GupShup -- ad-funded mobile services done right

In our Voice & Messaging 2.0 Report we listed over 70 new services we'd come across in our travels. One that's come to our notice since publication is SMS GupShup. Whilst there were many 'me too' Internet messaging services we reviewed, this US/Indian start-up is noteworthy for its business model.

As operators find voice and messaging markets mature and revenues stagnate, they are looking for new growth. One route is to try to create elaborate new services and persuade consumers to part with money for them. The other is to find 'upstream' parties willing to pay to interact with telco retail customers directly with the telco as an intermediary. Advertising is the starting place for many such initiatives, and GupShup as a template for this begs the question: what is the role of the operator? Bit pipe, enabling platform or complete services provider?

Humans are tribal creatures -- hairless monkeys with a grooming instinct

Today's core telephony and messaging products suffer from many limitations, but perhaps the most central is that humans live and interact in groups, and that these products don't support such activities well. Conference call systems are notorious for their poor user interface, and your phone's address book never seems to learn that you message the same three people over and over.

But perhaps the most critical limitation is pricing: telcos are determined to scale price linearly with the number of participants in the conversation, but the sender of a message doesn't see the value scale the sale way. In emerging markets, where alternative Internet and PC-based forms of communication are much more limited in penetration, this forms an important barrier to usage.

Fixing the pricing problem with adverts

GupShup is an SMS (and Web) based group messaging service available only in India, and with 7 million active users. Superficially the functionality is similar to Web 2.0 poster child (or enfant terrible) Twitter, minus the downtime. Users can send messages to a group, and can choose to follow up subscribe to multiple groups. Messaging is push-pull -- you send the message into the cloud, but recipients can total control over what they receive. Like Twitter, the result is a stream of banal human existence. Fortunately, that's what the users want, and is the basis for an SMS industry worth approaching $100bn/year.

The service has a diversified revenue model, comprising:

  • Premium content services, with GupShup handling the billing and payments.
  • "Business class" service, with priority message delivery and fewer restrictions.
  • Ad-funded service.

What makes it special is how the advert is managed and how every advert immediately provides value to the user. Group messages are limited to one hundred characters, with the remaining 60 in an SMS given over to brand advertisers. Sending a message costs the same as your usual mobile rate for one message, but the cost of forwarding that message is then picked up by the advertiser. Everyone wins, and unlike media advertising's bait-and-switch, there's a powerful social driver behind it, and the potential for personalisation and innovation.

With ads, everyone really must win prizes

This approach contrasts with the greedy attitude of carriers in the developed world. Many are trialling ad-serving technology that personalises adverts based on the user's demographics and click stream. Such trials have been secretive, and failed to get user opt-in. Most importantly, they never answer the user's issue: so, what's in it for me? The user feels they've already paid the full rate for a broadband connection, and what are you doing wiretapping my Web browser and fiddling with the ads?

No wonder the result is a PR disaster and carriers are back-peddling fast.

The lesson is simple. You want to use the customer's data and the customer's device and create new revenue streams from them. Note the apostrophes -- it's not 'customer data'. You've got to offer something in return for what you take. And there's nothing better than the reward being immediate.

So what should carriers do?

As we wrote in our report Telcos' Role in Advertising Value Chain, overall we are sceptical of operators trying to provide completely ad-funded services, or generate their own advertising inventory. Operators like Blyk are addressing a narrow, high-risk market. That said, as GupShup only cannibalises a rarely-used feature -- messaging to multiple recipients -- and is likely to stimulate new usage, it could be one worth emulating.

Alternatively, we would consider differentiating our retail pricing by (at least pretending) there's no more cost to sending to multiple recipients than one (with the reality being you'd probably drop your bucket size). Another approach would be wholesale deals with online services that are heavy SMS users, again to facilitate some creative retail pricing to undo the "group penalty".

However, a more Telco 2.0 approach is to ask not how to compete with such services, but how to become a supplier to them. Indeed, those very same ad-serving technologies become a lot more attractive in this scenario. Services like age verification, cash collection, credit management, customer care -- there is a long list far beyond just the bit pipe. [Ed - which of course you can read all about in our report on The 2-Sided Telecoms Market Opportunity.] It just requires a new mindset around high volumes, 'horizontal' business process and value creation -- not rent-seeking on the underlying access assets, or dazzling media services.