The opportunity of SMS

A few weeks ago I attended a technology salon here in DC. "The Technology Salon is an intimate, informal, and in person, discussion between information and communication technology experts and international development professionals."

Sounds cool, right? And it was. A Vodafone Foundation board member was there to talk about what Vodafone is up to in developing countries. There were a lot of smart people working in international development in DC and we had some good discussions.
The presentation from Vodafone was interesting, and it was great to see that they are aggressively building markets in developing countries. There were a few things from the presentation and discussion that I found strange, and suggested to me that service providers like Vodafone have a lot to gain from listening to international development and technology geeks. Indeed, the m-pesa idea (cellphone banking in Africa), one of Vodafone's big success stories, came from organizations working in finance in Africa.

The vast majority of projects that were discussed around the table leveraged SMS, which is not surprising since virtally all of the world's five billion cellphones can send SMS (and not MMS or email or internet). These five billion phones are an opportunity for service providers like Vodafone to grab tremendous amounts of market share. Many of the five billion phones owners have very little disposable income, but would quickly spend it on communication activities. Unfortunately, it sounds like the Vodafone strategy is to try and increase the amount of money spent by the average customer per month (currently about $5), which will translate into immediate profit, as opposed to reduce prices for SMS services which would lead to more demand, more customers, more communication and eventually more profit. Given that developing countries have by far the fastest economic growth rates, I would be establishing long term customer loyalty, so that five years from now my phone company is best positioned to take advantage of a more developed economy. Cheap SMS can do that.

Examining the cost of SMS pricing a little closer shows that it is probably the most expensive form of communication in the world, despite the cost to the service provider being almost nothing. SMS messages are attached to existing voice packets (this is where the 160 character limit comes from) and hence consume no additional bandwidth. In other words the bandwidth cost to the provider for sending SMS is zero (minus some capital costs). Why then does it cost 10 cents to send 160 characters? Sending $1 worth of data via your broadband internet connection would cost $61 million dollars to send over SMS.

Contrasting this SMS situation is Vodafone's problem with data services. They are struggling to figure out how to handle people that use their phones to download movies. Vodafone offers a fixed price for unlimited data, but a few users are spoiling the party by downloading gigabytes of data on their phones every month and squeezing the network capacity for the rest of the users.

Okay, so let's check the score. College kids are paying $50 a month for a firehose of wireless multimedia bandwidth which they use so much it is actually crippling the network. Poor farmers in Africa who need to know the price of tomatoes in the market are paying 10% of their daily earnings to send a 160 character message that costs the service provider nothing.

This is all very broken. But this is also a big opportunity for both Vodafone and people in developing countries.

The Vodafone Foundation's strategy for developed countries focuses on sports and music, while their strategy for developing countries is all about health. Setting aside the sports and music focus, I suggest that Vodafone should enable ultra low cost communication via SMS in developing countries. Maybe 1/2 a cent per SMS?

Not only would this build gigantic market share for the first cellphone provider to do it, but it would enable all sorts of value added services and projects to rise out of the villages that are in most need of new livelihoods that will lift them out of poverty and into the 21st century (and make them bigger consumers of cellphone services).

There are already a bunch of mediocre SMS based projects created and subsidized by people in places like Washington DC that are poised to do some good. What happens when we give people in developing countries the tools (and appropriate pricing) they need to solve their own problems? You get solutions. Solutions that are relevant, sustainable, innovative and worldchanging.

1 Response to The opportunity of SMS

  1. lousiana says:

    nice post, it sure feels nice to find people that enjoy bloggin as much as you do

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