WHITE PAPER

Organize for Enterprise Messaging Success

October 2014

Dominance of SMS is under serious threatIn 2013, 20 years after the first text message was sent from a computer to a mobile phone, global SMS traffic reached 7.6 trillion1. Throughout these two decades, Person-to-Person (P2P) SMS helped facilitate daily communication, thanks to its cost-effectiveness, ease of use and ubiquity. Meanwhile, over the same period, SMS generated approximately US$821 billion worldwide for mobile operators2. More and more are providing free SMS bundles within their subscription deals.

Since BBM (BlackBerry Messenger) launched in 2006, we have witnessed the rise of Over-The-Top (OTT) messaging apps such as WhatsApp, Viber, Line and Kakao. Research3 from Analysys Mason underlines this: more than half of the 1.4 billion smartphone owners worldwide are already active users of OTT messaging apps. This jeopardizes mobile operator messaging revenue streams: Ovum has estimated that operators will lose US$23 billion between 2013 and 2018 to OTT messaging4.

Enterprise Messaging is a growing opportunity for mobile operatorsGemalto considers Enterprise Messaging (also known as Application-to-Person messaging or A2P messaging) as a way for operators to respond to the negative long-term outlook for SMS. SMS is the key media to reach end users

in a ubiquitous and simple way and all brands are eager to use this powerful tool to engage with their customers. 91% of mobile phone owners read mobile messages within 15 minutes of receiving a notification5.

As a result, businesses and government organizations are increasingly using mobile messages as a key means of communication with customers and citizens. Enterprise Messaging allows brands and agencies to interact seamlessly with their end customers, to propose tailored offers and to enhance the customer experience with Value-Added-Service (VAS), connected home, identity verification, mobile commerce and banking on the go.

Ovum expects A2P SMS traffic to grow at a rate of 6% CAGR (Compound Annual Growth Rate) between 2013 and 2017, which compares to a 3% CAGR decline in overall messaging traffic. Over 2.19 trillion A2P messages are forecast by 20186, representing a third of all text traffic worldwide. This is in contrast to an estimated share of 22% for 2014, and a total of 1.83 trillion A2P messages7.

In conclusion, Gemalto anticipates a slow decline of P2P traffic in developed economies due to the rise of the OTT, but operators may compensate for it through the development of their A2P messaging offer.

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The messaging world is changing fast

1 Ovum, Digital Services World Congress, June 20142 SAP Mobile Services, Portio Research / Long Live SMS, Dec 20133 Analysis Mason, OTT messaging volumes will nearly double in 2014, Jan 20144 Ovum, OTT app use undermining SMS revenue, Nov 20135 Infinite Convergence, Mobile Messaging Trends, 20136 Ovum, Mobile Messaging Traffic and Revenues Forecast, Sept 7 Ovum, Mobile Messaging Traffic and Revenues Forecast, Sept 2013

Be aware of mobile spamMobile operators own some extremely valuable and scarce assets, such as the confidence of end users, billing relationships and subscriber presence indicators. All these assets are very valuable for businesses and government agencies, but must be used carefully to preserve the end user experience and maintain a long term sustainable ecosystem. To monetize this Enterprise Messaging opportunity, operators should open communication channels between companies and their customers, but avoid angering their subscribers with unsolicited messages.

Gemalto commissioned IFOP, an international marketing firm, to lead independent research into mobile marketing worldwide. This survey was conducted on 5847 adult respondents in seven countries from July 2012 to July 2014. It shows that a large majority of subscribers - from 70% in Brazil to 95% in the western countries - are irritated by unsolicited messages received on their mobile phones. Since end users’ attention is reduced due to this high volume of spam and most unsolicited messages are

frauds sent for free through faking and spoofing, mobile spam represents a clear revenue loss for both mobile operators and enterprises.

Control your A2P trafficFighting mobile spam is a prerequisite to ensure subscriber satisfaction with the messaging experience, reduce churn and protect operator revenues.

