It was reported this morning that Webaroo/SMSGupShup has raised $10 million in funding – $5 million each from Helion Venture Partners and Charles River Ventures. Push SMS services services like SMS GupShup and MyToday have a big problem – the more the service is used, the higher the cost for the company.
The Distribution Model
The Webaroo model that is similar to that of a newsletter – one-to-many. A user sets up a SMS GupShup account, and others subscribe to it. Using either a web or mobile interface, whenever the user sends a message, SMS GupShup forwards it to many users.
The Costs
From our discussions with industry executives, we’ve learned that for a bulk SMS service, each SMS costs the sender around 10-12 paise (Rs. 0.10 – 0.12, or ($0.0025 – 0.003). However, given the sheer volume of SMS being sent by SMS Gupshup and MyToday, they’re given substantially lower rates – of between 5-7 paise ($0.00125-0.0015) per message. Anand Rajaraman of Cambrian Ventures had mentioned that Webaroo sends over 10 million messages a day. The numbers are similar for MyToday. Note that at a recent conference, the CEO of MyToday had mentioned that they account for as much as 3.5 percent of all of India’s SMS traffic
The Burn Rate, And The Need For Funding
For the sake of simplicity, let us assume that SMS GupShup sends 12 million SMS a day, at a rate of Rs. 0.06 or $0.0015. That’s $18,000 per day, highlighted in the chart. The chart displays the various combinations for rates and number of SMS’. You’ll notice that as the number of SMS’ increase, the costs increase substantially. Hence there is pressure on the Push based services to either negotiate for lower rates (which they can, with their messaging volumes), or monetize by adding advertisements to the messages.
(click here for the same chart in Rs)
Now take the annualized figures. At 12 million SMS per day and a rate of Rs. 0.06 ($0.0015), Push based SMS services would burn up $6.57 million in the year. Like I mentioned – there is a desperate need for funding to sustain the services, among all such services.
(click here for the same chart in Rs)
Do note that there will costs over and above this.
Users are signing up for these Push SMS services, since they are a free alternative to paid telecom-operator services (Jokes, Cricket Alerts etc). The problem is that Push SMS services are largely dependent on advertising for monetization, and a substantial majority of the SMS inventory goes un-utilized. There is a glimmer of hope, though – a few SMS based ad-networks are now setting up shop in India, looking to aggregate SMS advertising inventory from services like SMS GupShup, MyToday, 160by2, mginger, among others.
Note: Do you agree/disagree with this analysis? Do leave a comment/your own analysis
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31 Comments until now.
Yup… All these SMS companies will definitely have to bleed a lot till they reach break-even point.
And, there might be serious problems if operators introduce inter-operator MT charges, like say 10/15p.
There is huge demand-supply mismatch as well. A LOT of SMS inventory & FEW advertisers/advertisements. So a lot of inventory will remain underutilized.
One advantage of Mytoday & GupShup over other SMS companies like mginger is that the intention of the users are genuine. They want a service & that being free is an add-on. BUT, a typical subscriber registering for an opt-in sms advt site just wants to get some small money, which i feel is a bad intention. In the short term there will be lots of users but in the long term, advertisers will feel the lack of effectiveness cos basically they’ll end up targeting the wrong audience. These companies must have also noticed the same, cos now we see a change in tag line from ‘making money’ to ‘get free sms’ kind of thing.
The market is huge anyways. There is a lot more action thats gonna happen in this space for sure :)
Nikhil, I do not think the SMS distribution model is sustainable in the long term, that is beyond the next 24 months. As users move onto proper data based services through either GPRS/EDGE using XHTML based sites and once 3G becomes a reality sometime in early-mid 2009, SMS based services will evaporate fast. I pay Rs 499 for data services on Airtel, great investment. Far better than MyToday’s silly email on SMS – SMS is a cumbersome and expensive service and the even if they start click-through advertising onto a XHTML site, why wouldn’t I use data services in the first place.
At 1.5$ per 1K SMS, they would need a 1.5$ and above CPM to survive on advertising, which seems unlikely given the limited nature of SMS.
