook for operators is uncertain.
Traditional mobile communication is being disrupted - voice, SMS and MMS are all on the chopping block as far as consumers are concerned. And where does this leave operators? Increasingly looped out of their customers’ experience and with the technology they’ve spent billions of dollars and years investing in now leaning towards irrelevance.
Right at this moment, if your smartphone had a fast data connection, access to an app store and little else, you could cobble together an incredibly cheap, if not free, calling, texting, media sharing device you’d be perfectly content to use. You’d never need to receive or make a call, send an SMS, or share a video over an MNO’s services - you’d only pay them for data. The danger for operators of course, is not just that people will realize it, but become so comfortable with it, they wouldn’t dream of going back to paying anything for those services.
“Well, that’s ok,” you think, “the operators will be fine. I’ll still need your operator for that data service, right?”
According to InStat, last year, in 2012, OTT passed SMS in volume. This year the quantity of OTT messages is predicted to be double that of SMS with 41 billion OTT messages sent daily, compared to 19.5 billion SMS messages, according to Informa. The loss of those services by the operators to OTT apps translates into a loss in revenue of nearly $479 billion from 2013 to 2020, with $71 billion of that loss realized in 2013 alone, according to Ovum.
There are additional, smaller forces at work whipping up the perfect storm of OTT domination. There’s a shorter time to market for smaller, more nimble app developers that are not constrained protecting a large body of IP and a bigger picture, established business model. They can offer free services subsidized by paying, premium users, thus lowering the barrier to entry for consumers to try before choosing the apps that best meet their communication needs. This is especially appealing to consumers when compared to the seemingly frozen-in-time voice, SMS and media sharing/MMS capabilities of their carrier.
I Think I See the Light
There’s a fairly clear way out of this ticking-time bomb of a mess for operators, and that’s to partner or acquire their more agile OTT competition. Mobile users are clearly looking for what OTT is providing - a speedy, integrated method of cheap/free communication with innovative features, and so far that special blend has not materialized for the MNOs. The acquisition this year of fring by Genband is one such example of what will likely be a quickly snowballing trend of OTT apps getting snapped up by those higher on the food chain and closer to the operators, until it’s the operators themselves doing the acquiring.
A well-structured partnership between an OTT player and a carrier are mutually beneficial. Customers have more relevant choices, carriers can actually add to their offerings, and OTT apps stand to convert what will likely be a large influx of new users into paying customers.
According to Mobile Enterprise Research, over half of U.S. smartphone users (52%) said they would use an operator’s OTT-type service; consumers aged between 18 and 34 show especially high interests (60%).
To the Victor Belong the Spoils
Disruption in an industry is only disruptive to those that don’t adapt. Not many music labels, producers and publishers made it out unscathed when the digital music revolution happened. We’ve lost quite a few media publishers and booksellers recently, too. None of this is a new phenomenon - when new technology or business models come along, the old ways adapt, or die.
Sadly, the casualties of the publishing revolution did not occur because they didn’t see the storm bearing down on them, but it was because they grossly underestimated it. They just thought they could ride it out - that digital downloads were a passing fad, and if they just stayed the course, making nothing but laughably inadequate changes, they’d make it out the other side with their business models and bankrolls intact.
There’s no doubt that the communication industry is heading into a similar storm. Will they defy the odds and make dramatic enough changes to their models to weather it? Thanks to rapidly accelerating technological change, we’ll likely know the answer in just a few short years.
Tristan Barnum is VP of Marketing at Voxox
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