What’s The Future of Bulk and Premium SMS?

When it comes to brand marketing, messaging still has an important role to play. When many marketers are thinking about fancy apps or mobile sites, many are overlooking the ability of SMS to drive users in a cheap and universal channel. Whilst free to user SMS is growing, premium SMS (PSMS) has a less optimistic future.

Both short codes and bulk SMS have been the mainstay of mobile marketing and
mCommerce for over a decade. With the advent of smartphones, new communication
channels and new payment systems are their days numbered?

As a mobile marketing consultant I’m often asked if we’ll have SMS in the future. Given
that most people can get emails on their phone, message through Facebook or access
instant messenger, why would they use SMS at all? Many teenagers have switched to
BlackBerry’s IM system, BBM. They can use it even if they have no phone credit, have group
conversations and forward messages anonymously. And surely what teenagers are doing
today, the rest of us will be doing tomorrow?

In spite of all of that SMS is still growing each year. In 2010 there were 6.1 trillion messages
sent globally by 4 billion individuals. That’s more messages sent than voice calls made from
mobiles, not only that, but SMS is growing by nearly 30% each year. It’s not just consumers,
brands are using SMS more and more for communications from service to marketing. So
why does SMS remain the ‘killer app’ for mobile? The answer is, in short, that nothing
comes close in terms of immediacy, speed, discretion and most of all, universality. Everyone
has SMS and everyone knows how to use it. BBM, for example remains niche and there’s
no evidence of wide adoption beyond anyone other than teenagers. A recent study by the
DMA and IAB into brand messaging found that SMS opening rates were above 92%. That
is consistent with other studies into messaging. That’s good, but even better when you
consider that less than 25% of brand emails are opened or read. What’s more, people read
text messages quickly. In the study we found that 65% were read within 5 minutes and 85%
within an hour.

In the last few years many brands have been developing apps and within the last 12 months,
many retailers have created fully transactional mobile sites. In spite of these new exciting
channels, SMS is still the driver for brand activity. They use it because they know it works.
The UK retailer Marks and Spencer have a very successful mobile site, yet text messaging is
an important element of their mobile strategy. They have over 1 million people who have
opted in to receive weekly offers by SMS. Argos use SMS as a service tool with their ‘Text to
Take Home Service’. In Australia, the IT retailer, Leading Edge Computers found that they
tripled their response rate over print advertising when they switched to SMS . In the US,
men’s retailer K&G created an SMS-based coupon channel for their customers. 93% of them
used a coupon during a three month period. Whilst these are all large, well-known brands,
many smaller businesses have benefitted in a similar way by using SMS to send promotions,
support their service or just allow customers to engage with their brand.

Whilst SMS is on the rise, it would appear that Premium SMS has fared less well. A few years
ago, mobile content in the form of games and ringtones was largely billed through PSMS.
However, figures now show a dramatic drop in revenue. When it comes to content, these
days most of it is delivered through app stores, such as iTunes, where payment is made by
registered cards, not a phone-based payment. When it comes to shopping, mobile users
are also using their credit cards and one-click payment by the likes of Amazon and M&S
have shown that we trust brands enough to buy through our phones. Looking a little further
ahead, contactless payments or NFC is rolling out on a global scale. BlackBerry launched a
handset earlier this year, Google have been trialling NFC and there are strong rumours that
Apple will include contactless in their next major handset.

This leaves PSMS as something of the poor relation when it comes to payment. That
isn’t a great surprise. From a merchant perspective, whilst the credit card companies
take a small fee, up to 35% of the value of a Premium SMS is taken by the operators. For
customers there is considerable distrust. Numerous scams and errors with premium SMS
that have led most people to believe that they will be charged unexpectedly. However,
many people are still cautious, and in the UK the BBC no longer uses premium rate services.
SMS plays an important role in mobile banking. There are 2 billion people without a bank
account globally, yet most of them have a mobile phone. SMS is now becoming a means
of transferring payment or phone credit. In the Philippines for example, SMS has replaced
wire-transfer as a means of moving money between individuals. But this is not Premium
Rate Messaging, this is SMS as the trigger for the transaction. Perhaps the only exceptions
where PSMS is on the rise are the charity campaigns. Both the Haiti campaign in the US
and the UK’s Comic Relief have raised considerable sums through text-based donations.
However, these are the exception to the trend. These charities have achieved 100% out-
payment from the operators and have been backed by massive media coverage. Smaller
charities and most brands don’t have the same luxuries.

When it comes to free-to-user SMS, the future looks very bright. It gives brands a universal
and immediate call to action that no other channel can create. It drives other campaigns
both on and off mobile phones. However, as a means of payment, issues of cost and trust
means that PSMS has a much less optimistic future.

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