Free alternatives may cut into text messaging profits
Ben Chinn likes to text as much as the next guy — he just doesn’t like to pay for it.
Chinn, 37, sends most of his text messages free of charge with Google Voice and a smartphone application. He also pays $5 a month for up to 200 messages on his AT&T mobile phone plan.
“With everything with the mobile carriers, I feel I’m getting nickeled and dimed,” said Chinn, of San Francisco. “I resent paying so much for text messaging, and I feel that it’s not a reasonable price to pay for something that costs the carriers next to nothing.”
It’s customers like Chinn who are worrying the big telecommunication companies. Text messaging has been a huge profit center for AT&T, Verizon, Sprint and T-Mobile, but that money could trickle away as free alternatives gain popularity.
Facebook Inc., for example, recently launched a smartphone app called Messenger that enables users to communicate with anyone who is a Facebook friend or has a cellphone number. And this fall, Apple Inc. will roll out iMessage, enabling the millions of iPhone and iPad owners to send messages to one another over the Internet at no cost.
In addition to free apps, the growing popularity of smartphones — which can handle both email and texting apps — are dimming text messaging’s future as a profit center.
“There is a change coming, and it will have a serious impact on messaging traffic in mature markets, starting with the U.S.,” said John White, a business development director at Portio Research. “We see iMessage and Facebook messaging as the biggest players [and] this will start to impact right away.”
Juniper Research has predicted that global revenue for text messaging will peak this year and begin to drift down. And in a recent report, UBS Investment Research warned that “customers could elect not to pay for texting as smartphones and third-party applications become pervasive.”
Text messaging’s popularity exploded around 2005, driven by teenagers and young adults who adopted the format as an easy way to communicate on the go, similar to the instant messaging function on their computers.
And text messaging is still a big business, accounting for an estimated $21 billion in U.S. revenue for telecom companies last year and an estimated $23 billion this year, according to the Consumer Federation of America.
But growth in message traffic slowed for the first time to single digits — 8.7% — in the last half of last year compared with the previous six months, according to U.S. wireless trade group CTIA.
Typically, wireless carriers have charged separately for text messaging, multimedia messaging and data plans, which provide Internet access. Though they have offered unlimited plans for each category, carriers have been pulling back recently, limiting particularly how much a customer can use the Internet.
AT&T Mobility Inc., Verizon Wireless and Sprint Nextel Corp. declined to comment on how they planned to deal with the possible decline in text-messaging revenue.
AT&T’s response, however, may be to force anyone who wants text messaging into expensive unlimited plans or an even more expensive pay-per-message option. Starting this week, AT&T no longer will offer new customers messaging bundles that let them pay $5 a month for 200 text messages or $10 for 1,000.
T-Mobile USA is forecasting continued growth in text messaging and data plans, but some are skeptical.
“You certainly start to wonder if the days of the text plan are starting to be a little more numbered,” said Scott Lahman, chief executive of GOGII Inc., the Marina del Rey developer of the free messaging app textPlus.
Hieu Do, for example, already has gone the last year and a half without a text messaging plan, but that hasn’t stopped him from messaging his friends.
Do, 28, of St. Louis, cut his texting plan at the start of 2010 when he got an Android phone and started using Google Voice. He said he got his contacts to text him on his Google Voice number and hasn’t had an issue using a free alternative to text messaging plans.
“At the beginning of every month I would lose a dollar here and there from people texting my old number, but it’s worth it more than paying $5 or $10 a month for a texting plan,” he said.
Ryan Ferguson, 28, of Denton, Texas, also can’t see paying a lot for text messages. After Apple announced it would roll out iMessage, he cut his texting plan to the minimum AT&T would allow.
“The few people that I talk to over text message that don’t have iPhones, I could find a way to talk to them without texting,” Ferguson said. “So I don’t think it would be too difficult to cut text messaging altogether.”
TextPlus has been downloaded by 50 million people since it launched in 2009 and has about 12 million active users. The company gives the app away free of charge, making money by selling advertisements that accompany the messages.
Last year, 5 billion messages were exchanged over textPlus, up from 700 million in its first year. GOGII expects the number to grow to 20 billion this year, according to Lahman, the CEO.
Essentially, textPlus turns text messaging into a digital application that uses Internet protocol technology. “You unlock the innovation that the Internet brings,” Lahman explained, “whether that means I can now text from Mexico for free, have a profile that people can search for or send video and audio clips.”
So far, no application or free texting service has become a dominant player in the U.S., in large part because most of those services require users to download an app, do some form of registration or get their friends to sign up as well.
For Apple, however, that won’t be an obstacle because iMessage will come installed in all of the company’s mobile and tablet devices.
“The fact that [iMessage] is integrated into the platform means that I have a greater chance of using it,” said Michael Gartenberg, a technology analyst for Gartner Inc.
