SMS Business Models

Many people have played around with the idea of building a business around SMS and text message.Few are profitable. About 3 years back I did it too.It enabled users to create channels and exchange text messages over a channel.Soon users came and I was looking at the possibility of huge SMS bills without any sight of revenue. Eventually it didn’t work out to keep the service on and still sustain it  with no real business model.Many more such startups have come since and have been  more successful in getting a large user base and substantial funding but the basic question of finding a business model(that yields a positive return)  still remains unanswered.

One of the realizations from my experience was that even though we hardly think twice before sending an SMS with these applications, it is because the usage is so limited that we don’t mind the high cost.. yes indeed. I did say ‘high cost’ .Do some basic calculations and  on a per MB basis , SMS is one of the most expensive data transfer mechanisms. Even at 5 ps per SMS ( $0.001 at 50INR/USD), if you assume that 10 messages will fit 1KB of data, it costs Rs 500,000 per GB of data. 1G is about how much an average broadband user downloads in a month..and certainly the monthly internet bill is much lower than that .Now nobody would use SMS to send this kind of data but this is precisely what some of the SMS companies hope for. For example  the group messaging companies like Mytoday and SmsGupShup try to sell ‘corporate’ or premium accounts . The problem with this approach is that the per account usage will not be big enough to allow for significant revenue or scale.If it did become huge then they will soon realize it is too expensive to use SMS and resort to other means. So the only other option is to scale out..and it is not a trivial task for a consumer focused startup to woo enterprise customers in large numbers.

The other model is to  try to do as much as possible to woo users to send text messages to each other in the hope of packing ads into some of the messages. These companies spend quite a bit of money sending the messages(SMSGupShup sends around 10million messages a day)  and it takes some really aggressive sales tactics to make sure they just break even operationally.  Even if they are able to monetize 10% of their messages they need to charge 50ps per ad (assuming a cost of 5ps per message) which translates to Rs 500 per  thousand  impressions. Not a very easy CPM to achieve given that there is little intent (unlike search).No wonder even services like Twitter haven’t been able to do this successfully.

Another model is to allow businesses to send sms to their customers or employees.Of course there is no denying the utility of an SMS. For example a restaurant can intimate its patrons of a food festival or a merchant about its offers. Useful no doubt,but sending these messages is non complicated and can be very well done by the enterprise itself. I don’t see any scope for an intermediary to monetize this.

And then there are niche applications. I recently spotted one called smsmeon.com. It looks interesting.Something I always had in mind. This application allows enterprises to create keyword based SMS applications. So essentially you can define your keyword and some static actions for it so that when a user sends a message with that keyword , a response is sent via SMS. If dynamic actions can be configured for such a service, I do think this can be monetized because the application provides more than just message delivery and really removes the need for the customer to deal with SMS gateways etc. But again this may need aggressive marketing to enterprises which could make it unviable financially. Besides I am not sure why this site tries to be a consumer site and mimic some of the twitter and social networking themes . Making this product popular with customers has no  positive network effects for marketing to enterprises. Long back www.411sync.com had similar theme but the site now gives a 404 error :) Looks like they went out of business too.

 

And finally there is twitter which is positioning itself as a search tool rather than a messaging application.  Given the recent rumors around the Google acquisition , it may well be possible that twitter can add another dimension to Google search.Search has been the most profitable business on the internet,it is tough to write this off immediately.We’ll have to wait and see.

One thing is certain though. Thanks to all the startups , the cellular operators surely have benefited from the surge in SMS volumes.  And I think that is the only viable business model in SMS.