How to make money on SMS

Arindam Bhattacharjee

For the last five years, mobile telephony and the Internet have provided new

forms of communication, which we happily embraced. The need for different types

of communication was felt earnestly and this has been one of the factors behind

the success of SMS messages. SMS started as a means of interpersonal

communication but today it is much more.

SMS services have appeared in the form of various information services, share

surveillance, jokes, etc. In these cases communication takes place between the

operator’s SMS center and the customer’s mobile phone.

What does this mean in reality? Development within SMS is far from over. On

the contrary, the SMS market is growing rapidly. When it comes to services and

business models which operators can use to maximize their earnings, there are

plenty of unexploited areas within SMS.

Let’s analyse future possibilities within SMS. At the same time we take the

opportunity of comparing the future for SMS with the future of the mobile

Internet, and indicating what significance this will have for the operators.

Norway and Sweden have made far better use of the great commercial potential

in the area of SMS.

In Denmark only 3-4 % of the mobile operators’ earnings come from SMS. At

the same time the earnings per customer on SMS are much higher in Norway and

Sweden.

Even with 3G technologies in the pipeline, the future still offers many

opportunities for higher earnings on SMS services in Norway, Sweden and Denmark.

This has its effect on new types of services, not to mention new forms of

invoicing, such as reverse invoicing.

Within a relatively short period of time we can expect the premium SMS

services to be a part of the Danish market. In Norway it is expected that in the

year 2001 the value of premium SMS services will have overtaken the value of

advertising (i.e. banner advertising) on the Internet. The value of this

conforms to 60.5 million Euros.

Many operators have to start acknowledging the difference between the mobile-

and the traditional Internet. The operators cannot do this all but will have to

find partners that can assist them in the process. A competent new partner must

be able to see the possibilities of great earnings on their investment.

Looking at the mobile penetration worldwide you will find it is not as high

as that which you will find in Norway. At the same time it is not realistic to

expect the same willingness of payment or conditions of solvency in the rest of

the world. It is important to keep in mind that the possibilities for great

earnings in terms of premium SMS services globally do exist.

One could say that it is a bit optimistic to think that the world’s mobile

companies will be able to create a market within the area of premium SMS

services with a value of eight million Euros. However, it is not an exaggeration

to claim that the market will have reached this estimate in three to four years.

Looking at the Norwegian level (since this is the highest) for premium SMS

services, the potential market in the year 2001 in Europe will be as one can see

in the model below.

Continued...

The calculations show the potential for earnings on SMS traffic on all three

levels.

Looking at a specific country, one can see that the value in the German

market will be somewhere between 511 million and 1.63 billion Euros in the year

2001. The potential market earning depends on the chosen benchmark.

From SMS via WAP to UMTS



VAS (value added services) will obtain a growing percentage of the tele-companies’
business in the future. This is based on the fact that new technologies keep

emerging -- technologies that will make the number of new services explode.

The future possibilities of earnings for the operators are not entirely

dependent on the infrastructure of the new technology, but is more closely

linked to the ability of the operators to develop and market new VAS.

We expect that within a few years VAS will come to 20-30% of the operators’

business. Looking at the figures we have on SMS traffic today, we can see that

some companies make 7-10% of their business on SMS traffic.

Prospects for SMS



At present the dispatch of a SMS message costs the same whether one is in
the same country, or if the message has to cross borders. International

roaming agreements are just around the corner.

An area that is very interesting in relation to SMS is the fact that

companies are starting to send out commercials aimed directly at the users’

mobile phones. This takes a lot of preliminary work, for instance in the form of

the preparation of databases that contain specific information on various

segments. This is the best way to achieve effectiveness. As a service, one could

imagine that the SMS user would achieve access to free SMS services.

One development that is certain to emerge is companies coming to agreements

with telcos in terms of getting their own SMS numbers. This concept is gradually

being introduced in Norway, where approximately forty Norwegian companies have

come to an agreement with Telenor and Netcom on this issue.

The latest development in the world of SMS is the possibility of using it

through fixed net. In December 2000, Telecom Italia launched the first fixed net

phone in the world. This phone is able to send and receive SMS messages.