Android Text Messaging Getting Massive Upgrade
Messaging on Android phones is stuck in a ’90s time warp. That is going to change, soon.
Alphabet (GOOGL) announced last week it’s finally replacing the short message service (SMS) texting on its Android phones in the United States. This follows a similar move earlier this year in France and the United Kingdom.
This is a big deal for investors. Let me explain.
iPhones are vastly superior when it comes to messaging. iMessage, Apple (AAPL)’s widely used app, offers features such as Wi-Fi supported chat, group chat, typing awareness indicators, sending and receiving high-resolution photos and video and showing read receipts.
It’s coherent, and works seamlessly between iPhones, iPads and the Apple Watch. iMessage even coordinates well with MacBooks and iMacs.
Currently, the only way for Android users to duplicate this experience is by downloading a third-party app like Facebook (FB) Messenger or WhatsApp. Even then, to get the full experience you’ll have to convince all your friends and family to download and install additional software.
This is all by design.
Google managers could have built a robust messaging client inside the Android platform from the onset. They deliberately chose a different path. They willingly fragmented Android to avoid alienating the software, hardware and wireless partners they needed to build scale in the early years.
A decade later, Android has been widely successful.
The Verge reported in May that the number of users surpassed 2.5 billion. This hefty number excludes so-called forks of the operating system run by Amazon.com (AMZN) for its Fire products and the Android open-source project devices that are popular in China.
Together, Android as an operating system is installed on 3.8 billion active devices, or 86% of the world’s smartphones.
Unfortunately, getting there meant sticking with SMS, or short message service. While the protocol is universally supported, it’s also more than 25 years old. And it does not enable any of the cool modern features smartphone users want.
That’s where rich communication services come in.
Google announced in 2016 a plan to replace SMS with Rich Communication Services (RCS). The new protocol supports multimedia, phonebooks, business messaging and all the functionality of iMessage and WhatsApp.
American Airlines (AAL), for example, developed a prototype system to send boarding passes with QR codes and embedded suggested replies. Customers could easily change seats or contact customer service, all from within the message.
With that type of versatility, RCS was set to become the go-to messaging platform worldwide. Facebook Messenger, WhatsApp and even Apple iMessage would have been forced to integrate or risk becoming islands unto themselves.
It should have been a major win for Google and the wireless carriers. Unfortunately, the same fragmentation that led to the spectacular growth of Android as a platform has become a hindrance with messaging.
Although wireless companies promised to support RCS three years ago, they have been slow to adopt standards.
AT&T (T), Verizon (VZ), Sprint (FON) and T-Mobile (TMUS) finally announced in October the Cross Carrier Messaging Initiative, a promise to jointly build a standard compliant RCS app in 2020.
It could be a colossal mess. There is no assurances CCMI will be fully compliant to the RCS protocols Google is using.
That is why Google is flipping the switch for RCS messaging in the United States right now. The company has the technical expertise and capacity to bring RCS to every Android handset.
It would be a formidable platform out of the gate. Developers will follow.
And it’s those developers that will represent the real opportunity for investors.
Twilio (TWLO) provides software application programming interfaces for the developer community. These APIs are the building blocks coders use to embed voice, messaging and video capabilities directly into applications.
As RCS starts to roll out, these applications will be plentiful. At Mobile World Congress in 2018, Twilio announced new APIs for RCS.
Twilio’s business is growing fast …
Sales increased from only $89 billion in 2014, to $650 billion through December 2018. The business reached a $1 billion annual run-rate for the first time in the second quarter of 2019.
Uber (UBER), Lyft (LYFT), Facebook, Salesforce (CRM) and eBay (EBAY) have become significant Twilio customers as they move more of their communications to cloud-based platforms.
Revenues will surely rise as developers begin to embed customer service into enterprise RCS messages.
Shares ended today at $101.66 and have trended lower since June, when valuations clearly got ahead of the current reality.
This is a buying opportunity. The real growth phase is in front of the company.
Jon D. Markman