SMS SOS: How Customer Engagement Is Saving the Telco

Consumers might favor chat apps over SMS these days, but businesses increasingly are relying on SMS for critical customer communications.

April 10, 2017 Published by Tony Jamous

Historically, telcos generated much of their income from voice services. As time went on, consumers began to discover text, and telcos followed suit, making SMS support a foundational part of many of their offerings. But then something happened that traditional telcos didn’t anticipate: the rise of chat.

Messaging services like WhatsApp, Facebook Messenger, and Apple iMessage have become a popular alternative to SMS text for users to interact with their social networks. This is especially the case outside of the U.S., particularly in areas with limited cellular connection and with billions of daily active users. Because messaging services run on Wi-Fi or other data connections, chat’s ubiquity has effectively cut telcos out of the revenue cycle of a significant portion of day-to-day communications. In 2012, Ovum Research even correctly predicted the decline of SMS by 2016.

You might be inclined to think that messaging apps will spell the decline of telcos as we know them — but they won’t.

Individual preferences may change, but businesses need a means of communication that’s accessible to everyone. A chat app, no matter how many users it has, won’t ever cover every phone owner. A significant portion of consumers still doesn’t use any messaging service, and those that do are divided up among them, with poor inter-chat connectivity. WeChat and WhatsApp, for example, have 697 million and 1 billion users, respectively, according to data from Statista. SMS, on the other hand, is available to almost every person who owns a mobile device (which, according to Pew Research, is almost five billion people as of 2016).

While it makes sense for individuals to coordinate with their personal networks through a chat app that they all use, the same can’t be said about relying on messaging for more massive communications like business alerts. This means that SMS can claim a very important market: texts from businesses (also known as application-to-person, or A2P, messages).

The customer experience has evolved significantly in the past decade. Personal, one-on-one interactions between businesses and consumers have gone from being relatively rare to being quite common within a few short years, and SMS has played a major role. Increased reliance on APIs, which has enabled the sharing economy, is one of the breakthroughs that has made SMS more accessible. Today it has become normal — and even expected — for businesses to communicate with customers via text. People have gotten used to being notified of their car’s arrival time from a ridesharing service or getting confirmation of their orders from food deliveries. Industry analyst firm Transparency Research even projects that the global A2P SMS market will grow from $53 billion in 2013 to $70 billion by 2020. Most companies that have an application also have systems for communicating with users via text. Applications with multiple versions (Android, iOS, etc.) can universally rely on SMS to get their messages through.

The more companies use SMS, the more they come to rely on it. Enterprise messages often contain vital account information, confirm orders, or even enable the customer to complete a purchase. For example, an airline might send a text containing critical flight change information while online merchants might send text alerts notifying customers about problems with their orders. These are important messages that companies want to ensure are successfully delivered. SMS even comes into use when lives are on the line, like in the aftermath of natural disasters. Because of its nearly universal accessibility, SMS is an ideal medium. Furthermore, the speed and convenience of the communications and transactions it enables make SMS a business imperative.

As of 2014, eMarketer placed the average consumer spend on mobile payments annually at $224 — a number it projects will rise to $3,017 by 2019. With five billion potential users, that’s a lot of untapped revenue. Every company in the world should be thinking about ways to reach people on their phones, and many of them already are. Amazon and other companies at the cutting edge of mobile consumer services are among the first to allow users to buy products through SMS response alone, and the trend is continuing.

Early investigations have already shown that the SMS audience is not only rich but also responsive. As of a few years ago, market researchers had found that some 65% of U.S. smartphone users check their phones within 15 minutes of rising, while 64% check their phones within 15 minutes of going to bed. Marketers who had been quick to grasp the importance of the opportunity and built SMS into their strategies ahead of the trend have given their businesses a competitive advantage.

What Business Use of SMS Means for the Future of Telcos

What telcos must recognize is that between sales, marketing, and customer service, most businesses have come to rely on SMS for a significant part of their customer communications — a dependence that isn’t likely to change any time soon. In fact, as companies like Uber, Airbnb, BlaBlaCar, and other members of the “sharing economy” continue to thrive, the demand for consistent and reliable universal text messaging is greater than ever. Customers have gotten used to interacting with companies more often and businesses are more incentivized to engage with them. The corresponding rise in demand has countered the decline of SMS for individual users, and as a result, telcos have shifted into a new business model, one in which more of their income comes from corporate entities, rather than just individual users.

With great income comes great responsibility. Because of the changing way people and businesses are communicating, telcos have a challenge: how best to support the SMS use cases that have begun to dominate. The basic priorities for A2P and P2P SMS messages are the same: Companies using SMS to communicate with their customers need to be able to provide the best, most seamless user experiences. This means texts must be timely, reliable and, most importantly, safely received. But because of the scale of these operations and the higher stakes of losing a customer, the pressure to ensure consistent delivery is intense.

In the next few years, as SMS for business becomes even more universally accepted, we’ll see telcos change their business models to support that shift. Messaging apps may be firmly on the upswing, but SMS isn’t going anywhere any time soon. SMS once again has become a new revenue driver for telco, but this time it is coming from business and not consumers.

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