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The Death of SMS

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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 (Nasdaq: 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 (Nasdaq: 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 (Nasdaq: 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 (NYSE: T  ) and Verizon (NYSE: VZ  ) .

SMS texting plans have long been a pure-profit cash cow for carriers, generating estimated U.S. revenue of $9 billion per year, according to wireless association CTIA. 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.

Editor's Note: Information about wireless revenue has been updated based on a new source.

Fool contributor Evan Niu owns shares of Apple and AT&T, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Google, Microsoft, and Apple. Motley Fool newsletter services have 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 services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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  • Report this Comment On August 23, 2011, at 4:50 AM, lucasmonger wrote:

    Having paid for unlimited texting for years for our family of smartphones, I cannot wait until iMessage comes out for IOS5. If only I could also get the rest of the world to stop texting us and use iMessage instead, but until then we're stuck paying those monthly fees.

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