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IDGVI News: Media Coverage 2009

Who says there are no free lunches?

Web sites offering free SMS are alive and clicking. eWorld takes a look at what keeps them ticking.
The Indian arm of AOL says that free SMS, on its own, may not be a big cash-cow.

The Hindu Business Line, Mumbai | September 7, 2009

By K Bharat Kumar and Shamik Paul


Tempting fare on offer.

It’s true. Here, much as you might fear a catch, there is none. Web sites offering free SMS abound. And, there are no comebacks! One of the writers of this article tried out a free SMS Web site and actually ended up saving anywhere between Rs 200 and Rs 300 a month on his mobile telephone bill.

If you are at a computer and are not sure if a friend or colleague (or even the spouse) is at another computer, then sending an SMS through a Web site is a sure-fire way of connecting immediately. And, you get to save on SMS costs. (SMS is the abbreviation for short messaging service and refers to the innocuous but highly used text messaging option on your mobile phone.)

Intrigued as to who finally pays for those SMS, eWorld started out to check how these sites — several in number — stay afloat, or better still, make money. Interestingly, competition is heating up in the market. There are more than just a handful of sites offering this service. Most offer free SMS as a part of a clutch of services. Many such sites start off offering freebies such as free SMS and then evolve into social networking sites. Social networking is a well-established phenomenon even if the revenue model is still evolving. But how does a site offering free SMS make enough money, both to cover the usual business expense as well as the cost of offering freebies?

Advertisement-led

Clearly, advertisements on Web sites of those offering free SMS seem to be saving the day for them.

Way2SMS.com, which began offering free, Web-to-mobile SMS services in December 2006, says that 90 per cent of its revenues is through advertisements appearing on its Web site. Significant, for a company whose revenues touched about Rs 5.8 crore for the year ended March 2009 — and 90 per cent of that came from advertisement revenues.

V.V. Raju, Founder and CEO, says that scale helps gain mileage. According to him, the site has about 50 lakh registered users. “We are adding about 25,000 users every day.” He claims that about a third of Indian youth that is online is on his platform.

Currently, only advertisements on his Web site garner revenue. As to advertisements accompanying the free SMS, he says, “As an industry, we are still looking at what works and what doesn’t.” In time, Raju hopes that advertisements on the mobile phone — or what he calls ‘mobitisements’ — would fatten his revenues.

He feels that advertisers need a critical mass before they buy into the ‘mobitisement’ concept. Says Raju, “We currently reach 3 crore mobile phones. If we reach about 10 crore phones, that would be a good base to attract interest.” He is mentally prepared to spend another 18 months before interest catches on.

What gives him the confidence to keep investing in this business is that, “Mobile media has the potential to compete with traditional TV and print media in terms of reach. Marketers can reach a population as high as 35 crore people on the mobile. This is over 30 per of the total Indian population.” To him, there is no other platform that would reach the mobile masses at one shot.

And, his Web site statistics back up his claims: it sees 100 million messages through its site monthly, with about 150 million page views.

Opt-in, and regulations

For this medium to take off, Vikas Agrawal, founder of MyCantos.com, is waiting for the era of opt-in based advertisements.

As a standalone service, Agrawal says that the Web to SMS model was all right till about two years ago. “Even though SMS costs were higher then, the advertisement tariffs on the Web were also high.” But now, it’s a difficult business to make significant profits from. Agrawal says with regulations coming in, and with customers opting in to receive advertisements and alerts, it should turn attractive. In the Web-to-SMS business, Mycantos manages to break even, says Agrawal, but overall it reports net profits.

Bundling other services

That brings us to how other services form a bundle, along with the free SMS business. Way2SMS wants to be known as a ‘360 degree communication tool’. Says Raju “We offer e-mail alerts on SMS, integrated messaging tools, etc.” It has also started an e-mail facility.

Mycantos is essentially a social networking site. Agrawal says, “We connect you to friends. We also allow private SMS so that none of the group needs the phone number of another.”

The Indian arm of AOL also says that free SMS, on its own, may not be a big cash-cow. AOL India offers this as part of its overall communication package. It feels that this medium, though popular with the end-user, is not a very lucrative source for advertising revenue.

