OTT global communication market will exceed 14.6 billion EUR by the end of 2016, and grow to 24.1 billion EUR by 2020
Director of "Digital Telco" Stream, IDATE DigiWorld contact
Representing a CAGR of 13.3%. The market is composed of three segments: VoIP (such as Skype), IP messaging (such as WhatsApp), and also a share of social networking advertising revenues.
In contrast to the telco communications market, however, the OTT communications market remains very small: since the telco communications market is estimated at 695 billion EUR for 2016, OTT accounts for only 2.1% of total value. Even by 2020, OTT will only account for 3.4%. During this time, the telco communications market is expected to see a CAGR of -0.6%.
Thus, IDATE believes that OTT communication services have not significantly adversely impacted the telcos; rather, it is a case of the telcos maintaining their market values, while OTTs are growing their market value by themselves. In fact, more influential factors, such as the economic climate, internal competition and regulations are affecting telco market values significantly more than OTTs.
For example, France was seeing intense internal competition before 2009, when Whatsapp appeared, making voice and SMS no longer a cash cow. In other countries such as Spain, SMS and mobile voice were already on the decline through the economic recession, and cheaper OTT alternatives simply accelerated the already declining telco revenues. Furthermore, Both VoIP and IP messaging are more of a paid model, and do not generate much market value, since close to 60% of OTT communication revenues come from social network advertising, which can be seen as additional value in communication.
The business OTT communication market, represented by Unified Communications (UC) and Cloud Communications - mainly Communications Platform as a Service (CPaaS) markets, is experencing a rapid growth. The CPaaS market, in particular, is estimated to take off at a CAGR of 166% for the 2015-2018 period, reaching 5.7 billion EUR in 2018. The UC market will grow steadily from 38 billion EUR in 2016 to 60 billion EUR in 2020, reperesenting a CAGR of 11.5%, driven mainly by the UCaaS model.
Still, there is a lot of interest in the VoIP and IP messaging markets, as the acquisitions and investments in this market continue in both consumer and business OTT markets. High-profile acquisitions include the acquisition of WhatsApp by Facebook, Skype by Microsoft, and Viber by Rakuten. This all forms a part of the platform strategy, whereby the aim is not to generate revenues directly from these services, but to see them as useful tools to increase user base and reach, which in turn can be used for monetisation through different means (e.g., advertising, paid games and commerce).
The likes of WeChat and LINE are successful in terms of revenue generation, followed by Facebook Messenger embracing the same platform strategy. Similarly, the acquistion of Tropo by Cisco and of Nexmo by Vonage highlights the platform ambitions of traditional UC players'. With the increasing importance of the CPaaS sector, the likes of Cisco are offering toolkits (APIs, SDKs) to clients, allowing them to develop their own communication functionalities. Meanwhile, leveraging the relationship with telcos, players such as Cisco and Microsoft can offer consolidated OTT and PSTN communication within one single brand.
IDATE DigiWorld sees five main telco strategies in response to the rise of OTT communication services: blocking, bundling, partnerships, telco-OTT and RCS. Blocking is now rare, as it can lead to churn and also arouses debates about net neutrality. Bundling unlimited and/or abundant voice and SMS is a highly useful strategy, lessening the price advantage of OTTs. Partnerships with OTTs can be a useful differentiation strategy, to be used as a driver for data plan subscriptions. Telco-OTT sees the telcos (e.g., Telefónica and Orange) offering their own OTT communication service, combining their own unique telco strengths, rather than being simple OTT copycats. More WebRTC capabilities are also increasingly being offered by telcos. Finally, RCS is a GSMA-led initiative designed to bring OTT-like capabilities to mobile devices. However, in the light of the struggle of the first RCS attempt with the "Joyn" brand, in 2016 telcos began to cooperate with Google to address interoperability and fragmentation issues of RCS across networks and Android devices. Many telcos have thus completely shifted to VoLTE deployment after years of staggering with their RCS initiatives: the "big four" (Deutsche Telekom, Telefónica, Vodafone, Orange), initially in support of "Joyn", are all moving to VoLTE deployment, and US telcos (T-Mobile, AT&T, Sprint and Verizon) have successively tested and launched VoLTE servicessince 2014.
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