Short message service (SMS), the venerable text messaging service first offered on GSM networks in the early 1990s, was in a sense the taking-off point for this multi-part series on mobile messaging. SMS made the market. We've taken it as a given, a known quantity, and looked instead at newer services and modes of messaging - first multimedia, then e-mail.

Now in this last part of the series we turn to instant messaging (IM), another interloper from the Internet world, and one that may eventually eclipse SMS - though not, according to the analysts we consulted, anytime soon.

Mobile IM has been available in the U.S. since 2000 when AOL and Sprint first offered a mobile version of AOL Instant Messenger (AIM), and in Europe and Asia in one form or another for almost as long. Other U.S. carriers have partnered with Internet portal brands. Verizon Wireless, for example, now works with all three of the majors: AOL, Yahoo Messenger and MSN Messenger. Cingular Wireless works with AOL and Yahoo.

IM Vs. SMS
But historically there has been tension between the carriers and the Internet IM brands. This is especially true in Europe where carriers jealously guard SMS revenues, which represent 15 percent to 20 percent of their totals - versus 3 percent or 4 percent for U.S. carriers. European carriers have for the most part offered their own branded IM services rather than partnering with Internet IM providers.

That tension between carriers and IM providers has begun to ease, however, even in Europe, where British-based Vodafone last summer broke the ice by partnering with MSN to offer MSN Messenger to its subscribers. Bouygues Telecom in France also began offering MSN service to its 1.3 million i-mode subscribers last October.

Still, for a variety or reasons, mobile users have not wholeheartedly embraced mobile IM. According to Yankee Group Research Inc., 7.9 million mobile subscribers in the U.S. were using IM on their cell phones in 2005, generating revenues of $426 million. That will grow to 13.1 million users generating $639 million in 2006, and to 39.6 million users and $1.5 billion by 2010, says Yankee Group senior analyst Jill Aldort.

In Europe, the firm says 1.9 million subscribers were using IM in 2005, generating €135 million. That will jump to 6.8 million users and €278 million in 2006. By 2010, Yankee Group is forecasting 28.2 million European users, generating about €1 billion in revenues.

John Delaney, principal analyst in the consumer group at UK-based Ovum PLC, cites recent subscriber survey data from M:Metrics Inc., a Seattle-based mobile industry market research and consulting firm. The M:Metrics data shows that 4 percent of mobile subscribers in the UK use IM on their phones, 3.6 percent in Germany and 2.7 percent in France.

Delaney thinks the numbers for Europe may be a bit high. Bouygues, for example, told him recently that it had only signed up 55,000 subscribers for its MSN service in the first six months. "They're pleased with way it's gone," Delaney says. "But that's still only around 1 percent [of Bouygues' total i-mode customer base]."

M:Metrics puts the percentage penetration of mobile IM in the U.S. at 6.3 percent. "That's plausible," Delaney says. "The U.S. has had IM in the market a lot longer and carriers there are a lot less worried about cannibalized SMS revenues." But the M:Metric number is still almost twice what Yankee Group is counting.

Whichever numbers you accept, IM is by no means a mainstream mobile application at this point. Why should this be so, given the immense popularity of IM on the Internet? Estimates of the worldwide Internet IM population range upwards from 250 million.

"One of the things you really have to look at is, 'What's the overall value proposition for using IM on your cell phone?'" Aldort says. "I think in comparison to SMS, there is not a clear value proposition there."

"SMS has been available longer, it's easier to use and it satisfies the needs of users for short conversations. IM on a PC tends to be an ongoing conversation - which you're not going to do on a cell phone when you're on the go."

Presence
IM, on the other hand, does offer presence - the ability to know when your friends, family members and colleagues are online and available to chat. Some mobile IM services, including AOL and Yahoo now allow mobile users to "forward" their IM to a mobile phone from their PC so that buddies see their status as available on the mobile network.

