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Java-based IM Threatens SMS
Java-based IM Threatens SMS

Java-based IM poses many advantages over SMS. Only by preparing for wireless Java's launch into mobile instant messaging can operators turn possible bad news into good news. Here's a basic strategy to follow.

For text messaging, this could be a good news/bad news year for network operators. The good news is that the global short message service (SMS) market is expected to continue to grow. However, if operators aren't careful, their guaranteed SMS revenue could disappear into the hands of companies offering new Java-based instant messaging (IM) clients. These new Java clients could deliver increased functionality at a much lower price to the user - and quickly steal both longtime and new SMS users. Only by preparing for wireless Java's launch into mobile instant messaging can operators turn possible bad news into good news.

For the past few years, wireless Java (J2ME) has enjoyed increasing momentum within the wireless community because the broad range of J2ME applications adds value to mobile devices. Presently, the most popular applications are games, but the fleet of applications soon to be available for over-the-air downloading allows personalization of the handset to an unprecedented degree - and users are responding to Java's unique offerings. In each passing quarter, more and more Java-enabled handsets are delivered into the marketplace. And, with the imminent release of devices supporting the latest J2ME profile, MIDP 2.0, Java prepares for its next mobile act: instant messaging.

By treating this development as a positive evolution for text messaging and wireless data applications in general, operators can minimize the potential loss in their SMS revenue streams and create a new revenue stream through Java instant messaging.

A Brief History of SMS
Text messaging has become a communications phenomenon in recent years. Initially viewed as a cheaper alternative to voice, trading 160-character SMS messages is a common social practice in many societies around the world. Customers like its ease-of-use, convenience, and discreteness, and consider it a valuable (and fun) mode of communication. Other benefits include delivery of notifications and alerts, such as voice-mail messages or other concise information such as news, sports and weather, and a straightforward billing method - typically 10¢ per message sent.

Though the service was introduced in the new European digital cellular network, GSM, in 1992, customer uptake was stagnant until the late 1990s. When wireless carriers opened their systems to SMS interoperability (the ability to send messages between different commercial systems) and encouraged youth and student usage through prepaid calling plans, the monthly message volume began to skyrocket. Today Europeans send an estimated 30 billion messages per month via SMS, providing operators with up to 10-15% of total revenues.

The SMS picture in North America is not as rosy, though it is improving. Carriers initially showed little interest, and interoperability between systems was not a reality until 2002. By September 2002, the New York Times reported that SMS traffic volumes had doubled each quarter and that there were nearly 4 million active subscribers in the U.S. AT&T Wireless projects 50 million U.S. users by 2004 and revenues of $1.5 billion.

However, it is the North American market where the storm clouds are brewing. A key difference between the European and North American markets is the prevalence of instant messaging from desktop PCs in North America. This phenomenon is primarily born out of the growth of the use of the Internet among the youth of North America, and represents the threat to established SMS revenue streams.

A Brief History of Instant Messaging (IM)
Instant messaging, or instantaneous chat between two users on different machines, has been around in some form since the early days of the Internet, and is now one of the hottest applications on the Internet. In 1996, Mirabilis launched IM in its present form with its desktop PC client, ICQ (shorthand for the phrase "I seek you"). ICQ is a virtual environment that allows users to see when their friends or co-workers are online and available to chat.

When you instant message a "buddy" from your contact list, messages are then exchanged in real time in a dialog box and appear simultaneously on both users' systems. This presence information is a distinguishing feature of all IM clients, and separates it from both SMS and e-mail. It can include other information such as the availability of people on your buddy list, their location, activity, and communication preferences. "Presence" is what makes instant messaging truly instant.

ICQ had a meteoric adoption rate and its user base grew faster than any other software application in history. By the middle of 1997, it already had several million registered users. New features, like the ability to send an SMS message from the desktop to a cellphone, continue to broaden its appeal. The other major clients are AOL Instant Messenger (AIM), MSN Messenger, and Yahoo!Messenger - all freely available on the Internet - and by January 2001, there were more than 180 million registered users.

Like SMS, initial uptake of IM was driven by teens and college students who valued its instant gratification for communicating with friends. However, it is now being used as an important business tool for overcoming location barriers by linking remote users and the transfer of concise, time-sensitive information.

The major IM clients share several features: the ability to create and manipulate contact lists (and block messages from names you no longer want to receive messages from); notification when a buddy from your contact list logs onto the system; the ability to send audio, image, or data files to your partners; and the availability of graphical icons to spice up conversation. Some clients also let you establish video links.

Operators need to be concerned about a new mobile IM client because it will likely be successful. Desktop IM has proven popularity with a large, growing user base and strong brand. Like SMS, its concise format is appropriate for the small screens of mobile phones. Mobile users will value IM's presence information and its real-time communication - a key feature of the anytime, anywhere communication that they are used to. They will see wireless IM as an important bridge between the PC and mobile worlds. Importantly, wireline IM clients are looking to expand their markets and monetize their product; they will aggressively take advantage of the fact that wireless customers are used to paying for services while wireline customers are not.

