Assuming that Facebook Messenger provides a compelling messaging experience, it has the potential to achieve a greater reach than BBM, WhatsApp, KakaoTalk or the as-yet-unlaunched iMessage. According to Facebook, it has more than 250 million active mobile users, and these users are twice as active as non-mobile users of Facebook. In addition, the company has partnerships with 200 mobile operators in 60 countries.

This larger addressable market is a key differentiator between Facebook and other messaging application providers. Facebook already has a massive installed base of users, on both the mobile and the PC, to which it can promote Messenger, which will be available to subscribers to download for free.

The company says the overall Facebook messaging experience will be faster with the Messenger application, which will definitely be seen as an advantage by Facebook Mobile users who are also heavy users of Facebook Messages. Facebook Messenger will also enable “free” messaging (over IP), group messaging (courtesy of Facebook’s acquisition of Beluga), and integration with the phone’s address book so that Facebook Messenger users can send messages to non-Facebook Messenger users via SMS.

Facebook Messenger’s integration with Facebook Messages and the phone address book, and its inclusion of Beluga’s group messaging capabilities, gives it a potential edge over the other messaging applications, and may be a key factor in inducing either churn among the existing users of these applications, or in encouraging adoption by new users.

One potential drawback of Facebook Messenger is that Facebook Mobile users will have to download and install Messenger as a separate application on their smart-phones. The application may not be appealing enough for existing Facebook Mobile users to do that en masse. Even though Facebook does have the advantage of a significant installed base of mobile users, it will face the same challenges as its competitors with regards to growing the penetration of Facebook Messenger.

With regards to Facebook’s mobile operator partners, these will likely also benefit from the way in which the new Messenger application will work, in that messages will continue to be delivered via e-mail notifications and texts. That means that the mobile operators will still generate data and SMS traffic, and revenues, from their subscribers’ use of the Messenger application. In order to use Facebook Messenger, mobile users will need to have a smart-phone, a mobile data plan and a messaging plan with their operator. Facebook Messenger may well be a factor that encourages mobile subscribers to upgrade their devices and plans.

As to whether Facebook Messenger will have a significant impact on carriers’ SMS traffic and revenues, it’s too soon to tell. While the penetration of smart-phones (which enable applications) is growing quickly, all devices enable SMS, and it is the ubiquity of SMS and its interoperability across networks and devices that will ensure that SMS continues to play a key role as a messaging bearer.

It is also possible that Facebook Messenger may help Facebook to shift the cost of SMS notifications and messages in markets outside of the US at least, back onto the mobile user. Facebook has not revealed the commercial arrangements that exist between it and its 200 or so carrier partners, but Informa believes that the company is probably bearing the cost of SMS notifications, buying SMS at wholesale rates either directly from the carriers or from a messaging transactions network. If Facebook Messenger requires users to pay to send SMS messages to non-Facebook Messenger users, then that is a cost that Facebook no longer has to bear, and it is also retail (rather than wholesale) revenue for the carrier.

It is possible that Facebook Messenger will contribute to the cannibalization of mobile operators’ SMS traffic and revenues, but it may also, perversely, contribute to the growth in mobile operators’ SMS traffic and revenues, because Messenger users will be able to send SMSes to their phonebook contacts from within the application.

Without doubt, Facebook Messenger has immediately become a leading contender in the mobile messaging applications market. Indeed Apple may already be too late, with iMessage. The smaller start-ups will find it difficult to compete without some significant differentiation. BBM will continue to thrive, but remain niche. Carriers are the only other players for whom Facebook Messenger does not necessarily represent a significant threat. Informa believes that this is because Facebook understands that it needs to work with the carriers in order to reach its customers on mobile.

Orange states that only 1.4 per cent of the population in Africa and the Middle East has access to broadband services, and Informa Telecoms & Media forecasts that the penetration of smart-phones in Africa and the Middle East by end-2011 will be just 11.3 per cent and 19.8 per cent, respectively. According to Informa, there were 577.6 million mobile subscribers in Africa and another 226 million mobile subscribers in the Middle East at end-2Q11, equating to penetration rates of 54.7 per cent and 93.5 per cent, respectively. In order for an Internet company to reach the widest possible audience in Africa and, to a lesser extent the Middle East, it’s going to be essential for that company to use SMS as the access mechanism.

The partnership delivers mutual benefit to Orange and Google: Orange will generate additional traffic and revenues from the SMSes sent by those of its subscribers who use the Gmail SMS Chat service and by those of its customers who reply to the chat messages.

Meanwhile, Google will secure additional market reach. The Internet company already offers Gmail SMS Chat via 29 other mobile operators in Africa and the Middle East, but the tie-up with Orange gives it access to another 19 networks, representing 60 million subscribers in total. At a micro level, Gmail SMS Chat users will be able to add Orange mobile customers who are not Gmail SMS Chat users to their address books/buddy lists, which may in turn encourage non-users to sign up for the service themselves.

