What made Twitter do it: the essential difference between sms handling in Europe and US

Written on August 14, 2008 – 3:05 pm
Patrick de Laive, Internet entrepreneur and co-founder of The Next Web Conference

Earlier today we wrote about Twitter’s decision to stop sending text messages to phones outside the US, Canada, and India. Due to an essential difference between business models of US and European mobile operators, the costs became too high.

How Twitter and mobile operators make money in the US

The difference is how these operators handle MT and MO Text messages.

A MO message is sent from a mobile phone (to for instance Twitter).
An MT message is sent from a server to a mobile phone (the Twitter update message).

In the US you pay for sending a text message, but also for receiving a text message. Parties like Twitter who send massive amounts of text messages generate a lot of money for the SMS gateways (or mobile operators). Twitter has a lot of bargaining power and can manage to get 1) the outgoing message for free and 2) a kickback on every delivered message. In other words, the consumer pays for receiving the updates, the carrier earns a bit and Twitter gets a tiny kickback.

A European user costs Twitter up to 7.5 to 10 euros per week

In Europe you only pay for sending the text message. So Twitter is bleeding with every message sent. The costs of sending huge amounts of messages still is around 3 a 4 euro cents per message. So every European Twitter dude can cost up to (250 times 0.03 cent) 7.5 euros to 10 euros per week! That’s obviously not a scalable model.

Option 1: reversed billing

European SMS gateways do offer the possibility to charge the receiver via a so-called reversed billed SMS. The process to charge people via a reversed billed SMS is that you send a message to a short code (e.g. Twitter on to 4200). But the huge disadvantage here is that the total costs of these messages are way higher. A reversed billed SMS costs the receiver normally between 0.25 and 1.50 euros (determined up front by the value added service -in this case Twitter-). Twitter would get a kickback of about 50% of the amount charged, but you can imagine that there are less then zero people willing to pay 25 cents per tweet!

Option 2: a kind mobile operator

Another option is to partner with the operators who would allow Twitter to send the messages for free - hoping that people who receive the message would send one back (to generate revenue). I don’t think that there is one mobile operator who would want to do this, because there is an inter operator charge to deliver a message on a different network of around 1.5 euro cents. And the possible ‘extra’ revenue is far from guaranteed.

Option 3: a pro account

The only viable option I can see is to offer users a PRO account. It makes perfect sense to me: get me some extra cool features and I’ll pay Twitter for it.

Why use SMS anyway?

One more thing. Why use SMS anyhow? It is the most expensive way of transporting data and there are free alternatives. What about twittering per email or via mobile web (For iPhone users there are tons of solutions to work around SMS).

I hope you like that post!

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business model, mobile, mobile operators, money, twitter

About the author: Patrick de Laive is co-founder of Fleck and initiator of The Next Web Conference, Bowlr and OpenCoffee Amsterdam. Check his LinkedIn profile for more information.

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14 comments/trackbacks to “What made Twitter do it: the essential difference between sms handling in Europe and US”

Aug 18, 2008: Internetpret | Wat mij opvalt
[...] What made Twitter do it: the essential difference between sms handling in Europe and USha ge weet het toch, sms kost fortuinen in dit land [...]
Sep 11, 2008: Please kill the replies feature Twitter, it really sucks
[...] Call it vanity, call it the need to stay in touch with other human beings. Ever since Twitter decided to stop sending SMS updates outside North-America and India, I depend on the replies function to see updates about me. At [...]

By Wouter on Aug 14, 2008

SMS prices are ridiculous, but that’s nothing new. They must make billions of euro’s with those bytes flying through the air.

As for the solution: I agree that offering a Twitter Pro account seems the most logical solution to me. Add some extra perks like Flickr does and they’ll have a bucket-load of paying customers. The only thing stopping this is the expectancy this brings to the Pro users regarding downtime.

[Reply]
By Zeromus on Aug 14, 2008

I use Twitterrific on the iPhone and SMS. I like SMS’s because they’re pushed to the phone, so I know straight away when somebody tweets. I read/tweet from Twitterrific. If (when?) Twitterrific can do push notification i’ll be fine with losing SMS, but until then i’ll just have to check for new tweets myself.

[Reply]
By Anon on Aug 14, 2008

>>
1) the outgoing message for free and 2) a kickback on every delivered message. In other words, the consumer pays for receiving the updates, the carrier earns a bit and Twitter gets a tiny kickback.
>>

Where are you getting this? AFAIK, no one besides the Tier-1 aggregators has a deal like this. They likely do get MOs for free, though.

[Reply]
By Patrick de Laive on August 15th, 2008:
Hi Anon,

true, only big parties can get a deal like this. I’m not 100% sure that twitter has a deal like this, but when Biz Stone was asked about the business model behind the text messages on a dutch conference in 2007 he came up with the answer that when sending a huge amount of messages they could make deals in the US and he expected to make deals with European carriers as well. The latter obviously didn’t work

[Reply]
By Stephanie Booth on Aug 14, 2008

Why use SMS?

It’s push and immediate (I want that for my DMs or for some stuff I’m tracking — when it was possible).

It’s a higher priority channel than e-mail and the Twitter stream (which I don’t “get” on my phone: I go and look at them, 100% pull, because the cost of having them on all the time here is not acceptable).

Would I pay to receive DMs by text? I would, if I can control the cost.

[Reply]
By longggshot on Aug 15, 2008

Twitter could do a deal with a mobile company that allows that companies users to exclusivly receive free twitter updates. This could be used as a major marketing tool by the mobile company and would benfit twitter

[Reply]
By Patrick de Laive on August 15th, 2008:
@ longgshot I believe that the Netherlands is the 3rd country regarding to the number of active Twitter users, but twitter is still very small here. I doubt if twitter would be an interesting party for a Dutch mobile carrier. That twitter would massively benefit from the marketing effort of such a deal is obvious.
Well I think it will be a long and tough way, but who knows…

[Reply]
By longggshot on August 16th, 2008:
@Patrick
Hi Patrick
It might be attractive to the mobile carriers as it could be neat marketing tool that costs them nothing if they are only sending txts to their own customers. It may be more attrative where there is currently a larger twitter population. Just imagine a vodafone PAYG twitter package.

[Reply]
By Jonathan Conway on Aug 15, 2008

I always found DM’s to be useful for web friends and even work colleagues for things that have urgency.
I just wished they’d tried to offer a pro account to European users first. I definitely would of stumped up the cash.

[Reply]
By dropzone on Aug 15, 2008

I think the pro account is probably the only way it would work. If you look at the number of people outside the cohort who read blogs like this that are regular twitter users the ‘marketing benefit’ angle quickly begins to look pretty negligible. Mobile ops are mass market, and are used to dealing with big numbers. Unless you have something like the iphone which will get recognition outside the (relatively small) group who will actually pay for one it’s just not worth it, and twitter isn’t high enough profile. But the people who DO use it are precisely the people who are prepared to pay extra for premium services.

[Reply]
By the prophet on Aug 15, 2008

twitter is so cool!

[Reply]
By Sacha Vekeman on Aug 20, 2008

Has anyone thought about mobile advertising as a way to subsidize the Twitter service?
Read: Rethinking Twitter’s Business Model -
http://mobiya.typepad.com/blog.....-twit.html

[Reply]

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