Think of a CD-ROM, DVD, SMS, MMS and Blackberry Messenger. Now, consider iTunes, NetFlix, Skype, YouTube, iMessenger, Twitter, Google Voice, Instagram, SnapChat, Vine and Voxox. What’s different? The latter are cross platform OTT apps that are cool, convenient, compelling and cost-effective. That’s awesome, but what can we expect in the future?
Look to the past, to see the future.
At present, the universal accessibility of smart devices, app stores and broadband connectivity has enabled Over The Top (OTT) apps to become a “mass market” phenomenon. As a result, the proliferation of OTT apps has rapidly changed the mobile landscape, making traditional wireless network communication services like circuit-switched voice, SMS and MMS dispensable. These compelling apps are a formidable and disruptive force that is disengaging the operator from its customers and making protracted industry standards such as Rich Communications Service (RCS) irrelevant.
OTT VoIP and merging apps are expected to usurp around $71 billion in voice and SMS revenue worldwide in 2013 and up to $106 billion by 2016.1 That’s more than the amount revenue that is expected to be collected by the movie entertainment industry in the same period of time.2
Other forces that are behind the tidal wave of OTT apps is the advancement of open standards, the principle of net neutrality, the agile nature of updating client software, and the power of the freemium business model. The reactive response is the disintermediation of network operators.
Today, a single company, Skype owned by Microsoft, is responsible for delivering approximately 34 percent of all international voice and video traffic. 3 By 2017, nearly half of all calls made on a global basis will be VoIP enabled, and up to 80 percent of the 1.07 billion users of OTT mobile VoIP services, will be delivered by third-party OTT players.4, 5
OTT app users are sending an average of 32.6 messages each day, compared to just 5 SMS texts daily.6 In 2012, more messages were delivered via OTT apps than over SMS. By 2016, the difference will grow to factor of four to one.6 The resulting loss of messaging revenue is being driven by the proliferation of OTT messaging apps.
Recognizing these trends will prepare those who intend to succeed in the future.
The future comes soon enough
In the future, area codes, telecom industry standards and network geographic boundaries will have less relevance when it comes to delivering IP-based applications in the wireless world. What else can we expect?
A Rising Storm: The tide of technological disruption will continue to rise. Advancements in technology and business models, which have lifted OTT apps to prominence, will wash many mobile network operators, like legacy swimmers, further out to sea. Their financial prowess will diminish as they continue to forfeit revenue to third parties that deliver services over their network with substantially smaller cost structures. The repercussions will impact their earnings and purchasing power, which may diminish their ability to pay for capital-intensive items such as device subsidies and additional spectrum.
A Gale Wind: The sheer speed of developing IP-based interconnectivity standards, apps and features will accelerate. Imaginative prototypes, demos and commercial offerings will continue to appear even before the open source code and standards are finalized. Communication standards developed by Internet-centric organizations, such as IETC and W3C, will find their way to the market quicker than those developed by the more bureaucratic telecom-centric organizations, such as 3GPP and GSMA. For example, the development of the free and open source VP9 video codec, which is 50% more efficient that H.264, took only two years to develop and commercialize.7 The timeline below illustrates the gale wind that’s behind OTT apps that rely on the IP-based communication standards such as SIP and SMPP.
Banking on RCS: Like Blackberry Messenger, each month that goes by, the GSMA’s Rich Communications Services (RCS) standard, marketed under the Joyn® brand, becomes less relevant. The services and features enabled by RCS 5.1 are already being offered for free by several OTT app companies. At best, Joyn will become the lowest common denominator and a non-monetizable investment that well end up on the shore of technological disappointments.
OTT App Doldrums: Pure OTT apps that operate in a silo, by only enabling peer-to-peer communications, may witness some initial success, but their opportunity for growth will end once the walls of their garden are reached. Long-term success will be relegated to the OTT players that own the infrastructure to connect to the PSTN and support SMS.