The first mandatory step is to deploy a messaging gateway. This solution centralizes and controls all the A2P traffic. An advanced messaging gateway solution protects subscribers against unsolicited messages through MSISDN aliasing. It also protects operators from undue charges through identifying and billing the enterprise sending the message. Finally, the operator will be able to regulate the messaging traffic and ensure that subscribers are not bombarded with unsolicited messages. It is in organizations’ interest to respect the maximum frequency tolerated by end users, as shown in Figure 1.

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Success factor #1: Clean your communication channels

Survey performed by Ifop from July 2012 to July 2014 on 18 year-old+ mobile phone owners

Figure 1 –Marketing messages acceptable frequency variesfrom one country to another

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Another crucial step is to deploy an SMS Firewall. This solution protects MNOs against fraud by providing anti-faking and anti-flooding mechanisms, as well as anti-spoofing and anti-spam technology. Like antivirus, such solutions must be regularly updated in order to maintain an adequate level of protection, adapting to the ever changing threats posed by fraudsters.

Finally, SIM Boxes are unofficial voice/SMS over IP gateways that can be used for test purposes. In most mobile networks, their commercial usage is clearly in violation of the operators’ terms and conditions and should be detected and blocked by SIM Box Blocking platforms. They use multiple SIM cards as the "black"

end of a "grey route" and generate massive mobile spamming. Last year, over US$400,000 was lost in Liberia due to a single SIM Box operation8. Infonetics Research estimates that 210 billion spam messages were sent worldwide in 20129. Dedicated infrastructure and processes should be put in place to detect (through a Fraud Management System or Active Testing) and block SIM Boxes, ideally in an automated or near automated way.

In conclusion, the fewer unsolicited messages received by end users, the more attention they will pay to genuine content, optimizing the value of Enterprise Messaging for subscribers, mobile operators and brands alike.

8 All Africa, Liberia: LTA Bust SIM Box Fraud, Jul 20149 Infonetic Research, SMS/MMS Security Platforms for Mobile Operators, 2013

Ask permission firstMobile operators should ensure that companies always request permission first, identify themselves clearly, and give the right of opt-out to end users as these are the top concerns from subscribers, shown in Figure 2. Even if end users initially choose to receive messages from a brand, they may change their opinion at a later date. That’s why end users appreciate a simple opt-out mechanism. As shown in the IFOP survey, in an advanced A2P market such as Brazil, such permission features become even more critical.

Survey performed by Ifop from July 2012 to July 2014 on 18 year-old+ mobile

phone owners

Relevance is the keySince mobile is the only device with which we can deliver a contextually relevant experience, we could expect end users to receive personalized messages. Unfortunately, the IFOP survey shows the contrary: most messages received today are not relevant to end users as you can see in Figure 3.

To create relevant messages, operators and corporations should select the precise moment and location to generate the most value for the end users. The IFOP survey taught us that respondents in the UAE preferred to be contacted on weekends, whereas American, UK and Brazilian respondents preferred to be contacted in the evening.

An enlightening example is when mobile operators send a ‘Welcome’ SMS to subscribers traveling abroad. Promotional messages sent one hour after their arrival have a 5% better

adoption rate than an immediate message , because the traveler is no longer worried about retrieving his or her luggage or passing through customs. Another well known example is that receiving a discount message for a store nearby increases the probability of an impulse purchase.

Survey performed by Ifop from July 2012 to July 2014 on 18 year-old+ mobile

phone owners

Use the right communication channel for the right messageWhen end users receive a message in which they are interested, but cannot figure out how to use the information easily, they may give up and even feel annoyed and upset. This will not only decrease revenue for enterprises by stopping the purchase decision making, but also create negative feelings detrimental to future purchases.

How can Enterprise Messaging simplify information access for end users? Any messaging strategy should consider multiple communication channels. The reach and reliability of SMS allows organizations to reach all customers, while MMS will be used, for example, by airlines to send plane tickets using QR code pictures. Other channels, like USSD, app push notifications, or Gemalto’s exclusive Smart Message channel can maximize the interactivity of the conversation. “A Smart Message, for example, will pop up on the handset or tablet idle screen, providing multiple choice menus and one click action per screen,” says Nadia Gonzalez, VP Mobile Marketing at Gemalto and Member of EMEA Mobile Marketing Association Board (MMA). “This interactivity makes end users feel that they do not need to type complex information and increases, by between two and ten times, the adoption rate of promotional offers and surveys.”

