We’ve 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 off-the-record by default). Do note that the Webaroo funding has NOT been confirmed to MediaNama and we’ve merely published an estimation of their burn rate. There’s great value in your comments (do keep them coming), and here are some of the issues that you have mentioned –
Inter-operator charges: Sony Joy says that the burn rate will increase, and problems will be compounded further if telecom operators introduce inter-operator MT charges, like 10/15 paise.
Sustainability; GPRS vs SMS: Pratham believes that at a cost of 1.5$ per 1K SMS, they would need a 1.5$ and above CPM to survive on advertising, which he thinks is unlikely. K believes that the SMS distribution model will have issues sustaining beyond the next 24 months – users are likely to move to GPRS/EDGE, and once 3G becomes a reality. He feels that SMS is cumbersome and expensive compared to GPRS. Sanjay Vijaykumar rightly points out that we have not included the 12.36% service tax in our estimation, which would our estimation of costs for these Push SMS services, adding that GupShup has released a mobile version of the site at m.smsgupshup.com, and has an internal ad engine in the works. Some have also said that $10 million is not likely wont last for more than a year.
On VCs Backing This Model
Yogi mentions that the VCs are betting on big reputations (Rajesh Jain and Rakesh Mathur) and the hype of mobile advertising. The space is hot, and the jury is still out on whether this will work or not. Prashant Singh believes it will – he compares the SMS space to the TV channel space – TV channels will bleed a few crores per month, and with segmentation in that space, the target group for each channel is limited. Compared to that, the target group for Push SMS services is smaller – like a generic TV channel, with a diverse community mix. Sudhir Syal says that VC’s don’t fund companies so that they can help them achieve their cash burn rate plans.
Advantage over services where user gets paid (like mginger): Sony Joy says that the intention of the users in case of content based push sms services like SMS GupShup and MyToday is genuine – they want the content. Advertisements (ed: particularly contextual ones) will be more effective than services that target audiences that want to make money, or send free SMS.
SMS Ad Networks
Sudhir Syal suggests that SMS groups can target more local advertisers (Over 200,000 as opposed to approx. 5,000 on TV), and this can be achieved through SMS ad networks.
Underutilized Inventory; Reach & Profiling: Saurabh makes an interesting point – reach is defined by number of subscribers, not by number of SMS’ in case of Push SMS services. However, in case of send Free SMS services, reach can be 5-10 times the registered user base. He adds that in case of models like those of 160by2, there is significant profiling done; Sanjay Vijaykumar agrees, saying that they is in profiling users. Sony Joy mentions a supply-demand mismatch, and Yogi believes the business case rests on per-SMS revenue and the “Fill Factor”. We’ve been told that the inventory utilization for Push SMS services is between 10-25 percent, so a majority of the inventory remains underutilized.
Lack of case studies; Synergy with social networking sites
Harshil Karia believes that SMS GupShups model appears more reliable than Social Networking models at this point in time. He believes that SMS, as the key driver of (mobile) advertising, is likely to exist for a while; case studies on mobile advertising are of poor quality, and there aren’t enough case studies on WAP and bluetooth marketing. He also mentions integration of social network APIs with SMS based services.