Most important factor to notice here is Lack of option for a VC who is sitting on a CASH pile .
Someone recently mentioned to me that , There is a cash burn when ever you set up a media channel .
A TV Channel bleed few cores/ month before they make money. and that too when they are positioned to target only a segment of population
[news,sports,Movie,MTV,Spirituality,travel] .
Era of generic TV Channel is over.Potential reach is limited to a certain segment only .
But Smsgupshup,MYToday are generic portal . you can have a diverse community mix here . so its more appealing to advertiser .True that its burning money but its burning less than TV and this field is less crowded than TV . so its a lesser evil or risky . India’s comfortability toward sms,proven team of Webaroo is a factor too .
[...] We’re Not Buying To Sell” – S. Sivakumar, CEO Designate, Times Private Treaties – Why Webaroo Would Need As Much As $10 Million In Funding – Updated: Expedia Acquires India OTA TravelGuru: Report; TravelGuru Denies – Bharti [...]
Hi Nikhil
On the spot analysis.
The SMS cost for these guys is 6-7p/SMS which implies $6m+ expense in SMS cost alone for a year. Obviously on top of it will be tech team and infra cost plus SGA expenses.
The business case ultimately will rest on per SMS revenue from advertiser, and more importantly “Fill Factor.”
Some of these players have focussed on developing demand for their services, resulting in a high bleed rate. Now with huge SMS inventory they continue to bleed, and should find enough advertisers at decent price point to reduce the grief.
Good for the users, they are finding VCs before they could find advertisers! ;)
VCs are betting on big reputations (ala Rajesh Jain n Rakesh Mathur)and the hype of mobile advertising. The space is hot, and the jury is still out.
PS: The grapevine has it that Webaroo has raised money at lesser valuation than it previous rounds!
Nikhil, great post. Thorough. The SMS rates are quite precise. At the heart of it – SMSGupshup’s model at this point of time seems more reliable than say the social networking models. True, the costs of scale as opposed to the economies of scale set in. And i also think economies of scope may fall as highlighted in some of the comments. Having said that – there can be a few innovative things that GupShup can do – they can invertise by partnering with content providers – be the content providers themselves and capitalize on the perceived useful nature of the platform. Traditionally groups haven’t made money – or not too much but i think the steps being undertaken by Gupshup indicate otherwise. They have some reasonable case studies – they CAN provide a lot of value to advertisers. If you look at some of the mobile case studies in India – they are CRAPPY – have a look at the brand reporter supplement on Mobile in India. The 1st few pages are a lot of faff on what can be done with mobile marketing in India but the WAP and bluetooth case studies are almost non existent. SMS is the key driver for advertising and is likely to exist for a while. There are many factors which will have to culminate before IM becomes scalable in India – 4 years i think is a safe assumption. By then i think the face of SMS gupshup will change as well. Look at the supposed benchmark case studies and look at SMS case studies – the platform has all the potential to deliver. With API’s – more facebook integration AKA twitter and the allowing of replies that get placed in a location other than the mobile phone may also help drive engagement.
And i have to say Nikhil – your publication has been making some waves – dont see such discussions and precise analysis et al on any of the other blogs this month.
i see ‘advertising’ as the tag with the most number of mentions – interesting!
Vakow just invested in as well. So how does that affect the big picture?
nikhil, that was a pretty gud analysis. My 2 cents abt smsgupshup’s biz model:
- The smses are regularly sent to same people i.e. the reach is defined by the # of subscribers. Whereas in “send FREE SMS” kind of biz. models the real reach is defined by the receivers, which can be as much as 5-10 times of their registered user base.
- Second, the smses are regularly sent to same set people which can also result in the monotonity on the receiver’s part. Hmm. to simplify I’ll say like u subscribe to e-newsletters on internet.
- Third, targetting can be done only at a behavioral level i.e. a person whoz subscribed to stock alerts might be interested in financial services. Whereas in models like 160by2 a lot of profiling is done e.g. age, SEC, interests.
