Last month, Fetion, the free IM service from China Mobile opened its door to users from other carriers. With threat from the rapidly growing mobile chatting tools and Fetion’s downward trend, this seems like a forced decision.

Fetion was first launched in 2007 as a free-text messaging service; the company used to be very optimistic about it and tried to make it the best in IM field. From 2009 to 2011, China Mobile spent RMB 1.54 million on Fetion’s maintenance and development. It is roughly estimated that with the RMB 600 million of the outsourcing contract about Fetion this year and 800 million for 2007 and 2008, the total investments China Mobile has put into Fetion reached RMB 3 billion. Plus related marketing fees for the service are not included.

The input is huge, but the result shows a declining trend. Zhang Yi, CEO of iResearch, said. “Telecom is a monopolized industry, but Internet is a very competitive market. It seems that China Mobile is still trying to use the traditional telecom mindset to sell internet products.”

According to iResearch, Fetion ranked top three by users in IM area, but compare to QQ,  it’s just 1/5 of the latter. Furthermore, Fetion’s average monthly active users is only 1/45 of QQ’s. Back in 2007 when Fetion is still young, insiders once predicted that it would surpass QQ in this field. The initial plan for Fetion was to attract users with free SMS and then establish a community. However, China Mobile didn’t expect that the market of smart phones and mobile internet would grow at such rapid speed.

Since 2011, updated mobile IM products are further changing people’s way of communication, operators and internet service providers are facing violent competition. Earlier in 2011, new mobile chatting apps like “MiLiao”(by Xiaomi Tech), ” or “Weixin”(by Tencent) sprang up. The later even won 100 million users within 433 days after its debut. They all feature free texting, picture and voice chatting, which struck the traditional SMS service.

Ovum’s newly released data showed that more people are relying on social networks on mobiles to communicate thus causing huge losses of SMS revenue for the operators. In 2010, the total loss reached $ 8.7 billion, and rose to $13.9 billion in 2011. China Mobile’s financial results also revealed that earnings from SMS or MMS are successively dropping (the revenue proportion was 9.7% in 2010, and 8.8% in 2011).

Fetion amassed over a million new users from China Telecom and China Unicom in just a month after the service opened its door. But still the service is facing a dilemma. If Fetion chooses to be 100% open, threats from other operators are emerging; on the other hand, if it’s not open, competition from mobile chatting apps is already very fierce.

One of Fetion’s advantage is the function of free texting your friends, but for users from the other two operators, free text messages are limited to 50 per month.

One of my friends is obsessed with chatting tools, every time you text him, he’ll only reply from weixin, QQ Mobile or other mobile chatting tools. This seems like a proof for the prediction of mobile chatting tools is killing SMS.