Can Sms become a traded commodity?

Does SMS have the potential to become a traded commodity?

SMS is so ubiquitous these days it’s hard to imagine that the first text message was sent little over fifteen years ago. Since then there has been an explosion in both person to person and business messaging, creating an economy worth billions of pounds. Given both the size of the market and the simplicity of the product, is it possible that SMS could become a traded commodity?

The UK is a nation of ‘texters’. Each month Britons send over 5 billion messages; more text messages than voice calls. It’s popularity globally means that over 500 billion messages are sent each month. The value of the SMS economy was estimated at £1.3 billion in the UK in 2006 and $72.5 billion worldwide in the same year. Until recently the majority of this messaging has been peer to peer – from one mobile handset to another. However over the last five years there has been a massive growth in business SMS, known as ‘bulk SMS’. This has created a commodity and with it, a significant economy. In spite of attempts by mobile network operators to replace SMS with picture, video or internet-based messaging, the simplicity and low cost of sending 160 characters to any GSM phone makes it the killer application. Predictions from analysts such as Gartner, are that it will retain it’s status for the foreseeable future and the bulk SMS economy will grow with it.

The development of business SMS has been on the back of the global explosion in mobile phone use. Many developed nations are seeing mobile saturation at nearly 100% – almost everyone has one. Developing economies are also seeing significant growth. For example in China mobile phone penetration is nearly 38%, making it the world’s largest single user base.
As the mobile phone is the device that most people have with them most of the time, businesses are beginning to realize the potential of a mobile strategy delivered through SMS. This takes two main forms: customer relationship management and marketing. An early adopter of customer relationship SMS are the AA, who are notifying their customers of the expected arrival time for a recovery vehicle. The financial institutions have been slower to move into the sector, however Lloyds Bank’s recent mobile banking application shows the potential in this area.
As traditional media such as television and printing become less effective, brands are looking towards mobile as a new marketing media. SMS campaigns to opted in mobile users present an effective and low-cost alternative to direct mail.

With the development of a bulk SMS economy, the way that messages are sold and resold could make it possible to trade them as a commodity. Rather than sending an SMS through a specific network, such as Vodafone or O2, businesses will typically send the message over the internet through a gateway. These gateways are set up and owned by companies who have aggregated the connections to the various operators, making arrangements with both local and global networks to send text messages. These aggregators sell text messages on in blocks of 1000s at a discounted rate for provision to business users.
In their raw form bulk messages are of little use to an end business user. They simply consist of 160 characters of text, 12 characters to show the sending number and a receipt for delivery. In order to send messages a connection must be made over the internet to the gateway and a system developed to manage this.
There are an increasing number of companies, Ping Corp included, who take the bulk messages and add value by providing systems for sending these messages. These platforms offer a variety of functions such as marketing, appointment functions, ticketing and customer relationship management.
At Ping Corp, we shop around in order to secure the best price for our messages. Thus we make connections to different aggregators both in the UK and overseas. There are different grades of SMS available with slightly different functions, but they are all in essence the same commodity. With this trade there has developed a second tier of aggregators who do not make connections directly to the networks, but buy in bulk SMS services from other companies, repackage them and sell them on. This has created an economy of buying and selling of bulk SMS. As with other commodities there are fluctuations in demand based on peak usage and specific events. There is also a limit on supply, which Is due to network capacity. For example at the busiest time of year for SMS, New Year’s Eve, the limits on capacity cause delivery speeds to mobile users to become very slow.

Is there a strong case to be made for bulk SMS to become a traded commodity? Andrew Bud, Executive Chairman of mBlox, the world’s biggest SMS Gateway, thinks that it is unlikely right now. ‘There are significant differences in quality between SMS supplied by different providers, in terms of global reach and delivery latency.’ In practice however, there are only two quality levels and a number of territories. So in terms of trading, it would simply be a matter of grading the quality of the SMS. Andrew Bud makes a stronger argument when looking at the application of bulk messaging: ‘It is not possible to convert one grade of SMS into another, nor use low grade product for high grade applications and hence does not resemble the various linked markets for crude oil, for example.’ In effect, SMS is a processed good. There is a strong case however, that if electricity can be traded then why not SMS? Certainly the arguments in the early 90s the debates around commoditizing bandwidth could be applied to SMS now.
Bulk messaging could be commoditised if mobile operators or aggregators were to issue futures contracts or pre-book capacity. The greatest barrier to this, though comes from the mobile network operators themselves. As Andrew Bud puts it ‘They have never shown the slightest interest in it, so why bother doing so?’
Ultimately although there are many elements that would allow SMS to be traded, without support of the mobile networks it is unlikely to become a reality.

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