Have been busy like crazy the last few weeks and hence the gap between my posts. Quite a few comments came in on my previous post on SMS Advertising based Business Model. Among them was one from the CEO of 4Info, Zaw Thet, who tweeted me saying that my costs were not accurate and that margins were much higher in this business and another from the CEO of CellForce, Naom Samson, who agrees with my estimates but tells me that the CPMs are much lower at $20, which if true essentially means that an SMS Ad business model is doomed… there is no hope at all. On the other hand I have to disagree with Zaw. For a company like 4Info which is a third-party Ad supplier, of course the margins are higher since they don’t pay a penny for SMS messaging. Instead they take a cut out of the Ad revenues which in fact is killing their customers. With regards to costs, my estimates cannot be more accurate since I have personally had discussions with many aggregator companies including mblox, singlepoint, motricity etc and have their quotes.
Regardless, as I mentioned in my previous post, the SMS Ad model will never work for a startup. So the question is who is going to capture a piece of the $11 Billion market?
Cell Phone & Mobile OS/Ad Companies (Nokia, MS, Google, Apple): How about a cell phone that “Comes with Free SMS”? Would you go for it? As cell phones become commodity and revenues flatten, manufacturers are trying to throw in different options to make the phones more attractive to customers. On the other hand companies like Google and MS are looking for additional revenues for their Ad inventory. Nokia recently launched a phone that comes with free music and my take is that other similar offerings are not too far. Obviously ad revenues will allow device manufacturers to subsidize your SMS messages. Moreover, the biggest advantage for these companies is that they not only know the context of your text conversation but also have access to your location information. More importantly since they build the SMS client interface on the phone, they can push an advertisement directly into the client UI instead of taking up a part of your 140 characters. Also because of the highly targeted Ads in this case, CPM pricing will be much higher.
Without doutbt, this is not an easy idea to implement. It is not the technology but the negotiations with carriers which will be the key. Cell phone operators want to control every single thing on your device and have to be convinced that their revenues will not be affected. As long as the manufacturers compensate the carriers/operators, it should work well. Technology wise companies like Nokia (which recently acquired Enpocket), Microsoft and Google can easily deploy it. Revenue wise, from a recent analysis we did for Nokia, it clearly showed that their revenues would increase tremendously not only from additional sales of handsets but from the revenue generated from advertising itself.
Dedicated Mobile Ad Companies: Needless to mention, till the device manufacturers take advantage of the Ad market, bulk of the revenues in this market will be captured by the dedicated mobile Ad companies. These companies (like 4Info, Admob etc) are those that run dedicated Ad campaigns which come in the form of alerts, raffles and games where customers are sent special coupons or announcements (when they participate).
Perhaps there will be many more innovative ways to use the SMS Ads in the future. As revenues stagnate, everyone in this area will have to figure out where to make the next dollar. While carriers/operators plan on raising the text messaging/SMS pricing, others will have to think out-of-the-box.
Meanwhile, take the poll above and let me know whether you would be interested in a cell phone that came with free SMS.