Text messaging or SMS is growing like crazy in the US. In Europe and Asia text messaging usage is at what is believed to be maximum penetration of 70%+. In the US it was only 17% just a couple of years ago, and I'm sure it's way up now; the numbers are moving daily. Text messaging took off in Europe and Asia primarily as a way to reduce cell phone bills – it was cheaper to send a 10 cents message rather than phone the person. SMS is limited to around 160 characters (depends on your character set – 70 for non western alphabets) and is sent over the signaling part of the telephony network – the part of the voice network that is used to direct your phone call to the desired recipient. Since it uses the phone network's "brain" access to it is tightly controlled by the carriers. Sending text messages always take the lowest priority over signaling messages – you would go crazy if it took 30 seconds to setup a phone call but text messages can sometimes take minutes to be delivered. Anyhow I say all this because I don't get text social networks like twitter. It's cool but it's not free to execute, so how are they going to make money – advertising? free to pay? Hey I'm all about build a community of a million people and then figure out how to monetize it (advertising is the most common solution) but that all supposes that the cost to add an additional user or deliver the services is miniscule compared to the number of impressions you are making. The concept here is scale. Text messaging doesn't scale in the same way as web applications. Here's why:
Text messaging is a closed network controlled by the carriers – as a result it is not free. How much does it cost? That depends on usage. I got a quote for 4 cents a message delivering around 500K+ messages a month. Granted that was not directly from the carrier or an aggregator (companies that interconnect carriers to hand off messages like the old days of the Internet – they make less than $0.005 per message handoff), it was from an application developer. That 4 cents was for MT messages (messages that terminate on the handset) - the cost to send messages inbound to a service company they waived (MO – mobile originated). Now let's assume some good negotiating skills and extremely high volume levels, I think it is reasonable to assume that you could get your costs done to maybe $0.0075 MT and $0.0025 MO or 1 cent for a two way exchange. You might be able to go lower but then you are in the realm of becoming an aggregator and your volume would be north of 50 million messages a month (a medium sized customer for a carrier ~ $500K / month). If you do get lower it's not going to be by much – some carriers still need to pay hand off fees to deliver a message to other networks.
OK so let's assume an advertising model – remember there are only 160 characters allowed per message. To deliver an ad you need two messages, one for the service result and one for the ad – that is $0.0175 to do that exchange. Multiply that by 1000 = $17.50 and that is what your CPM must be to break even. A $17.50 CPM is huge and to get that you need to be delivering some very targeted messages – seems unrealistic or very hard. You may ask "What about delivering a rich media message like an MMS." Forgetaboutit! The cost for doing one of those in measured in dimes and cross network connectivity to a service provider is not really available yet.
So why does twitter work. Well for now they are burning cash but not that much – they don't have tremendous volume (80K users from www.compete.com). They may start charging a fee using premium SMS (a service that passes the cost onto the user and shows up on your cell bill – like buying a ringtone) but I think users will balk at such a move. Their only hope is to sell to someone like Google who doesn't care about how to make money on this service. The carriers love premium SMS – they want all third party developers to go this route. Carriers take a commission for delivering your content to the end user and taking on the responsibility of collecting payment – they standard rate is around 50%! So delivering you a joke using premium SMS costs you the mobile user $0.99 – the carriers take $0.50, the aggregators get about a penny, the application providers gets 12 cents and the content providers get $0.36. Same math for ringtones, wallpapers and games. So see how this plays out – as a carrier to you want to drive providers to create premium SMS programs – the stuff like twitter is just noise for them. Companies like Google that do a free SMS information service – simply lose money to promote their brand (they may get it the SMS stuff for free as part of a total telecom deal with a carrier like Verizon but I don't think so). And even companies like Google you're not really sure what they are up to – they bought Dodgeball and let it wither on the vine.
So how does this all play out – companies that just do social text messaging go away, sell to the big boys before they run out of cash, start charging for their service that no one will really want to pay for, or convince advertisers to pay $20 CPM for 160 characters. High risk stuff.