Wireless Java and Instant Messaging
One of the main building blocks of the Java platform is the Mobile Information Device Profile, MIDP. It defines the environment for resource-constrained handheld devices such as cellular phones. A wide variety of applications and games were developed for MIDP 1.0, and MIDP 2.0 is viewed as an important evolutionary step toward more robust applications (including multimedia) and a better user experience.

Specifically, MIDP 2.0 allows secure networking (for applications that deal with money or sensitive information), standardizes over-the-air provisioning for dynamic downloading of applications, and provides push architecture for the relay of information from a server to the handset. Push architecture can be used for alerts, news updates, text messaging (such as an SMS-clone), and real-time messaging. All the ingredients are now in place for Java programmers to develop and release a Java-based IM client. If the interoperability squabbles between leading wireline IM providers can be settled, the risk to SMS becomes even more severe.

Unlike SMS, which is transmitted over the voice-signaling channel of the SS7 cell network, Java applications transmit data over the always-on mobile Internet. The newest networks are packet-based and customers are typically charged per bucket of packets. Because text messages are short, customers will see a Java-based IM client as a much cheaper alternative to SMS.

Therefore, a likely scenario that operators need to be concerned about is the release of a well-designed Java application that integrates into all types of handsets that support Java, and behaves in the same manner as the standard SMS service but with greater capabilities and lower costs. It could be downloaded over-the-air, allow presence information and secure messaging with guaranteed delivery (important for business applications), and quickly begin stealing regular SMS users - and their revenues.

The Java client could also have value-added features that permit file transfer, including images. Such a facility will cut into the revenues projected for one of network operators' next cash cows, multimedia messaging, or MMS. Java-based IM is not "out there" on the horizon - it's here, on the doorstep.

Operator Strategies for Success
The entry of IM into the mobile world is an encouraging development that should be viewed by operators as an important stepping stone toward greater network usage. The various alternatives of ignoring the issue, raising packet costs, or reducing the price of SMS are short-term solutions that will either cut operators out of the new revenue stream, prevent use of other mobile services, or simply delay the widespread deployment of mobile IM services. The only solution is to embrace IM.

Mobile users will want IM's presence feature because it reveals online/offline device and physical location information. If your "buddy" is on a PC at the office, at home, on the road, or on a mobile IM-capable device, you can contact him or her instantly. Operators need to be proactive with user demands.

To ensure the success and profitability of wireless IM, operators need to concentrate on gaining customer participation. A basic strategy for operators should consist of capitalizing on brand value, creating a migration plan from SMS to IM, and partnering with other operators and IM companies to ensure interoperability.

By negotiating with existing desktop IM clients, operators can implement and manage their own IM service for their customers. New wireless customers will be attracted by the brand value and will view it as an important additional service; established wireline IM users will be expecting such a service. Because wireless IM can be integrated with other mobile content services, it has the potential for long-term revenue growth.

Naturally, other companies could still offer their own Java-based IM clients. But, by being in the game, operators will have the ability to counter the competition through their own marketing efforts and customer service availability. With their own service, operators can control the migration of their growing SMS user base into wireless IM users. The migration could be facilitated, for example, by adopting the familiar SMS interface and SMS commands into the new Java IM client. Being in the game also allows operators to create their own community of wireless IM users and ensure a good user experience.

The most significant barrier that needs to be overcome is interoperability. From its outset in both Europe and North America, SMS was hampered by a lack of interoperability, and this continues to plague desktop IM. Presently, users can only Instant Message each other from the same IM client. Because the major IM clients are all free, users can easily switch to a different client if a friend uses a different client. But to attract the greatest number of users, a wireless IM client should be able to Instant Message any other IM client, whether wireless or wireline. Thus, operators need to take the necessary steps of partnering with each other and with the major IM companies to promote interoperability.

Instant Messaging is a proven, popular form of communication that will likely be successful on cellular phones. A new Java-based IM client could significantly erode operator revenues from SMS beginning in the summer of this year. By facing the storm head-on with their own wireless IM client, operators can preserve their SMS revenue stream and ultimately broaden their user base (with new users from wireline IM).

Getting involved in wireless IM now will help smooth the transition to other multimedia applications in the future. Things move quickly in the wireless world: rather than sitting back and being bypassed, operators have an opportunity to be key players in the new and exciting wireless IM game - creating their own good news in the process.

About Allen Lau
Allen Lau is CTO of Tira Wireless. Allen holds bachelor's and master's degrees in electrical engineering from the University of Toronto, and has over 12 years of experience in software development and publishing. Before joining Tira Wireless, Allen led the development efforts at Symantec and was a key player in the development of its flagship WinFax product, which has sold over 40 million copies worldwide.

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