Figure 3 – A majority of respondants still receive messages not in line with their interests

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Success factor #2: Enhance the end user’s quality of experience

10 Orange France presentation, at Mobile Roaming World Summit, Nov 2012

Figure 2 – Top concern from subscribers is to keep control

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Go one step further with device based Enterprise MessagingAny messaging gateway can support multiple communication channels, but only an advanced messaging gateway will allow businesses to select the best communication channel, as shown in Figure 4, according to the device used by the end user. Nowadays, one in every five people in the world owns a smartphone, while one in every 17 owns a tablet11.

These percentages are growing rapidly, leading to more and more usage of mobile apps. Consequently, Enterprise Messaging can be used to promote the download of companies’ mobile apps through SMS and Smart Message, providing not only a smoother user experience, but also generating additional revenues for enterprises and operators.

“Marketing analysis based on device model highlights consumption habits, behaviors and needs, while the history of devices for an end-user can give insights into business opportunities,” says Daniel Mavrakis, Vice President for Core Network at Gemalto. “For example, the “golden hour” after a change of device is the perfect time to push promotions on accessories, data plans, phone insurance and cloud offers.”

In conclusion, relevant promotional messages will avoid end user rejection, boost the organization’s brand image and increase the adoption rate. Mobile messages should be based on permission and personalized, taking into account the timing, location, right channel and right content, as well as the device on which the message will be read.

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11 Business Insider, smartphone and tablet penetration, Dec 2013

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Figure 4 –Offer multiple channels through Messaging Gateway

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Success factor #3: Develop your Enterprise Messaging strategy

12 Gemalto, Gemalto joins GSMA pan-African mHealth nitiative, July 201413 IBM, IBM Digital Analytics Benchmark - Black Friday Report 2013

Empower SMSCampaigns

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ContextualizeEnterpriseMessaging

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Figure 5 –Mobile messaging milestones

How mature is your Enterprise Messaging today?As we have seen, the two building blocks of an optimal Enterprise Messaging strategy are the security of a clean communication channel and research into the best customer experience. But there are many more issues to consider.

When defining a strategy, the first step should always be an assessment of your current situation as shown in Figure 5. Most operators already have a Value Added Services offer. It can be complemented by SMS campaigns, promoting for example government recommendations: the GSMA Pan-African mHealth Initiative (PAMI) improved maternal and child health of 15 million pregnant women and mothers with children under five years old by delivering targeted nutritional and health advice via mobile phones.

A key element needed to develop Enterprise Messaging is an easy to use API allowing authorized third parties to exchange mobile messages in a secure and controlled way. Ease of use is the key, as the complexity of sophisticated interfaces is often an entry barrier prohibiting companies not versed in mobile messaging from using the SMS and MMS channels. The Messaging Gateway should then provide, in addition to standard but complex interfaces such SMPP or NetOne API, a light and easy to implement web based API.

The second step of your strategy should be to contextualize the messages by adding location, time or device based services and to integrate all interactions with your customers into your Data Program Manager or any Big Data solution you choose. You can even take your Enterprise

Messaging one step further by adding rich media such as QR code pictures, mobile couponing and call-to-action linked to sales channels or client services.

Last but not least, push notification and in-apps mobile communication allow operators and companies to enter into the mobile commerce era. Last Black Friday, the day after Thanksgiving, one in five web purchases in the USA were made with a mobile device, according to IBM . In Asian countries, m-commerce is developing even faster as customers are accessing the web via their mobile rather than fixed broadband networks.

Which strengths can you leverage?For mobile operators, the next step is to review the market value chain and decide their positioning. Shall mobile operators sell their services to the brands directly or indirectly? For some dedicated partnerships with banks or music providers, selling directly your A2P messaging services makes sense in order to personalize, monitor and improve the services in the most customized way. On the other hand, many brands will first contact their media agency or a multi-operator aggregator, such as Netsize, to obtain a 100% mobile reach of their customers. As pointed out above, the availability of an easy to use API on the operator’s Messaging Gateway will widen the potential customer base. Knowing the Enterprise Messaging customers will help operators to define their strategy.

