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