Mobile's Long Leap to Instant Messaging

Cell phones are increasingly becoming miniature PCs. In keeping with that trend, major mobile carriers throughout the world have been enhancing their services to support IM functions, further blurring distinctions between the two devices.

While the change should enable users to exchange information more easily, the transformation may proceed slowly because the IM market is hampered by incompatible systems, the carriers have to develop viable business models for this new market, and many telcos are leery of IM cannibalizing their lucrative SMS services.

Changes are taking place because IM has become a popular feature among users. "The ability to know when someone is online and then be able to exchange information with them instantly is a powerful feature for both businesses and consumers," David Ferris, president of market research firm Ferris Research, told TechNewsWorld. Consequently, IM has become a feature that close to 500 million individuals rely on.

Carriers Interested

Cellular carriers have noticed that these services have taken hold. "Cellular carriers saw the growing popularity of IM services and did not want to be left behind in the adoption of these services," said Michael Osterman, president of Osterman Research, a messaging market research firm.

In fact, 15 carriers, including China Mobile, Orange, T-Mobile and Vodafone (NYSE: VOD), are backing an initiative by the GSM Association (GSMA), to develop interoperable cellular IM services. Once their work reaches fruition, it will cover a customer base of 700 million users worldwide.

Addressing Network Limitations

The carriers had to clear a few hurdles in order to deploy these services. Initially, they focused on SMS (short message service) systems because they meshed well with their network infrastructures. Cellular networks were built for voice connections and did not offer much bandwidth for data links. SMS text messages are 160 characters or less, which requires relatively little bandwidth.

Third-generation mobile networks make the IM experience possible. Because their networks have more bandwidth and less latency, carriers can now implement IM.

However, IM is a different animal than SMS, and carriers will have to change their network infrastructures to support these services.

IM supports dynamic data exchanges, whereas SMS services are based on a store-and-forward approach where a time lag typically takes place with each interchange. IM conversations are often between large groups of people rather than a one-to-one interaction like SMS. As a result, carriers may need to revamp their network design and management systems in order to support mobile IM services.

Protecting Their Installed Base

Another factor that held back adoption is the broad acceptance of SMS services. "SMS services are widely used internationally where cell phone calling prices remain quite high, and users want to limit the amount of time that they talk on the phone," said Ferris, who receives about 20 SMS messages an hour when in the company's London office and three to four per day when he is in its California site.

SMS services have also been quite lucrative for carriers. Users pay to tap out as well as to receive these text messages. Consequently, SMS services account for anywhere from 5 to 25 percent of their profits. "The carriers have not been willing to cannibalize their existing revenue streams by pushing IM services," he explained.

To combat that problem, the carriers have been tinkering with a number of different business models. Those taking part in the GSMA's initiative agreed to charge mobile IM users for outgoing messages but not for incoming ones, believing it will cut down on the volume of spam sent to consumers' mobile phones. How successful this strategy will be is questionable, because users now view IM services as free and may be unwilling to pay for them.

IM Interoperability Lagging

Despite IM's popularity, it has had problems. Interoperability has been a major issue. Rather than support open standards, vendors have pushed proprietary protocols that lock users into their IM service. "Recently, there has been a great deal of progress with companies, such as AOL, opening up their IM networks, so users can exchange information with individuals using other services," Osterman stated.

Cell phones present another set of challenges. Currently only high-end phones, such as those running on Microsoft's (Nasdaq: MSFT) Windows Mobile or Symbian OS, are able to use the service. A growing number of new phones are being designed to support these functions, but many existing handsets will not be able to be upgraded. The features on these systems are not as functional as those with PCs. At the moment, most of the interface software on cell phones simply arranges messages by when they arrive. Consumers may find it far more useful to arrange these items by both conversational thread and time.

Carriers have to figure out what role they will play as the market evolves. Traditionally, they have been in charge of the network, but in this case, those functions typically come from the IM vendor. There have been partnerships between these suppliers, for instance AT&T (NYSE: T) Wireless inked agreements so its users can work with AOL's AIM service, Yahoo's (Nasdaq: YHOO) Messenger and MSN Messenger IM services.

Because of their large customer bases, the carriers will gain some traction in the IM market. While their services may not be as popular as those from IM specialists, they will provide cell phone users with one more easy popular way to exchange information.