This was predictable

Twitter has announced it is suspending SMS services in Australia, citing high operating costs. This was predictable.

Internet Radio is in Big Trouble

Internet radio is in big trouble. The Copyright Royalty Board judges just denied to hear an appeal from web broadcasters to reconsider the new rates for internet broadcast of music.

The business model in internet radio was dodgy to begin with, as incremental listeners incur incremental expenses in a linear fashion. In traditional radio, the entire listener base offsets a large capital expenditure for the infrastructure and the FCC license. But once you have the infrastructure, 1 listener costs the more or less the same as a million listeners. Once your advertising revenue covers servicing the capital expenditures everything else is gravy. The more listeners you have, the better your margins.

In internet radio each listener incurs additional fixed expense -- server overhead, bandwidth and licensing. So if your revenue per user is lower than those expenses per user, adding users just means losing more money. Under the new license rates I can't see how rev/user ever gets higher than expenses/user.

I didn't blog about this when it first happened, but there was no shortage of coverage. I think there is a larger question here of whether there is a business model for online music at all.

Many people suggest that the RIAA was driving this (the RIAA, justifiably, is a favorite whipping boy) but if you follow the money, the NAB has much more to gain by the new rates than the RIAA.

Edit: Replaced blocked image

Pondering the Economics of Twitter

The online world is abuzz about Obvious Corp's Twitter product. It's a fun service but I wonder about the business model. Who makes money on Twitter?

Let's follow the money. Suppose I have 50 followers. When I update my status, 50 SMS messages get sent out.

Each of my 50 followers pay between .$10 and $.15 per message to their cellular provider. Even if they've bought an "unlimited" message package ($20/month for 2500 messages) and they max it out (but don't go over), they're paying 0.8 cents/message each. Let's say on average they're paying $.05/message. So for every update I make on Twitter my followers are paying their cellular carriers $2.50.

Obvious is in all likelihood paying about $.02 per message terminated via their short code (this is an assumption). So the carriers earn another $1 from Obvious Inc.

Twitter messages are limited to 140 characters, I'm guessing the eventual business model is advertising and Obvious plans to use the remaining 20 characters (less addressing info) as their ad inventory.

So what do we have...

The cellular carriers are getting filthy rich. For every little update I make to my status on Twitter the cellular carriers get paid $3.50. The carrier costs for this are really low (I'd estimate well under $.05)

Obvious needs to be able to sell their ad inventory for more than the cost of terminating the SMS'es. So Obvious needs to sell out their inventory at a $20 CPM to break even. Obvious has some demographic data, but no real time geographic data on my followers. Do they parse my messages for context and content (a la gmail)? That could greatly increase the CPM they could command.

If the carriers were smart, they would waive the message termination fees they charge Obvious. Sure, it's great for them to get paid on both ends, but it really behooves them to foster the adoption of opt in, push, subscription services that use SMS.

Jason Devitt had a great post a while back on the economics of SMS.

R.I.P. Fonpods

Today we mourn a fallen competitor.

As apparent fallout from the Qwest suit against Voice 2.0 companies that were using the CLEC loophole as a biz model, the Fonpods site is now controlled (i.e. shut down) by Qwest.

I despise this type of legal bullying. It's one thing if a lone crazy person threatens a frivolous lawsuit; you can either fight those people, pay off their blackmail, or just ignore them. It's another thing if a multibillion dollar corporation with hundreds of lawyers on retainer actually sues you. Now I don't know if Qwest's claim was frivolous or not, but at the end of the day, it's moot.

So Much for the CLEC Loophole Biz Model

Quest is suing a bunch of Voice 2.0 companies that have been terminating in Iowa and relying on the CLEC termination fees for revenue. There are a bunch of free long distance companies involved as well as a few of our direct competitors.

From GigaOm:

In a lawsuit filed Feb. 20, Qwest joined the list of long-distance carriers who are bringing legal heat on the Iowa-based “free calling” schemes. In its case the Denver-based Qwest alleges that the “fraudulent, unfair and illegal” free-dialing schemes had resulted in “millions” of dollars of increased expenses for Qwest, including monthly bills that were as high as $500,000 from one rural Iowa telco.

Like AT&T’s earlier suit, Qwest’s was filed in the U.S. District Court for the Southern District of Iowa, Central Division. It seeks to stop free-calling concerns as well as their rural Iowa telco infrastructure partners from continuing with the operations that use regulatory-fee arbitrage and VoIP to provide international or higher-service calls (such as conference calls or chat) for only the price of a long-distance call to Iowa.

Unlike AT&T’s suit, however, the Qwest pressure has not yet shut down operations of some of the named defendants, a list that includes Fonpods (dial-up podcasts), FreeConferenceCall.com and HotLiveSexChat (please feel free to find that link yourself), whose websites all seem operational. The free international calling service advertised by FuturePhone, an AT&T as well as a Qwest defendant, remains offline.

Foneshow considered going this way, but eventually decided not to. We were concerned by our main revenue stream being dependent on the whims of congress. We were concerned that the people paying the bills were not the people who were getting value from our product offering. It did seem like easy money, but we had a bad gut feeling about it.