The hype and fall of SMS ads – Substitutes and Alternatives

Back in 2007-08 we saw a lot of SMS related startups mushrooming. Some of them still manage to survive and the rest have short circuited. The general belief that prevailed was that if you can get enough SMSes out you can as well earn from it through footer ads. Their were all kinds of startups around that idea. Some wanted you to forward funny SMSes to your friends and some tried paying you for every SMS you send.

The dust has settled and we see very few survivors but interestingly none of them seem to be sending footer ads in the SMS. To put it better, none of them are getting sponsors for the SMSes.  Even if they are, the quantity is negligible.

So what really went wrong? What happened to all those always on medium, personal device, targeting etc.? Was all this just a hype?

The main problem here was the confusion between alternatives and substitutes. You need to realise what solution you are providing and then find who else is providing the same product and the same solution as well. The solution that you are providing can be broadly termed as “SMS advertising”. The substitutes to your product are SMS advertisements in the footer of SMSes sent by your competitors. And alternative would be advertisement through use of other mediums such as TVC, Print, banner ads etc.

When you decide the pricing of your solution you not only need to note what prices your competitors are quoting but also what prices other media forms are quoting. Of course, you might argue that advertising is more of a 360 degree thing and SMS advertising is part of that 360 degree, without which the circle does not complete and you have not reached the customer by all possible media. But you also need to realise that the advertising budget are limited and advertisers look for best RoI.

Lets take  a quick look at what advertisers could possibly think of this medium at this price.

1. Big advertisers with budgets running into millions will calculate price as cost per reach. Typically,  a 10 second spot in India-Pakistan match will cost you  Rs. 2 lakh, with atleast 2 crore people watching. So the  cost per reach is 1 paisa. One might argue that these ads are not targeted, which of course is true. But when you are building a brand you need to understand that the brand should appeal not only to target audience but also to people who influence his decisions and who appreciate his decisions. The cheapest SMS advertising that you get is around 10 paise. Now is the targeting 10 times better? Also, is the appeal of  both the mediums same? A video ad on TV and 60 characters of text, can they have the same effect.

2. The smaller advertisers for whom the targeting actually matters like the neighborhood mom and pop store were never allowed to get in. The minimum budget that any of the SMS services ask for runs in 100 thousand, which is absolutely insane for such advertisers. Although the medium would have been effective for them but they never got a taste of the blood before they could get addicted to it. There were no trial packs like the shampoo sachet they sold. A major reason that Google Adsense Adwords is widely accepted is because they let you set budget as low as $1 and there is variable pricing that works on bidding system.

The services that manage to survive are making money through monetisaton of web traffic mostly. SMSgupshup is trying different ways to lure advertisers and is quite successful till date but they are also missing out on the majority of the advertisers. Given the amount of unsold inventory that these services have they could really make it big if they set their pricing right.

Whats your take on this?

[Naman is a startup enthusiast and has worked with couple of Indian startups as Product Manager. He writes at The Inspire Blog]