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.

SlumDog's lost Millions

If only the guys who were behind the decision to release Slumdog Millionaire on 23rd Jan in India  released it 2 weeks earlier the movie would have made a few more millions for the producers.  Over-hype and a delayed release has cost the movie millions in piracy.The segment of people who would go and watch this movie are probably the ones who have downloaded it from torrents on their high speed connections or bought DVD quality  rips from the roadside and seen it.

It was a good strategy to allow the hype build and then do the release but they got the timing  wrong.. Anyway I hope the movie does well. It is a good movie and hope our Bollywood directors feel proud that their time tested themes like brotherhood , love and song-and-dance formulae are getting international recognition.

Porter anyone?

Anyone who has been to B-School will know how much 'strategic insight' is pulled off using the classic Porter's 5 forces framework. When in doubt invoke the 5 forces has been the mantra of many a b school graduate sitting in front of PowerPoint presentation and is clueless what to add in the next slide. Thankfully the man has now spoken and has written an update to the classic 30 year old theory. In an article in the HBR other than reaffirming the theory he also derides how the model is taught to students in b-schools.His key point is that analyzing using the framework is not equivalent to collecting a bullet point list of facts which is what most do.It is more of number crunching and financial statement analysis to get some concrete data..
The link is a good read . And here is a video below on an interview with Porter.




Hope less BS is passed of in the name of Porter by MBA grads.

Farewell

I had expressed my doubts on the viability of their business model here
Now my misgivings about the food delivery business are not just doubts..The first victim folds operations today

Dear Customer,
We are writing to inform you that, regretfully, OrderMonger.com will cease all operations from October 1, 2008. This decision has been taken predominantly due to non-viability of the business while maintaining the high Service Standards we intended to provide. However, we will honour all of the existing orders which have already been placed in our system.
On behalf of OrderMonger, we would like to take this opportunity to thank you for your continued loyalty in choosing us as your preferred service provider for the past two years. Without your support, our success would not have been possible but under the current business climate, we have been left with no option but to close down. A lot of you have been calling us over the past few weeks to tell us about how much you value our services and offering to support us. We sincerely appreciate that support and feel good that we were able to make a small difference - so we are just as sorry that we are forced to close down. If you have any questions, concerns or comments about this decision, please send them to feedback@ordermonger.com.
Thank you once again for the loyal and continuous support you have shown us over the years we have been operating.
Yours sincerely,
The OrderMonger Team

Unfortunately utility of a service does not always translate into cash flows.. I wish the team good luck in their future endeavors.

#2 - These ads grow on you!

Video: New Family

#1

This will be interesting

Finally! In response to those pesky getamac ads Microsoft will soon respond. From the news at WSJ, Microsoft will be hiring Jerry Seinfeld for the campaign. The campaign - a closely guarded secret until now and with a $300 million budget, will have Seinfeld and Gates appearing in the ads..Despite what realdan(formerly fakesteve) says on his blog about hiring a 54 year old semi-retired comedian,I think it is a great idea.True Seinfeld fans will notice that Jerry's room had a computer - presumably a Mac. Apple also released a one time "Think different" ad with a small tribute to Seinfeld.Clearly if Seinfeld were to endorse a brand it seems like it should be Apple. How then did Microsoft decide to hire Jerry Seinfeld?What seems to be a blunder according to many may be a brilliant move. I can see ads like this similar to the PC guy - mac guy ads like this

Gates : How are you Jerry? I see you are working on your computer.Busy eh?
Seinfeld : Busy ?Me?Haven't worked since 1998 :-) Well I am not actually working, just editing a movie
Gates: (sigh) On a mac?Guess I must really get going
Seinfeld:No, actually I switched to Vista after I just ran out of options to get new hardware on the Mac and guess what I can now use the Windows Movie Maker on Vista to make movies.
Gates:That must have been tough, for someone using a Mac for .. 20 years?
Seinfeld: hmm, actually no, contrary to what others said - come over, let me show you..Even a 54 old guy like me can get it to work easily

.....


I can see how this can get really interesting if done right..Can't wait to see the ads

Is the begining of the end of Orkut in India?

Can someone explain the precipitous fall in the Alexa statistic for Orkut here? And compare that with rise in Facebook usage.Now I agree Alexa is far from perfect, but I still think it is interesting.
I think there may be a lesson here for all those sites that want to get around the cold-start or chicken-and-egg problem associated with platforms with high network effects.The graph is a worldwide usage graph but given that India has a significant (18% and second highest) share of Orkut users,this may be attributed in some ways to change in Indian users' behavior patterns as well.

A few months ago,I was reluctantly introduced to Facebook when a small but significant and growing percentage of my friends dumped Orkut for Facebook. I initially rejected the idea with a yawn - Indians are already hooked on to Orkut, Do need another social network? A lot of also-rans came and died ( yaari, WAYN, and few others which now reside in my spam mail folder) and I wondered if another 'me too' social network would ever work. I was wrong.

I increasingly find myself more on Facebook and less on Orkut and I think in a few months I may have to invoke the "forgot password" option on my Orkut account.

I think the initial reason for the migration was due to the Facebook apps.There was a lot more to do than just see photos and updates from friends,and I think its an important reason why people come back to the site. Orkut was and is a lot more static and by early 2008 Indian users of Orkut had got past the initial novelty factor and were beginning to get bored of logging in again to see the same page with just a re arranged grid of friends.Thats when I Facebook provided something that was missed - a more dynamic page with more updates from friends.Facebook apps-although many apps are not very useful - are a clever way to increase the number of friend updates and help maintain a more dynamic page.Users will login more often to see what changed. And that is again a self feeding cycle with network effects - the less often users login the less number of updates friends will see and even fewer people will login. Network effects in reverse direction!

I think the graph explains very well what happened. Facebook is gaining a foothold in India and Google better do something about maintaining Orkut's popularity in India. The OpenSocial Apps and friend updates strategy doesn't seem to have worked too well. The UI needs a big face lift and probably a better way to show updates must be worked out. Still, if things stay the way they are , I think it is beginning of the decline of Orkut in India.

Whats up with Sulekha.com??

If you want a lesson on how to screw up a perfectly useful service go to www.sulekha.com . If you have been there a few months back then you are in for a rude shock now. Sulekha is the first name that comes , (rather came ) to my mind when I want to look for a business or listing in any metro in India. They were good,fast and had a really useful feature of sending a listing by SMS. All that was on the landing page of sulekha.com. Now its a mess..They have morphed themselves into a portal which delivers news and the classic classified page requires about 3 links to go to and all I can see is ads. Still can't find a doctor nearby. And whats with the NRI focus?

I am not sure if they now make more money but surely the party won't last long enough because users will dump it for something else.

Does someone know of any other equivalent service?

What can I say?

Domain squatting is now a business ? and that too a web2.0 start up.They seem to post on start up jobs and other web 2.0 portals and design their site like a web 2.0 company.If that O Reilly chap had trademarked on "web 2.0" term when he came up with it first he would have made more money than any web 2.0 company ever made