According to P.G. Ponappa, VP and GM, AOL India Portal, “Mobile services in India mainly operate on the transaction model. It is the person responding to the messages from his mobile who carries the cost of the free Internet messaging.” Also, to prevent the danger of spam that such free services can generate, there are restrictions on the number of free messages an Internet user can send to a mobile in the absence of responses from the receiver. “Given these restrictions and the business model, advertisers do not have much scope for marketing their products through such services.”

However, AOL India sees consumers in non-metro towns also looking to Web-to-SMS and real-time messaging to communicate with their group.

Agrawal agrees on the rural count. “Across smaller towns in Madhya Pradesh, Uttar Pradesh and even Maharashtra, we see a lot of people coming to cybercafés, pointedly spending about 10 minutes on the Internet and sending SMS through our site.”

How does it work?

Free SMS sites typically buy SMS capacities from telecom operators, either directly or through intermediaries. Earlier, they could only buy in bulk and had to pay per SMS. However, the model is changing with Web sites now buying ‘throughput capacities’ from telecom operators.

In other words, Agrawal’s company could buy the capacity to send 2 SMS per second, which cost would be lesser than the capacity to send, for example, 10 SMS per second. The telecom operator would have adequate capacity to meet several such demands. “The operator capacity could well run to, say, 10 lakh SMS per second.”

For Mycantos, procuring such capacity is adequate, given its average of 35 lakh SMS per week.

Raju of Way2SMS says that for a flat amount, it can send any number of SMS but at the maximum of 2, 5 or 10 per second, (depending on what it paid for), wherein the message would be sent real-time, at any time of day or night.

SMS Fame, which started as recently as January this year, however, bets on the per SMS cost model. Rajesh Kumar Singh, founder, says his cost is 7 paise per SMS, if he buys bulk SMS. (Bulk would typically mean about 10 lakh SMS.)

He is able to recover his costs through advertisements on his site. With Google AdSense displaying customised ads that come through its system, he is saved the headache of actually coaxing advertisers to come to his site. (Currently his site is down but should be back up next month, Singh says.)

Other models

Sites such as SMSGupShup offer a variant of the model: one-to-many or many-to-many SMS opportunities. It is targeted at a group, each of whose members wants to keep in touch with the rest at the same time.

Beerud Sheth, Co-Founder and CEO, is emphatic that his service is “not for people who want to send personal messages, but for users who want to send SMS to multiple people.” The site also has a paid SMS service, which is prioritised to go faster, without advertisements and with the name of the business, where needed, as part of the header. The site also offers SMS services to communities, such as the UTI Mutual Fund, Rajasthan Royals, Titan Fastrack, Delhi Daredevils and Deccan Chargers communities.

Much like the e-mail, group SMS also allow for group replies.

GupShup has added 2.2 crore users in two years and 50 crore messages are sent every month, through the site. Since the mobile offers targeted marketing, there is interest from advertisers, says Sheth. “Unlike other media, advertisers can also receive feedback or comments from consumers. “ He says that the site’s advertisement revenues have seen an increase of 15-20 per cent month-on-month, in recent times.

Venture Capital interest

Helion Ventures and Charles River Ventures invested $11 million in GupShup in July 2008. But otherwise, there hasn’t been too much activity in the space.

Helion’s interest in the arena stems from India’s blazing-quick mobile penetration and the inclination of users here to prefer text messaging. Ashish Gupta, Helion Ventures Partner, says, “We are keen to invest in more companies in this space as long as it does not clash with the interest of SMS GupShup.” He adds that advertisers have shown healthy interest in displaying their wares on GupShup’s Web site. “There is good revenue opportunity from running polls, auctions and quizzes. It also serves as a mobile marketing platform.”

Manik Arora, MD, IDG Ventures, also says, “The whole sector of Internet — Mobile convergence and using both to stay connected — is interesting for investments.”

But his worry is about finding the right management. “The quality of the management will have to be assessed before investments can be made.” IDG is interested in both the Internet and mobile space and is reviewing a couple of companies in this space. “Although free SMS Web sites provide a lot of value, it will have to be seen whether consumers don’t mind receiving advertisements with their SMS.”