The first A2P Messages will probably be internal: within a mobile operator, network directors, CRM directors, VAS managers and internal ad agencies require frequent contact with the subscribers. A2P messaging has a wide range of use cases, and by nature will involve different business units within a mobile operator.

For example, SMS alerts can be a powerful tool to warn clients proactively in the event of problems: this improves customer satisfaction by letting them know the issue is being handled. Moreover it prevents numerous calls to customer services, thus reducing the direct costs linked to an incident.

Therefore, to succeed in making the most out of your messaging strategy, adopting a proper organization is a key success factor. We recommend that mobile operators create a project group with all concerned departments. Client services, sales channels, billing, logistics, purchasing and even lawyers in charge of personal data compliance should all be involved from the beginning. It is essential to work with all departments involved in a project mode to speed up the time to market, putting in place free trials to see what works best.

Once the team is on board, and the local enterprise needs are clear, the mobile operator should identify the key partners to develop A2P revenues.

It takes time and effort, as well as trusted partners, to grow a Messaging business:

> Media agencies or multi-operator aggregators can provide additional business, promoting your activity to many medium or large corporations that may not be using mobile messaging yet.> The Messaging platform provider is responsible for both subscribers and the timely delivery of enterprise messages thanks to SMSC and Messaging Gateway, and for network protection through Anti-Spam and SIM Box blocking platforms> Mobile marketing campaign specialists or mobile app developers are defining the end user customer experience. As we mentioned, a communication channel will only be used if subscribers find it helpful and relevant.

Gemalto is happy to provide such services today for mobile operators and to help create a complete Enterprise Messaging value chain.

In conclusion, and as you can see below, the creation of a winning Enterprise Messaging strategy requires consideration of different factors in order to be customer centric and maintain a healthy growing business.

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While facing the infrastructure costs of 4G deployment, mobile operators’ business is today challenged by the OTT messaging offers and the pressures of roaming regulation. To monetize their assets, the operators must firstly leverage the potential of Enterprise Messaging, which far exceeds the simple Value Added Services scope. IFOP survey results show us that a clear strategy - secure communication channels free from spam and a specific focus on the end-user customer experience - can really boost the A2P adoption.

In this white paper, we focused on how to build a successful Enterprise Messaging offer today. But we should also bear in mind that two fundamental trends will significantly impact the Enterprise Messaging market in the years ahead.

The first one we mentioned briefly is Big Data. The more information that is gathered about a subscriber’s interests, location or device, the more relevant and personalized the messages are and the more valuable such messages are for a brand. This will impact the business model as well reinforcing the importance of CPL (cost per leads) versus the CPM (or cost per thousand – M in Roman numbers).

The second trend is of course the Internet of Things. With the growth of new consumer wearable devices, mHealth devices and connected cars or homes, the question will soon move from how to deploy them to how to monetize their user interfaces. The Machine-To-Machine industry has been talking for a long time of a world where machines will communicate with people all day long. Google even has well advanced plans to send ads and other content to “refrigerators, car dashboards, thermostats, glasses, and watches, to name just a few possibilities.”14 While watching commercials on a fridge might not look so exciting, wristwatches are already safeguarding people with autism and Alzheimer's15, and smart cities are increasingly promoting eco-friendly behaviors. This will boost messaging traffic and generate new Enterprise Messaging use cases for operators.

To sum up, the future for Enterprise Messaging is looking bright.

About Gemalto

Gemalto (Euronext NL0000400653 GTO) is the world leader in digital security with 2013 annual revenues of €2.4 billion and more than 12,000 employees operating out of 85 offices and 25 research and software development centers, located in 44 countries. > To know more on Gemalto’s A2P offer messaging solution, enabling MNOs to provide communication channels between enterprises and their customers, please click here > To discover Gemalto’s Mobile Marketing Services, please click here > To discover Netsize messaging services, please click here

The Enterprise Messaging future

14 Wall Street Journal, Google Predicts Ads in Odd Spots Like Thermostats, March 201415 Gemalto, Wristwatch Positioning to Help Safeguard People with Autism and Alzheimer's Disease, Feb 2013

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