Social Media Hitting Mobile’s Bottom Line

An interesting paradox has emerged in the mobile industry over the last year: though mobile subscribers are clamoring for more data and buying more expensive data-rich plans, mobile companies’ bottom lines are hurting. Mobile users are spending increasingly more time surfing the Web and accessing social media platforms on their devices, but rather than growing revenue at service providers like Verizon (NYSE:VZ) and AT&T (NYSE:T), higher usage is taxing their bandwidth and hurting their bottom lines.

According to new data released by the analysis firm Ovum, operators lost an estimated $13.9 billion in short message service, or SMS, revenue last year due to customers primarily using social media services like Facebook and Twitter to message each other rather than using paid text-messaging services.

Mobile analytics firm Bytemobile also reports that social media use has been increasing dramatically, with the average tier-one customer spending nine minutes per day on YouTube (NASDAQ:GOOG) and Facebook. Because YouTube is a video service, its usage generates about 300 times the traffic that Facebook does, which taxes a carrier’s service capabilities, again without providing any additional revenue.

Technically speaking, the companies are still looking at an indirect profit from increased data usage as it indicates that more people are switching over to smartphones, and thus signing lucrative contracts with expensive data plans. Nevertheless, it remains uncertain whether these gains will eventually offset the precipitous drop in text messaging revenue. Ovum predicts that by 2016 total service revenues will be $1.05 billion, of which mobile data will constitute $416 billion.

While Ovum suggests carriers try to work more closely and more collaboratively with social networks so as to monetize their own infrastructure, some feel that in developed markets, where smartphones and mobile apps have already taken hold, the ship may have already sailed. Still, TechCrunch postulates that carriers could act as mobile app developers, creating social media products with added benefits for their clients — at an extra cost, of course.

To contact the reporter on this story: Jonathan Morris at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

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