The Death of SMS

Evan Niu, The Motley Fool
Updated

Goodbye, SMS. You won't be missed. You're behind the times, overpriced, and users have little choice but to pay for expensive plans or even more expensive per-message usage fees.

This is why I welcome the news that Skype has agreed to acquire group-messaging startup GroupMe for $85 million, even as Skype itself is still in the process of being acquired by Microsoft (NAS: MSFT) for $8.5 billion. GroupMe's group messaging and conference call app will likely be deeply integrated into Windows Phone 7 at some point in response to Apple's (NAS: AAPL) own iMessage service announced in June.

Facebook even recently released its own stand-alone mobile messaging app, which will benefit from existing network effects to gain traction, while Google's (NAS: GOOG) messaging offerings, like Google Chat and Google Talk, have failed to become widely accepted. I wouldn't count Big G out quite yet, as its Google+ Huddle feature is a fresh take on group messaging. Ultimately, network effects determine the success or failure of messaging services far more than technological capabilities.

Although it remains to be seen which player emerges as the dominant provider, there are very clear preordained winners and losers. The biggest beneficiaries of such competition and innovation will be you and me, while those with the most to lose will be incumbent service providers like AT&T (NYS: T) and Verizon (NYS: VZ) .

SMS texting plans have long been a pure profit cash cow for carriers, generating estimated worldwide revenue of $5 billion. The antiquated technology has virtually no costs for carriers, yet users are forced to pay for expensive plans. AT&T's fear recently manifested itself when the company eliminated its lower-priced texting plan.

Last year, AT&T's total revenue was $124.3 billion, and Verizon's total revenue came in at $106.5 billion. Losing this revenue stream is unlikely to have any meaningful impact on the companies' overall results, but no one likes losing free money.

At the time thisarticle was published Fool contributorEvan Niuowns shares of Apple and AT&T, but he holds no other position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Google, Microsoft, and Apple.Motley Fool newsletter serviceshave recommended buying shares of AT&T, Microsoft, Google, and Apple, as well as creating a bull call spread position in Microsoft and Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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