"That is really the primary appeal of mobile IM," Aldort says of presence. "But you've really got to want that connectivity between the PC and the cell phone."

Mobile IM will start to take off, she believes, as the youth segment begins to go mobile. Young people are over-represented among regular Internet IM users and they are the most intense users. They are also the most under-penetrated segment of the mobile market, Aldort says. But that is beginning to change. Carriers are also beginning to market IM more aggressively, she points out.

Delaney sees the carriers as the big inhibitors of mobile IM in Europe. There is a very clear distinction to be made in Europe between carrier-branded IM services designed for sending text messages between phones - a more feature-rich substitute for SMS in other words - and Internet portal-based services that are primarily for phone to PC communications. (Carrier-branded IM has also been available in the U.S. - Cingular has a service, for example - but it's not nearly as important a part of the picture as it is in Europe.)

Carriers in Europe have been much more concerned about controlling the migration from SMS to IM to protect SMS revenues, Delaney says. Promoting their own IM solutions is one way to do that. Another is to make Internet-based partners' mobile services work more like SMS, which is what Vodafone has done by adopting an SMS-like calling-party-pays fee model, and by making mobile MSN text only and two-way only rather than multi-party.

Carrier-Branded IM
Two developments recently have pushed carrier-branded mobile IM along in Europe - albeit at the same time that carriers are finally beginning to let down their guards with the Internet IM brands. First, more and more phones are appearing with built-in IM capabilities based on the Instant Messaging and Presence Service (IMPS) mobile IM standard established by the Open Mobile Alliance (OMA).

"We're seeing, very quietly, the growth in IMPS clients on phones," Delaney says. "So people are getting mobile IM almost by accident, in much the same way they did with SMS in the mid-1990s. And now that there is a standard, we're starting to see the operators being more interested."

The second thing that has happened is that the GSM Association finalized mobile IM interoperability standards. Orange Group and Vodafone, two of the largest European carriers, both headquartered in the UK, both with international operations, almost immediately agreed to launch IM interoperability so that subscribers could exchange IM messages across each others' networks.

And The Winner Is...
Which will win out - the carriers' own brands or the Internet brands? In the U.S., it seems clear it will be the Internet brands. "It's much easier for the carriers to partner and have access to that base of users than to create [a user base] from scratch," Aldort says. "Plus, [carrier-branded mobile IM] wouldn't have that connectivity between PC and mobile phone."

In Europe, it's less of a foregone conclusion. On the one hand, the Internet brands now have a toehold with Vodafone and Bouygues. On the other, IMPS-based IM may look more attractive to many carriers - and easier to deploy given the proliferation of IMPS-equipped phones.

But as Delaney says, "It's becoming less and less possible to keep the Internet brands off phones." Once you offer access to the open Internet over a mobile network, there is nothing stopping users, especially those equipped with PDA phones, from downloading, installing and configuring Internet-branded IM clients on their own. At least in theory.

"The trick," says Delaney, "is to make it very easy and straightforward." That should be possible, but "the devil's in the details," he says. "It's too tricky [for most mobile users] to do at the moment."

So for now, there is still a strong incentive for Internet IM providers to partner with carriers. They don't have the direct channel to mobile customers, they don't have an easy mechanism for deploying client software and they don't have the infrastructure in place to handle customer support. But going direct to consumers is a possible strategy in the future, Delaney says.

Will IM eventually supersede SMS? Not to any great extent in the next five years, Aldort and Delaney agree. "Beyond that," Aldort says, "it's questionable. I don't see any real signs of it happening at this point."

Delaney is currently working on a report that will tackle exactly this question. He believes it unlikely that consumers will continue for long to be satisfied with a text messaging technology as limited as SMS - especially as they become more familiar with the possibilities of mobile IM. And especially as it becomes easier to implement IM on their phones and easier to use it.

"I think we'll start to see some significant migration to IM from SMS in the next five years," he says. "But there is a lot between here and there that is by no means certain."