COMMENTARY | COLUMNISTS | PHIL BAKER

SMS comes to America

The simple mobile phone is undergoing a major transformation and becoming something more akin to a wearable computer. Once just an extension of our home phone, it is now morphing into a device with all sorts of functionality, some of it useful and some playful.

The new features being added are being driven by faster bandwidth and by cellular providers looking for ways to increase revenues in an increasingly competitive environment. Beginning in November, providers will be required to provide number portability that allows customers to keep their phone number should they change to a new carrier. One industry analyst predicted that 24 percent of businesses will switch carriers when this law takes effect. This means providers will have to work harder to retain their customers by offering new features and services (better customer service would be a good place to begin).

While phones will never duplicate the functions of a computer, they do have some advantages for certain applications. We've all used phones since we were old enough to talk, so simplicity of use is an advantage. (Of course, with all the new features may come a myriad of menus and the complexity of a computer!) Additionally, the cell phone is with us nearly all the time and has the capability to bill for services transparently without going through a credit card process. Fees are just added to the monthly bill. As a result, expect to see all sorts of new features in both the phones and services.

Providers are now offering, for a fee, downloadable ring tones and games, e-mail, text messaging services and mini applications, some using Qualcomm's (Nasdaq: QCOM) new BREW technology that enables software applications to be sent wirelessly to the phones.

The biggest use of mobile phones aside from voice calls is SMS, or short message service, which allows text messages of up to 160 characters to be sent between phones, much like instant messaging on computers. Typing a message on your phone may seem quite difficult and perhaps hurtful to your thumbs, but this has hardly inhibited its growth.

Gartner Dataquest, the industry's main research agency, expects the number of SMS messages to reach 168 billion this year. Others predict closer to 300 billion. In Europe, wireless carriers generate a fifth of their user revenue from text messaging. And SMS revenues in China will reach $16 billion, with more than 500 million mobile subscribers sending, on average, six messages per day (1.2 trillion in all).

Yet SMS has been much slower to take off in the United States, accounting for between 1 percent and 2 percent of worldwide volume, due in large part to the lack of network interoperability among the different cellular providers. While many countries and all of Europe use a single standard, U.S. providers use several different standards (GSM, CDMA, TDMA, iDEN, etc.), and until recently their lack of cooperation made it impossible for subscribers to exchange messages if they subscribed to different providers. Now that this is being corrected, SMS is finally taking off in the United States.

A San Diego startup, SMS.ac, (www.sms.ac/corporate and sms.ac) has developed a business to popularize SMS and use it as a platform for providing a variety of services. Founded two and a half years ago by Michael Pousti, founder of CollegeClub.com, SMS.ac has developed its own interoperability solution that enables cell phones to communicate with each other anywhere in the world through its network.

The company reports that its new service is experiencing the fastest sign-up rate ever, surpassing the record holder, Hotmail, the online e-mail company now owned by Microsoft (Nasdaq: MSFT). Pousti told me that within one week of going online, SMS.ac had 100,000 sign-ups for the service, 1 million after one month, and 6 million after six months. They now have approximately 10 million registered users. Most of this has been generated through word of mouth and through a promotional message tagged to the end of each text message. There is no cost to sign up.

To build this service, SMS.ac makes agreements with the world's cellular providers and sets up billing through each of them. They currently have about 400 providers in over 200 countries signed up, and are in negotiations with the major U.S. cellular providers.

SMS.ac members get free credits in exchange for accepting ads and automatic billing on their phones, limited to one ad a day, and can buy credits for additional messages or if they prefer not to receive ads. These credits are used to send SMS messages. In the UK, for example, credits are 50 for $2.30, with 3 credits (15 cents) needed per message. Both SMS.ac and the operators share the revenue. SMS.ac also offers additional SMS services to their members, such as smsFlirt, a matchmaking service using phones, and smsClubs, which you join to communicate (by SMS of course) with others of like interests. Clubs cover a wide range -- everything from religion to ethnic foods to politics, including some best left unmentioned, much like what exists on Yahoo and AOL. The difference is that SMS.ac has a business model that generates revenue for what has normally been free on the Internet. Pousti says his 50-employee company has been self-funded to date, and is profitable, but may look for outside funding as it continues to grow.

While immensely popular with the younger crowd, the thrill of text messaging has not yet hit me. Frankly, what I really want from my cellular company are no dropped calls, a phone whose battery lasts more than a day, and a switch on the phone to turn off the ringer instantly.


Baker has developed and marketed consumer and computer products for Polaroid, Apple, Seiko and others. He is the holder of 30 patents and was named San Diego's Ernst & Young Consumer Products Entrepreneur of the Year in 2000. He can be reached at phil.baker@sddt.com.

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