A few weeks ago, I was lucky enough to take part in the latest webinar hosted by the CPaaS Acceleration Alliance. The topic of discussion was the recent developments and trends in the messaging business in the context of the evolution of the CPaaS industry.

This coincided with the release of the State of CPaaS 2023 report published by the CPaaSAA in May, and I was joined in the discussion by Kevin Nethercott, Managing Partner of the CPaaSAA and Nick Lane, the ever-outspoken CPaaS evangelist and founder of industry analyst Mobile Squared.

A Brief History of Messaging

SMS has long been the golden child of the CPaaS product suite as we have seen the degradation of the international voice business with the rise of the OTT channels. Despite the perceived success of the SMS market; industry insiders and analyst have become more and more unsettled about the sustainability of that growth.

One Time Passwords sent over SMS for 2-factor authentication is now the dominant use case for A2P (Application to Person) SMS and makes up an estimated 40% of the total traffic according to the latest reports but the recent increase in delivery costs and reduction in trust has created plenty of uncertainty of the future of this method of verification.

As OTT players take away more and more market share from the Mobile Operators when it comes to P2P communications it has meant MNOs are turning to A2P services for revenue. This has led to some dramatic increases in cost in some markets (For example, key markets such as Indonesia and the Philippines have seen over 400% increases in cost over the past 3 years). This increase can be justified in certain markets and adds to the development of industry revenue but also exposes the elasticity of demand that perhaps was not predicted by the mobile operators.

Fraud has also been a major talking point in the messaging industry over the past year. The increase in artificially inflated traffic (AIT) has meant enterprises are starting to question the reliability of SMS as a channel. Infamously, even Elon Musk waded in on this topic and has reduced the SMS usage at Twitter significantly since his takeover. SMS was always seen as the stable, safe, and ubiquitous messaging channel but that reputation has been diminished recently.

Evolution and Growth

Despite these concerns the CPaaSAA’s latest figures indicate strong growth in the industry over the next 7 years, hitting the $100 billion mark by 2030. The State of CPaaS report outlines some of the key factors that will help support this growth and these were the main discussion points during our latest panel session.

One positive side-effect from the recent COVID pandemic is the fact that this has spring boarded businesses into digitalisation. The increase in mobility and remote communication has driven growth over the past 3 years and this is expected to continue moving forward.

New use cases are desperately needed to replace the potential reduction in OTP volumes. As highlighted earlier more and more businesses are moving away from SMS as a form of 2-Factor Authentication. The report outlines lots of interesting and creative real-life use cases that are in action today. Messaging needs to become a key channel for high value communication (i.e. Sales) in order to justify the high cost of access.

Artificial Intelligence is also going to play a key role in developing the market. The obvious usage is the ability to scale up customer communication via bots but there will be other advantages as technology develops.

One area that Kevin Nethercott discussed during our session was the potential for AI to solve the issue of fraud in the messaging business. Detection is key to eliminate the threat and technology is being developed to recognise unusual traffic patterns. This could be one way to improve the reputation of SMS as a secure channel.

The SME Market Opportunity of CPaaS3.0

During the webinar Nick Lane quoted the statistic that only 10% of businesses in the UK currently use CPaaS messaging products. This is reflective across all markets and shows a huge growth potential. He feels very bullish about the potential growth if the product and use cases are able to continue to support new industries.

In general, the key to continued growth is how do we move CPaaS from 1.0 to 2.0 and then forward into 3.0. Current services are often seen as transactional and has commoditised connectivity. To really grow the value for customers we need to consider how can we add extra features on top of the telecommunications infrastructure to make it more interesting for businesses and easier to access. Moving up the value chain is vital.

The CPaaS Acceleration Alliance sees the simplification of CPaaS as a fundamental step in the development of the business. A movement away from development of heavy telecommunications protocols and into low (or even no) code services that allow businesses to quickly deploy flexible services. Attracting non-IT buyers will be important to ensure the technology is commercially optimised.

My conclusion from the State of CPaaS report and our recent webinar session is that there are plenty of challenges in the messaging market (as well as the CPaaS industry as a whole) but if vendors continue to invest in technology and focus on creating value through innovation and creativity, the $100 billion target is within reach.

Scott Warner, Consultant

Scott Warner
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Scott is a messaging specialist with over 10 years industry experience. He has an extensive commercial background in multiple roles at market leading CPaaS providers including tyntec and Mitto. Scott is currently Director for Emerging Services at S&BTS (part of SoftBank Group) and covers everything related to the messaging product including Sales, Procurement, Operations and Customer Support. Originally from the UK but based in Munich, Germany; Scott has a global reach but with a current focus on Asian markets, especially China and SE Asia.


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