Thanks…
I understand the need for funding. But the question is why should the VCs spend their money on such services that bleed out with so much capital cost.
The only reason I can think of is the assumption that SMS based ad networks will soon set up shop. Maybe Google too is venturing into the same. And with 12 million SMSes being sent everyday, they plan to recover costs from Google ads.
But then, any business that is solely dependant on Google for money is doomed to fail at some point. So, why are the VCs still interested?
Hi Nikhil,
Your cost analysis is correct – so is the burn rate. However, VC’s don’t fund companies so that they can help them achieve their cash burn rate plans.
There is enough money around I guess…so most of this is introspection in a new form of media. I think this would have to be a long term bet – though with the Webaroo model – I would assume most folks using this are teenagers, young employees who use the service like a mailing group and are not exactly a target market for the advertisers.
This is unlike the MY TODAY model for instance where they are focused groups on finance for instance which are more easily monetizable.
I think if these Sms groups can lend themselves to accomodating more local advertisers (Over 200,000 as opposed to approx. 5,000 on TV) it could be compelling. This could be achieved through ad networks etc…
Nikhil,
Good analysis on the burn rate.
I am not quite sure if Webaroo itself has understood the target market.Various kind of people are there.
I know people who follow every second of stock market updated via smsgupshup.
And there are news groups,jokes group etc.
And trust me the UI even after a change is cluttered and bad.
I have been on smsgupshup from September 2007.
I had subscribed to 2 groups and unsubscribed as I did not want to be woken up at 2am by an smsgupshup sms.
-Nikhil
Hey Nixx,
The numbers are spot on and its interesting to note that both SMS gupshup and Mytoday though sound similar are different offerings. Mytoday doesnot allow users to start groups but have grown very fast building a set of users for their FREE CONTENT services. SMSgupshup is more of a FREE SMS Service but allows anyone to setup a broadcast ( Saurabh has commented just the opposite)
I am quite intrigued by Yogi who says the valuations were lesser ( if only Yogi had hyperlinked his name and i could reach out to him to get more dope on that ) and also by K’s comments about SMS fading out to other GPRS Services.
I have been following Giga OM on Gupshup and i get an AD on every message -> but seems like they are more of lead based where i have to SMS ABCDE to 567678 for a service. However, they have just released a mobile version at m.smsgupshup.com as well. ( so more GPRS things might be out there in the offing )
However, their own internal ad engine is also in the works as i see a test ad appear once in a while…and infact -> i liked it and clicked on it ( the ad is an SMS URL )
That means Gup Shup would seamlessly move into the GPRS space as well.
The move by Airtel to cut down walled gardens ( No more Mobile Office – pay 20paise per 30KB )is already spiking usage.
GPRS market will take off like anything as rates will fall.
However, the key here is to profile the user and the service which profiles the user base will certainly emerge with a clean edge and will make a lot of sense for advertisors.
Hey – Just noticed – the service if it continues to grww like this will soon be sending 15 or 20M sms per day. That will mean you burn like crazy.
On top of this – Airtel will now have stantardized rates of 10p for bulk sms ( 100M plus push per month )and i guess its only Airtel that currently offers 6P or the likes from various circles – This analysis will be accelerated and i think they will need more funding / cash in on inventory to reduce the burn.
Somebody add 12.36% service tax too for the cost on sms :)
[...] for the free sms messages. The fundingwill go a long way in scaling up the site as they seem to be spending more than half that amount in a year. I doubt if they can ever earn that much money with [...]
K – As Sanjay mentioned, MyToday and GupSup have GPRS sites too.
Harshil – I noticed the Advertising bit too, sometime last week. Perhaps its an indicator that Advertising is the lifeblood for many sites and services.
[...] received some great responses on this post on the burn rate of Push SMS services, both on MediaNama as well as via SMS and email (which are [...]
