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OTT Messaging Apps Face Monetization, Uptake Challenges

November 23, 2015

Over-the-top (OTT) messaging apps have steadily been on the rise in terms of usage—and have the potential one day become a truly universal service that connects the world’s population. However, a lack of security and interoperability remain top complaints among users, acting as a gating factor for the market.

According to an international OTT (over-the-top) messaging app survey from tyntec, based on responses from smartphone owners in the U.S. and China, WeChat and Facebook Messenger are the most popular messaging apps in China and the U.S. respectively.

Both markets (U.S. and China) identified social networks as the “most frequently used” one-to-one communication channel, with 26 percent citing this in both U.S. and China. Twenty-one percent of U.S. respondents use messaging apps most frequently, compared to 13 percent in China. The slightly lower frequency of messaging app usage in China can be attributed to messaging apps being relatively new in the market.

Popular messaging apps in U.S. like WhatsApp, Viber and Facebook Messenger launched between 2009 and 2010, whereas, WeChat, China’s most popular messaging app with 91 percent of respondents using the app, launched in 2011. Additionally, Facebook Messenger remains unavailable in China, making WeChat an even more attractive messaging channel.

Despite their slower start, Chinese respondents are more likely to use multiple messaging apps for one-to-one communication (90 percent) compared to U.S. respondents (60 percent). The popular reason for using multiple messaging apps in both markets is to be able to reach people across different messaging apps (U.S.: 64 percent, China: 50 percent), followed by the preference of using different apps for different situations (U.S.: 35 percent, China: 48 percent).

The situational use is further exemplified when respondents were asked how they get in touch with someone for immediate communication. Voice reigned as the number one choice; however, the second most popular method for U.S. respondents is SMS (38 percent), while Chinese users turn to messaging apps (31 percent).

Further, and key to monetization efforts, in-app purchasing continues to grow. A full 95 percent of Chinese respondents and 64 percent of U.S. respondents have purchased products or services through a messaging app.

Overall, the survey shows that OTT apps are on the cusp of taking off. However, some significant adoption barriers must be addressed if apps seek to become the dominant form of mobile interaction.

“What our survey shows is that OTT messaging apps are at a critical point of inflection. App brands must address user concerns and complaints, security and interoperability, if they want to enter the next phase of growth,” said Thorsten Trapp, CTO of tyntec. “Especially where regulatory barriers limit their options, finding technological solutions and partners that can bridge the divide and deliver the universal reach and strong security is key. By integrating SMS and phone verification intelligence, messaging apps can make their apps used more broadly while protecting their users.”

The Future of Messaging: Rich Content

In the beginning, messaging apps were launched to enhance one-to-one communication. However, their functionality has since expanded far beyond just messaging—which positions OTT apps to take over texting as the go-to communications service.

In fact, overall traffic in messaging apps is expected to double by 2019, according to Juniper Research. OTT apps such as WhatsApp, Facebook Messenger and BlackBerry Messenger will be the driving force over the next few years, climbing from 31 trillion messages in 2014 to more than 100 trillion in 2019—a 200-percent increase in usage of alternative messaging apps.

And no wonder: OTT apps offer a number of advantages over texting that users appreciate. These include read notifications, stickers and other personalization options, and location sharing.  There’s also no need for a cellphone connection: Using a Wi-Fi connection to message people is particularly helpful if you’re out of the country or in a spotty coverage area.

Juniper however also expects OTT messaging revenues to decline from $113.5 billion in 2014 to $112.9 billion in 2019, a drop of $600 million, even as usage skyrockets. This is largely because the apps are free.

This, in turn, opens up big implications for network operators when it comes to revenue. Partnering with third-parties to offer value-added OTT apps, offering developer access to network APIs and innovating when it comes to packaging mobile data and apps are all fresh business models that could offer revenue generation to OTT apps and operators alike.

OTT apps are also incorporating other functionalities in order to boost monetization.

When it comes to added functionality, WeChat has pioneered the transformation in China. The service allows users to make in-app purchases, including hailing taxis, purchasing movie tickets and sending money to other users. The added functionality has accelerated the rate of in-app purchases in China, with 95 percent claiming to buy products or services in a messaging app compared to 64 percent in the U.S.

However, Stateside, Facebook Messenger is catching up by integrating with third-party apps so users can access rich content, send money, make reservations and interact with brands for customer service questions and order tracking.

Interestingly, in the U.S., significantly more males are making in-app purchases (77 percent males vs. 52 percent females), compared to in China where the gender differences are almost nonexistent.

Remaining Market Challenges

Although messaging apps have reached different levels of market maturity in each region, certain user experience issues uncovered in the tyntec survey indicate that there are common barriers to further growth if the promise of rich functionality is going to pay off as a path to monetization.

Interoperability and security chief among the concerns.

The case for cross-application communications is perhaps most famously laid out in what happened with text messaging. When SMS first hit the scene, carriers didn’t allow their users to send texts to users on rival networks. The result was limited usage—and a hamstringing of revenue for network operators. Once interoperability was instigated, texting took off in an unprecedented way, quickly outstripping voice calls in volume and leading to a cash bonanza for operators.

It’s a very different story with OTT apps. Because of how widely deployed WeChat and Facebook are, the limiting factor of not being able to communicate with individuals who are not on the same app is somewhat mitigated. But even so, more than one third of U.S. respondents (36 percent) are frustrated by the lack of messaging interoperability.

Meanwhile, Chinese survey respondents cited lack of security as the major flaw (40 percent) with messaging apps, compared to 15 percent of U.S. respondents, which can be traced back to the increase of in-app purchasing – virtual or physical -- done by Chinese smartphone users, as well as general concerns over Internet surveillance. One of the chief challenges messaging app companies face is how to provide strong authentication for in-app purchases and prevent fraud.

Interoperability was the second biggest concern, with 21 percent of Chinese respondents agreeing with U.S. consumers that this is their biggest complaint.

In the U.S., 36 percent said they just use passwords to protect their identity and verify in-app purchases and only 11 percent use one-time passcodes (OTP) sent via SMS texts, also known as SMS-based two-factor authentication. In China, those numbers are 45 percent and 30 percent, respectively. In both countries OTP SMS is the most widely used verification method beyond using just passwords.

Beyond the big two concerns, app speed was another notable frustration uncovered by the survey, with nearly 20 percent of respondents in both markets agreeing app speed is too slow. It’s unclear if this is the fault of the apps themselves or the data access availability in those countries.

Despite remaining challenges, the outlook is bright as the market develops, however. “With every new technology you have a bell curve of adoption,” said Reinder de Vries, an app developer who has created apps for Tommy Hilfiger, Heineken, and other major brands. “You have the early adopters up front, and then the mass in between, and then finally the late to-the-party people at the back.”

Edited by Stefania Viscusi

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