Josh Kopelman from First Round Capital likes to talk about shrinking markets. Michael Dell likes to attack competitors margins. Well, Hello SMS! There doesn't seem to be a whale more bloated than SMS in play right now.
Of course historically the wireless companies have kept a very tight leash on software development making disruptive software very hard to build. But then
someone let Steve Jobs guard the hen house and it is now off to the races.
How it would work
When the iPhone first launched it was clear it would be disruptive because it moved so much control out of the hands of the carrier. The second piece came when Apple released the SDK and democratized the disruption. The third, and final piece arrives in September with the release of the
Apple Push Notification Service (APNS). With this developers can push notifications and badges down to the iPhone instantly. A little messaging service in the backend and you have replicated the functionality, if not ubiquity of SMS.
Growing your network
Alas, this only works for people who have installed your application and day 0 that is only you. In the business, we call this the "cold start" problem and it kills 99% of social applications before they launch. How do you make your app useful to the first person to install it? How do you grow your network?
The carriers have really helped us out here because they have given the world APIs to send text messages. So just make your Web 2.0 Name Compliant iPhone app (Textr?) communicate only with your Textr service. It does a quick little look-up to see if phone number 206-555-1234 is a Textr user. If it is, deliver the message via APNS, if not send an SMS. Every installed user no longer sends text messages and you've started to shrink the market. The poor fool who is getting the text message probably isn't using your service and is therefore paying exorbitant fees for that text. Help that guy out by appending a nice little message on how to save money to the text:
Hey Steve, let's meet at McLeod later for a drink.
Text for free with Textr!
And your network starts to grow with no cold start costs for the first few users. Your evangelize the network to the people that they'd use it with the most.
Embrace and Extend
Now that you've made it cheaper than SMS for your users, make it better. Keep a record of all messages on the server that can be, archived, indexed, and searched. Send digests of entire conversations via e-mail or RSS. Open up APIs to make it really easy to send yourself or others Textr messages, link it with Jabber, AIM, whatever. Find out what people wish could be done with instant communication and do it.
Go after the big boys
Once you have a little bit of traction, go after big companies to try to reduce their costs. Companies like
Twitter,
Facebook,
Dodgeball, etc. must pay a fortune in SMS fees. I'd bet they'd love to decrease those. Sign them up and charge them wholesale for SMS gateway work and next to nothing for people who use your application. The largest cost to them is your little ad on a small percentage of their texts. This really benefits them because everyone who installs the app saves them money. The market continues to get smaller.
Move beyond the iPhone
So far so good on the iPhone users, but as my friend Darren asked "does this mean I can't be friends with people without iPhones?" Of course not, whether or not your friend has the application installed is almost transparent to a user. But we can built Textr for other platforms too! RIM, Windows Mobile, and Android all allow applications to run in the background, so we can build our software for them. Dollars to doughnuts says that at least RIM and Android are working on some APNS analog which will make this even easier. People without phones based on one of these platforms can't play, but in the long run I believe that will become a very small percentage of the population as these phones become cheaper.
Increase shareholder value
All this is well and good, but how do we make money from this? Charge the biggest users. For the casual user of your service <5,000 messages per month, charge them nothing. For the larger (read: institutional) users charge them a fee that is half the price of SMS. We know that SMS is highway robbery, so making it much cheaper and still profiting should be easy enough to do. Or once you get market penetration start charging some nominal fee, like $1, for the application. Assume you net $0.70 (this is the margin on the iPhone App Store) and with a little work you're collecting $0.70 / phone sold worldwide. That's not shabby. Did I mention you get a free social network from your app as part of the deal?
Well this has been fun, I hope you enjoyed it as well. If you decide to launch a company based on this idea please just drop me a line to say thanks. Or 2% of the company. That's cool too.
