Mobile's Exorbitant Fee Structure Inhibits Innovation

SMS May Be Near Universal, but the Costs of Working With It Are Too High

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Craig Daitch Craig Daitch also writes the blog Thought Industry.
Quickly, list 10 social-media success stories.

Not too difficult right?

Now try listing 10 mobile ones.

Gotcha, didn't I?

Comparatively speaking, it's easy to see how and why new-media entrepreneurs can bowl strikes with web-based ideas yet the mobile industry continues to throw gutter balls. As a "pioneer in the mobile space" (not my words, I swear), I've seen plenty of attempts at mobile innovation. In fact, by the time I'd left Simplewire to start my new-media consultancy with former Sony Ericsson marketing maven and current PHD Senior VP of New Media Ashley Swartz, I'd witnessed approximately 65,000 of them.

Yet of the thousands of developers who applied SMS (text messaging) to myriad vertical applications, I can only think of a handful with staying power.

Flawed system
The reason, my friends, is that the system is flawed. Unlike interactive marketing, the mobile space has set up large roadblocks that don't allow entrepreneurs the chance to grow their product offering. The primary culprit? Mobile marketing is too capital intensive.

I recently decided to eat my own dogfood and register my very own vanity short code. Like a vanity URL, a vanity short code consists of five to six digits that make up a recognizable name. To register a vanity code, you need to do the following:
  1. Invest $1,000 per month to retain your code.
  2. Commit in three month increments

That's $3,000 a quarter to just keep your code live. In contrast, I can register a domain name for less than $10 a year. The good news? While a great vanity URL is hard to come by, a quick check of USshortcodes.com shows there's lots of vanity short codes available.

More costs
Once you've spent $3,000 on your code, you now have to host it with an aggregator. Companies in this space historically charge you setup fees to have your code provisioned for SMS campaigns. These fees cost between $3,000 to $5,000, with a monthly recurring fee in the ballpark of at least $1,000.

But wait, there's more! Aggregators have had a difficult time offering unlimited SMS plans. In today's current mobile-marketing environment, an SMS campaign is going to cost me between 3 cents and 5 cents per message for standard-rate SMS. And mind you, that's one-way traffic. If I'm to receive responses from my audience, I'll get charged an incoming fee as well.

What if I want to offer premium billable services? Well, the good news is you avoid the cost per message because you're now in business with the carriers and aggregators. The bad news? On average, an aggregator will share revenue with you, taking 50% of your profits per $1. The splits are variable and based on where you set your market price (i.e. a 10-cent ringtone may have a more aggressive split than a $1 one would).

Imagine setting up a merchant account with a credit card company and they told you that their merchant fees were 50%. First thing you'd do is put a sign out at the front of your store stating "CASH OR CHECKS ONLY!"

So let's quickly rehash.
$12,000 a year to lease your vanity short code.
$5,000 in set up fees.
$12,000 a year in monthly maintenance/support fees
Variable cost of messages or a vacuum of 50% of your gross profits.

Now that I've just buried the industry that I cut my teeth on, let me quickly iterate -– this isn't a letter of complaint (though I'm still stinging from a $3,000 short code bill with nothing to show for it). This is a letter of opportunity.

SMS is still the lowest common denominator in the mobile ecosystem as virtually all phones have SMS capabilities. Yet of the approximately 240 million mobile phone users in the U.S., 82% said that they've never used text messaging.

A charge to the industry
Would we use SMS more frequently if we had more variety in our applications? Unequivocally, yes.

Would Mark Zuckerberg have been able to start Facebook in his dorm room if he were up against almost $30,000 in start-up fees? I think that's questionable.

And that's why mobile marketing needs to change. Stop prohibiting innovation, start encouraging it. Lower the costs, embrace entrepreneurs and promote those who bring something new and compelling to the marketplace.
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