Its nice to see smsgupshup.com grow so fast. I remember on the first day of launch when i registered the key word Cricket
It is obvious that the webaroo’s businessmodel analysis herein, is better than the the VC’s!Can t understand why they would want 10 mn $, for a 10 mn $ mobile advtg market.(nohwithsanding them getting lower valuation than 1st round, which is bad enough)
One can buy sms@25 p, and then shoot it out to targetted unique users (pull)@3 to 5 rs a sms. But this is a finely grained target market – and the rev share is pretty decent, and so is the margin.But the webaroo model is mass push, and so the price points advertisers would want to pay for it is also low.
Therefore, sms scraps (with 160 charactter max message) or line tags is rather limited for scale and margin (read ebitda).To recover 10 mn, one would be need to hold and sell a huge inventory – for which one does not see a tangible market emerging over the last few years.
GK
Dude,
I am afraid, if all these comments, read by perspective investors in these companies could affect their fund raising.
Nikhil, True web2.0 like Analysis for many business models, those who use this could be called VC 2.0 :))
Cheers on starting this new destination with so much buzz. Congratulations and Best Wishes!
Hey VAS Guy,
thanks, and great to see you here. Always look forward to your inputs :)
About the VCs – I’m sure they must have looked at the burn rate before investing, and are aware that $10 million will not last over a year. The rest is opinion, and I’m sure they have theirs.
[...] by over 300,000 publishers sending around 10M messages per day. SMS to mobile devices is one of the major costs for [...]
Internationalisation? What about SMS cost in Europe and US?
Bulk SMS seems to be extremely cheap in India and therefore the true enabler (if it works at all) for this business model in India. Bulk SMS in Europe cost betwen 5 and 7 cent. There is talk about an internationalisation of thes business models. How are they ever going to pay for the SMS cost? All the best from Berlin
All said and done, the market is still not ready or sms advertising. Coupled with the restrictions we have in advertising of sms (i.e- character restrictions, text based advertising etc), this is not a model which can sustain in the market for long.
Secondly, as GPRS is becoming more and more popular, the SMS model has to eventually die down some day.
Thirdly, all these startups are just ginny pigs. The operators are just waiting to see which model works and then they will come down on the successful model and kill these people hands down.
Fourthly, a company like sms gupshup who has already so far raised around 20$ million in funding and still not focused on their product line and keeping on changing it from offline browsing, to mobile app to sms gupshup will run out of funds in the next 1 year and will hve a problem getting anymore funds if they have still not managed to break even, after raising 20$ milllion.
all n all, lets see how long sms gupshup survives. my guess is to a mazimum of 1 year. any guesses?
The VCs and the people running these businesses are definitely smarter than I am (I hope) and they must have some plans to recover all that money. But one thing is certain – advertising alone won’t be enough to survive.
Some of the VCs might be investing hoping for an acquisition. What these companies are doing right now is they are gaining traffic and userbase. VCs might be hoping that tomorrow some company like Google entering the SMS advertising space with its huge inventory of ads would like to buy some of these properties for its userbase – like YouTube. So lets say if Google buys MyToday, Microsoft might go for SMSGupshup.
If not for acquisition then these companies can make money in many different ways like providing premium content for a small fee, if not today then may be in the long run.
But clearly the idea right now is to acquire a loyal userbase which can be monetised later. It’s how back in the mid 1990s early Internet companies raised hundreds of millions and burned it on Super Bowl ads in the quest of gaining traffic. Some survived, some died. Who survives and who dies in SMS space will be clear in the next one or two years.
[...] MyToday, SMS Gupshup – Helion And Charles River Ventures Invest $11 M In SMS GupShup – Why Webaroo Would Need As Much As $10 Million In Funding Mobile Tags: Charles River Ventures, Helion, India, Mobile, Paid SMS, Premium, Push SMS, [...]
http://www.znisms.com/partners.html
Check this page.They are quoting 5paisa/sms(ex taxes) when the volume crosses 10 million/month. Since mytoday sends 360 million they will get a far better deal say 1 or 2 paisa/sms.
Surely they won’t be shelling 5 paisa.
Could someone list down some SMS providers who provide PUSH sms for less than 70 paise.
Could someone list down some SMS providers who provide PUSH sms for less than 7 paise. I made the typo error.