OEM and third-party messaging applications such as Blackberry Messenger (BBM) and WhatsApp are clearly gaining traction on smartphones platforms:

• During June 2011 RIM announced 32m active BBM users growing at a healthy rate of 2 m users per month and generating billions of messages each month.
• The popularity of WhatsApp in the Netherlands has started to negatively impact (-8%) SMS volumes among KPN’s Hi Brand customers, as highlighted during in KPN’s overall strategy presentation given in Q2 2011.

RCS-e, a watered down version of RCS, which essentially excludes the mandate for operators to include presence information as part of the service, will allow operators to compete with OEM and third-party IM clients by enabling operators to offer IM/ chat services. These services will work out-of-the-box for enabled smart and feature phones and allow users to view who else has similar chat capability via their phone book. Take a look at the following video from Vodafone to see how RCS-e services will work.

However, while the launch of RCS-e services is clearly the right move, in my opinion operators will face two big challenges in driving its adoption:

Late to the party: With leading operator groups Orange, T-Mobile, and Vodafone aiming to launch RCS-e based chat in key European markets before end of 2011/ from 2012, OEM based messaging services like RIM’s BBM and Apple’s iMessenger have already gained significant traction.

Not enough fire power: Third party IM/ chat services provide more functionality than RCS-e. Services like WhatsApp allow users to share their location and set presence information. While these elements are on the RCS roadmap operators must move quickly to add this functionality in order to remain relevant in mobile chat.

Furthermore, operators will need to carefully position and price these chat services. On one hand RCS-e will compete against IM/chat services that are perceived as ‘free,’ so operators will be under pressure to price accordingly. On the other hand carriers will not want to kill off the SMS cash cow which has served so well for so long. A bundled approach, in which operators include unlimited IM/ chat as part of a broader messaging suite which includes SMS, will allow operators to achieve both aims – maintaining the premium for SMS while appearing to offer greater value by providing free instant messaging. However, as with MMS and video calling you can never rule out carriers attempting to charge a premium – which will inevitably choke service demand!