Google (NASDAQ:GOOG) (NASDAQ:GOOGL) recently acquired Jibe Mobile, a cloud communications company for mobile operators, to help introduce a carrier messaging standard known as Rich Communications Services (RCS) to mobile users. The terms of the deal were not disclosed.
RCS is a potential replacement for the aging Short Message Service (SMS) standard. Unlike spartan SMS messages, RCS features more modern features like emoticons, location sharing, group chats, and file transfers. RCS has existed for several years, but it's been largely overshadowed by popular OTT (over-the-top) mobile messaging apps like Facebook's (NASDAQ:FB) WhatsApp.
At first glance, investing in a neglected carrier-based messaging standard seems like an odd step back from OTT messaging apps. But if we dig deeper, we can see why Google is adopting this strategy.
How Google fell behind in messaging
Although Google owns the world's largest mobile operating system, it's failed to deliver a powerhouse mobile messaging app to challenge WhatsApp.
Google's core communication app is Google Hangouts, a platform that integrates SMS, Internet calls, video chat, text messages, and instant messaging in a single platform. Google hasn't disclosed how many users regularly use Hangouts, but tech site Tech2 suggested that it's much less popular than Facebook Messenger, WhatsApp, and other popular messaging apps. That's mainly because Hangouts' core user base is rooted in Google's failed social experiment, Google+.
Facebook Messenger hit 700 million monthly active users in June. WhatsApp reached 900 million in September. It's very likely that most of those users don't send SMS messages or use Hangouts on a regular basis. That's bad news for Google since those OTT apps represent cracks in its ecosystem that it can't monetize via data mining or ads. Facebook's Free Basics (Internet.org) plan for emerging markets is another disruptive development because using Facebook or Messenger doesn't count toward a user's monthly data limit.
How RCS might improve Google's situation
RCS has been widely neglected because carrier-based messaging systems require the unified support of hardware manufacturers and telecom companies. Jibe streamlines that process by delivering RCS messages across the cloud, which means that there's no messy "backend" business for the carriers to handle. Once Google adds RCS integration to the "frontend" on Android, RCS messages can be easily delivered across various handsets and carriers.
Google can then position itself between mobile devices and the carrier, which allows it to intercept (and likely mine) RCS messages. That's the same mining strategy Google used with Gmail and other services to improve its targeted ads. If Google can encourage carriers to widely replace SMS with RCS, it could also replace the archaic SMS component in Hangouts with a more modern messaging interface.
Google's sudden interest in RCS messages doesn't mean much in developed countries, which widely prefer mobile messaging apps. But many developing and emerging countries with spottier Internet connections still rely heavily on SMS. If Google can replace SMS with RCS, it could challenge Facebook's Free Basics initiative and tether more feature phone and first-time smartphone users to its ecosystem.
Big challenges remain
Last year, a survey at IMS World Forum in Barcelona revealed that most mobile operator execs planned to launch RCS initiatives by the end of 2015. However, the biggest concern cited by those executives was the ability to actually monetize RCS, especially when SMS plans have become outdated and OTT apps still have so much momentum.
Google could theoretically subsidize RCS messaging by paying carriers to establish a free OS messaging platform for all Android users. That would be a win-win situation for both parties -- Google collects more data and gains a big messaging platform to challenge Facebook while carriers earn a little extra revenue. But even if Google pulls that off, it's unlikely that people will simply embrace OTT messaging apps, which have a snowball-like ability to accumulate users.
Another leak for Google to plug
Google has sprung a lot of leaks lately. Its attempt to combat Facebook in social media flopped, it hasn't figured out how to compete against Amazon in e-commerce, and Apple threatens to cut off a huge chunk of its mobile ad revenues by enabling ad blocking extensions.
Mobile messaging is yet another weakness, and one that probably can't be easily fixed. Promoting a neglected messaging standard is an interesting approach, but it could be easily killed off by the dominant mobile messaging apps.
Leo Sun has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com, Apple, Facebook, Google (A shares), and Google (C shares). 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.