OTT App Drownings: Pure OTT apps that depend strictly upon the freemium business model will loose their brilliance and get lost at sea if they are unable to raise enough capital to build-out and market a competitive suite of differentiated services and monetizable features.
Shifting Customer Winds: The fragmented landscape of siloed OTT apps will toss and turn as finicky users chase after other free and more captivating apps. They will make the switch if the app offers them more value. They will also look for ways to circumvent data transmission fees.
A Single Lifeline: Most people will want to simplify their life and consolidate their communications using a single phone number across multiple devices. Their phone number will be one of the most valuable things they own; an intimate part of their life and the way they will stay in touch with the world. OTT players that enable people to use a single personal phone number, and their business phone number while at work, will stand the test of time.
A Sea of Connectivity: Wi-Fi networks will become increasingly ubiquitous and integrated into cellular data networks. More users will connect to a Wi-Fi network than a cellular data network, especially indoors. People will not want to pay for the privilege of checking their email or leaving a voicemail. By 2017, the amount of traffic offloaded to Wi-Fi networks from smartphones and tablets will be 46 and 71 percent, respectively.8
Islands of Roaming: A growing number of people will turn off cellular data and choose to communicate more affordably with OTT apps over Wi-Fi networks while traveling abroad.
Inside the Stateroom: An increasing number of employees will use their personal smart devices at work. A growing number of OTT apps will enable secure and reliable enterprise communications.
OTT apps will also be used as the primary video conferencing app for most organizations.
Global Economies of Scale: The ebbing tide of revenue generation is forcing service providers to reduce their costs. One way is build economies of scale. Rather than create apps that can only be used by their limited subscriber base, service providers will leverage the global economies of scale offered by brand name OTT apps.
A Net of Neutrality: Like beauty, Net Neutrality is in the eye of the beholder. Instead of being viewed as a detriment, forward-looking service providers will embrace net neutrality as a formidable ally. These service providers will take the bold move to offer their own OTT services across their competitors’ networks. While the more shortsighted and protective service providers will harm consumers and throttle innovation by discriminating against OTT.
Another Rising Storm: Just when you thought the stormy seas would calm down, another technology that is more disruptive than OTT will sweep in, called Web Real-Time Communication (WebRTC). WebRTC is an open-source technology that allows people to communicate and collaborate within a web browser without having to download a software client or browser plug-in. It will magnify the ubiquity and disintermediation associated with OTT apps. Once the technology matures it will further reduce the barriers of entry for more agile swimmers, such as innovative corporations.
The Innovators Dilemma: Operators are fighting a fierce battle against the OTT disrupters, often with the effect of a frustrated ocean swimmer flailing against a fierce rip current. Most of them are facing with the “Innovators Dilemma” by failing to adopt new technology and business models. The longer they delay their response to the OTT threat, the greater their shift of economic wealth to other more innovative and adept players.
With every threat, there is an opportunity
Rather that fight the riptide, services providers should embrace OTT communications by partnering with a capable OTT player with cloud communications infrastructure that is willing to help them claw back their lost revenue. Such a partnership combines the best of both worlds. In addition to delivering cool, convenient, compelling and cost-effective OTT apps, the service provider can deliver a more reliable and better quality of experience to their customers using their existing phone number; in addition to emergency calling, lawful intercept and direct billing.
The mobile industry is the lifeblood of many economies. It should be preserved and strengthened by all means. Partnerships between operators and OTT players with partnership programs are one of the best ways to sustain this vital economic engine well into the future.
Joe Lawrence is President of Voxox.
Sources:
[1] Ovum, October 11, 2012
[2] Statistica, The Statistics Portal, www.statistica.com
[3] TeleGeography, February 2013
[4] Juniper Research, December 2012
[5] Gartner Research, May 2009
[6] Juniper Networks
[7] Google, June 2013
[8] Cisco VNI Mobile Forecast, February 2013
