U.S. Businesses Slow to Get the SMS Message

The opportunity for SMS within the business market is a recent topic of interest among the Yankee Group’s clients. In this research note, we share two of the most commonly asked questions in this area.

Question
How are businesses using SMS?

Answer
Although the Yankee Group estimates that more than 32 million U.S. wireless subscribers are active SMS users, adoption of SMS among corporations in the U.S. is low. According to the 2003 Mobile User Survey, only 8 percent of these SMS users use text with co-workers, although the majority of respondents use text for consumer communications. However, there are anecdotal examples of SMS usage within the business segment, falling within three distinct areas: business-to-consumer (B2C) communication, business-to-employee (B2E) communication and peer-to-peer communication (P2P).

B2C marketing and notification applications were the earliest to make use of SMS. Finance and media organizations experimented with the use of multiple interfaces, such as WAP and SMS, for providing information access to customers. Software vendor Air2Web has been especially aggressive in this space, establishing customer relationships with companies such as The Weather Channel, CBS SportsLine, Delta Credit Union, Juniper Bank and NetBank.

B2E communication using SMS followed B2C somewhat slowly, but some early adopter companies use it to send notifications to remote workers. Penetration is difficult to assess. However, enterprise notification service vendor EnvoyWorldWide facilitates approximately 10 million multimode messages for clients monthly; SMS represents less than 2 percent of their overall messaging volume.

It seems logical that SMS would compete with paging in this sector. However, although companies such as EnvoyWorldWide have seen flat growth in paging notification over the past couple of years, SMS has not stepped in to displace it. Instead, companies are turning to more reliable communication services and devices (such as RIM’s Blackberry) for business continuity, disaster recovery, and notification of planned systems outages.

Paging remains a formidable opponent: approximately 30 million pagers are still in use in the U.S. This indicates the natural target audience for B2E SMS is largely untapped. Most U.S. wireless carriers report limited use of SMS as a pager replacement. This activity is largely a result of customer pull rather than carrier push. One exception is Nextel, with its business-oriented focus and blue and gray-collar user base (a long-time target paging audience).

Although Nextel’s two-way messaging service is not technically SMS, it serves as a good proxy. The carrier indicates that many customers are using text messaging, with some strong examples in field service, remote health care and medical staffing. However, many of these text-messaging customers also use an additional data application (WAP- or Java-based) or Nextel’s DirectConnect push-to-talk functionality to build a complete solution for remote workers. SMS may not be sufficient as a stand-alone application.

Finally, P2P communication appears to be an informal phenomenon. Over time, other wireless applications and transports could leapfrog SMS in the P2P space, including wireless e-mail and wireless instant messaging (which would be unlikely to utilize the SMS channel).

Users also bring up machine-to-machine (M2M) or telemetry applications when discussing SMS. Telemetry-focused solution providers Aeris.net and Numerex (with its Cellemetry network) both utilize the digital control channel of wireless networks to facilitate M2M communications. However, the companies’ networks also incorporate additional network functionality to ensure greater reliability than standard SMS. In addition, next-generation networks (CDMA 1X, GPRS/EDGE) will have alternative telemetry solutions. Telemetry devices (at least in the U.S.) are more likely to be built with access to these networks than to SMS.elemetry modules is beginning to occur on next-generation cellular technologies.

Question
What is slowing business SMS adoption?

Answer
There are a handful of factors that make it difficult for SMS to appeal to enterprise customers:

• Lack of enterprise-class service levels. For many business applications, particularly mission critical applications such as dispatching or outage/disaster recovery notification, there must be a guaranteed or confirmed delivery component. It is difficult for notification companies such as EnvoyWorldWide to ensure message delivery because of a lack of visibility. Service-level agreements from carrier to customers don’t exist. Carriers are developing enterprise class solutions that will enable conversion from paging application protocols to SMPP application protocols and create higher levels of service for business customers.
• Alternatives. Paging remains a reliable alternative for B2E applications. Widespread local coverage, better in-building penetration than cellular networks and guaranteed delivery options make paging more attractive for many companies. The requirements to lower costs and minimize the number of devices to manage are important to business customers, but secondary to the reliable delivery of information. Emerging services and technologies, such as RIM’s Blackberry, also pose a challenge to SMS because of better reliability and additional functionality (such as e-mail access and voice).
• Lack of familiarity and low consumer use. Only a small minority of U.S. consumers have adopted SMS. Lack of familiarity with SMS raises two distinct barriers. First, technology decision-makers are less likely to regard SMS as an application medium. Secondly, organic use of SMS among workers is less likely to occur and create demand from within the organization. In Western Europe—where SMS is used broadly in the consumer market—P2P SMS is widely used between business colleagues, although it is hard to isolate the value of this market. This use has given rise to some B2E use. Nordic countries have always been active, and there is growing adoption in the U.K. and Germany for employee notifications and alerts (linked to e-mail or productivity apps).
• Low carrier interest. U.S. wireless carriers have long been reluctant to cannibalize the wireless voice market by promoting SMS among consumer users. There appears to be a real opportunity to gain incremental revenue from pager replacement without placing voice revenue in jeopardy within the business market. However, the launches of next-generation data networks place additional pressure on carriers to drive business customers to use applications that rely of these networks. Monthly service revenue from Blackberry and wireless PC card access run between $34.95 and $99.00 per user; SMS revenues would be well below these figures. Although business SMS is not being ignored, with limited resources for marketing, sales and product development, carriers view this opportunity as a low priority.