Verizon Does Something Dumb (and then walks it back)

Yesterday Verizon Wireless said they were going to charge .03 "tax" on content providers sending messages.

Today they realized that by charging 3 cents a message to content providers they would be losing 15 cents per message they charge the subscriber.

So they hedged and seem to have walked it back a bit.

T-Mo Too

To follow up my post yesterday regarding VZW and AT&T offering flat rate...

T-Mobile has joined the fray

83% of Cellular Users Overbuy their Plan

In the very early days of working on Foneshow (the slide deck days) I was chatting with a VC with an enormous amount of telco industry experience. His comment about Foneshow was:

"The cellular carriers are going to HATE you. They make a fortune on breakage, subscribers who overbuy their cellular plans and have unused minutes."

That advice changed the way we thought about the business. It made us re-evaluate our list of potential strategic partners.

I just saw some numbers on Alec Saunders blog about how extensive the breakage issue is (I also stole his graphic).

83% of cellular users overbuy minutes.

50% of cellular users have more than 30 minutes a month left over.

Only 16% of users go over their allotment

This is great news for Foneshow. One of the common challenges that is made to us is the "minutes issue". It turns out that in reality, most users are already paying for plenty of extra minutes. Foneshow increases the value of the cellular plan you are already paying for.

Awesome

HT to Engaget Mobile.

ATT Hates Trees

Submitted with no further comment.

You've Just Got to Love the Cellular Carriers

From the New York Times

The companies will waive the early termination fee if you die. Pretending to be dead, however, does not work well as a way to break a contract. Sprint Nextel, Verizon and Cingular, for example, may ask for a death certificate. T-Mobile says it does not. “They want to take people at their word,” said Graham Crow, a spokesman for the company.

HT to Jason at Skydeck.

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.