SMS startups in india and Google

Google launched smschannels last week. This makes it interesting as the biggest media company is now directly competing with desi startups. This move can be justified as google earns its pie from ads, and advertising on mobile phones is an huge untapped market. Quite a Indians have lot of mobile phones, and country has arguably the best mobile infrastructure on the globe. You just pay for outgoing calls, and still service providers report huge profits each year. Backed by this infrastructure quality, it was pretty evident that India will be on forefront of mobile innovation in days to come. A lot of startups are burning midnight oil to get some acceptance. Vakow, SMSGupshup, MyToday are few to start with.

SMSChannels resembles most closely with SMSGupshup as of now. I won’t be surprised if it copies ratings and other cool features from Vakow! as well. The idea seems simple here. Grow a userbase, and then start pushing advertisements. There has not been an official introduction on google’s blog (as it has been the tradition for google’s other products).

Over 50 countries in world have more than 100% mobile penetration in the world (which implies more than one connection per person). Around 80% of word population has access to mobile phone coverage. This figure is touted to reach 100% by 2010. If going by current trends, india will have close to 500 million mobile subscribers by 2010. This makes mobile as more available and more connected device than a PC. Thus, no wonder mobile innovation is future of technology startups.

Following is some maths, which will help you to understand the VAS market :-

Average mobile bill of an indian can be safely assumed around INR 300 per month. Out of this we cab reserve 10% for VAS like SMS etc (these are optimistic figures). which boils down to INR 30. Now going by 500 million subscribers by 2010, the market would generate 500 mn X 300 = 15 0000 mn = 150 billion INR in india alone. Lets multiply it with 12 to reach an yearly figure. It will be 1800 billion or 1.8 trillion INR. Which is a mouth watering sum indeed. By going with 10% assumption of our VAS market, we will reach 0.18 trillion INR per year. (It should be noted that VAS spending is a bit skewed, and high end users like me are more likely to shelve are much much larger percentage than 10% towards it).

Another factor that makes the market lucrative is unorthodox user retention. For service like smsgupshup, vakow!, MyToday, and now SMSChannels, once we have a subscriber, the chances of her leaving the service is a bit low as compared to web as it involves a cost (of sending a message back to these folks). Also, what differentiates it from web based applications is that almost every subscriber is active subscriber. Let me explain this point with an example. Suppose there is a new web app on the block. I go and register for it(i do it for almost any application). I use it for say a week. After that i do not visit it. This means that i am no more active(this is the story with every pull based model). Gupshup, Vakow!, and others work with push based model. Whenever they have an update for you, it is pushed to you on your mobile phone. There is non stop content streaming. Even if you are not interested in seeing the new message, you open it atleast once in most cases. This makes mobile advertising more impactful as compared to web based applications. It can be concluded that ratio active users is a decent number is case of mobile phones. The bottomline is, if you have a decent userbase, you can indeed monetize it with ads. Google already has a decent ad inventory, and it had no reason not to jump up in this bandwagon.

The cost of operating such a startup is quite high as of now, but with time it goes down. In time to come, when black suit- black tie MBA honchos working with mobile service providers realize it, they will definitely propose to get the sms costs down, and work towards revenue sharing deals with such startups.

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