Why A2P will save SMS — for a while, anyway

The use of mobile apps more than doubled last year, according to data from Flurry, and that growth was largely driven by so-called “over-the-top” offerings such as Facebook Messenger, BlackBerry Messenger, WhatsApp and an ever-growing list of other messaging apps. Social messaging apps cost carriers $33 billion in lucrative text-messaging revenues last year, according to estimates from Ovum, and that number could reach $54 billion by 2016.

It’s predictable, then, that some analysts and tech journalists are speculating about the death of SMS due to these messaging apps. But a closer look indicates the SMS industry will remain healthy in most markets, at least over the next few years. Deloitte recently predicted that worldwide SMS revenues will continue to grow until at least 2017, generating far more money than instant-messaging applications. A forecast from Ovum echoes that prediction, claiming text-messaging revenues will grow at 4 percent through 2016 before beginning to decline.

A2P will soar even as P2P wanes

There’s no question that the rise of social messaging apps is shackling the market of person-to-person (P2P) SMS usage. But the continued growth of SMS revenues over the next few years will be driven by application-to-person (A2P) messaging, which refers to messages sent between users and applications. Ovum predicts the next few years “will mark a golden age for A2P SMS,” with the number of worldwide A2P messages increasing from 1.4 trillion in 2013 to 2.19 trillion by 2018. Meanwhile, a forecast from Juniper Research estimates A2P revenues will grow from $55 billion in 2013 to $60 million by 2018, while instant messaging traffic will generate only $3 billion by 2018 despite increased usage.

SMS can be more attractive than other forms of mobile communication because it is familiar to the vast majority of users, and because it is supported by the vast majority of handsets across operating systems, networks and markets. Growth in A2P usage will increasingly come in a wide variety of uses and industries: Account updates from banks, appoint reminders from healthcare providers, mobile event ticketing, confirmation of one-time passwords and flight updates from travel sites.

Opportunities and challenges abound

Leveraging A2P SMS has proven challenging for carriers, however. The technology has long been plagued by spam, and some network operators have responded by discouraging or even blocking traffic in an effort to reduce call-center costs and other outlays. As A2P SMS has emerged as a more attractive revenue stream, then, carriers are increasingly seeking out partners that specialize in identifying questionable traffic and block spammers as quickly as possible. And while some carriers once shunned SMS aggregators due to spam concerns, many are once again forming partnerships with aggregators that can help them identify and block traffic from the “grey routes” often used to disseminate spam.

Meanwhile, businesses looking to leverage mobile more effectively should be considering how they can integrate SMS in ways that can increase increase user engagement and make their offerings more compelling. That’s particularly true for businesses such as ticketing and financial services providers, who may need the security and reliability provides, and in emerging markets where smartphone penetration remains substantially lower than it is in more mature markets. A2P won’t save SMS revenues in the long term because smartphone penetration will continue to rise, resulting in increased use of IP-based messaging systems. For the next few years, though, A2P SMS traffic will surge.