It’s also possible that Orange and Google will co-brand and/or co-market the service, which will again deliver benefits to both companies in terms of raising or enhancing their brand awareness among mobile subscribers in the MEA region.

Orange and Google have not disclosed the commercial terms of the partnership, but it’s unlikely that Orange will share messaging revenues with Google. However, Orange is offering Google the opportunity to provide other services to its subscribers, and Google may well be able to charge for these or secure a share of the revenues generated by these services.

Orange and Google have already had some success with Gmail SMS Chat: Orange stated that the service attracted 700,000 unique users in Senegal within the first six months of its launch in Jul. 2010. Between them, these users sent four million Gmail SMS Chat messages.

It is possible that Gmail SMS Chat can achieve a similar level of success in the other African countries in which Orange and Google propose to introduce the service, which is also already available in Kenya and Uganda. Initially the operator has only named five other markets in which it will launch or trial Gmail SMS Chat, though it expects to roll the service out across all 19 opcos.

Orange is not charging its subscribers a subscription fee to access Gmail SMS Chat, nor will it place a premium on the SMS chat messages, which will help to make the service more attractive to consumers. In fact, to provide even more incentive, Gmail SMS Chat users receive a quota of free SMSes (Google states on its web site that Gmail SMS Chat users receive an initial quota of 50 messages), which is renewed with an additional five free SMS messages every time an Orange customer makes a paid-for reply to a chat message.

However, Orange and Google are not alone in seeking to provide SMS-enabled Internet services to mobile subscribers in Africa; companies such as ForgetMeNot have been doing so for a couple of years. ForgetMeNot, for instance, enables SMS-based e-mail, instant messaging and social networking for operators in Kenya, the Republic of Congo, Zimbabwe, Lesotho and Nigeria. Although such companies do not have the scale of Orange and Google, they are agnostic in terms of the services that they do enable, which can be a potential differentiator for mobile operators.

KPN is attributing the fall in SMS and voice traffic and revenues to the increased use of messaging applications on smart-phones, including BlackBerry Messenger and WhatsApp, among others. These messaging applications enable services which are quite similar to mobile instant messaging, allowing mobile users to message other users of the same application, using their data-enabled devices.

The operator said that ‘early adopters show high smart-phone penetration, strong data usage growth and substantially less SMS usage’, and that this changing customer behaviour contributed about 2% of the total 8.1% reduction in KPN Netherlands’ service revenues for 1Q11. KPN has not disclosed its total SMS traffic volumes or its service revenues for 1Q11, which makes it difficult to calculate exactly what value this 2% decline represents. However the company’s Netherlands operations generated €1.7 billion in revenues in total in 1Q11, a decline of 3.1% from €1.76 billion in 1Q10, with revenues from the consumer business falling from €969 million in 1Q10 to €941 million in 1Q11.

But KPN Netherlands’ own consumer KPIs for 1Q11 do not support its argument that the adoption and use of IP-based messaging applications have significantly cannibalized SMS traffic (and therefore revenues); the mobile operator actually reported that its SMSes sent per subscriber per month increased 14.3% year-on-year to 56 SMSes per subscriber per month in 1Q11, up from 49 SMSes per subscriber per month in 1Q10. Quarter-on-quarter growth was weaker, up 3.7% from 54 SMSes per subscriber per month in 4Q10.

According to Informa Telecoms & Media, KPN Netherlands experienced an 18.5% increase year-on-year in its SMS traffic  in 3Q10 (the latest quarter for which Informa has data) to 1.7 billion messages, up from 1.4 billion SMS in 3Q09.  However, based on KPN’s statement that its subscribers sent 56 SMSes a month in 1Q11, Informa calculates that KPN Netherlands’ 1Q11 SMS traffic was in the area of 1.55 billion SMSes, which represents a small decline of about 1.3% year-on-year, down from 1.57 billion SMSes in 1Q10.

KPN Netherlands has also seen some fluctuation in its quarterly SMS traffic volumes over the past two years. For instance, in 2Q10 the mobile operator reported SMS traffic of just 1.1 billion messages, down 18% year-on-year from an estimated 1.4 billion SMSes in 2Q09, according to Informa.

In addition, KPN Netherland’s subscriber base has declined 3.7% year-on-year to an estimated 9.2 million subscribers in 1Q11, down from 9.5 million subscribers in 1Q10, according to Informa. Declining subscribers will also have contributed to declining SMS traffic and revenues.

KPN’s Mobile International operations, which include e-Plus Germany (now Base) and Base Belgium, do not appear to be experiencing a similar level of cannibalization from IP-based messaging applications, with no mention in KPN’s results announcement of the uptake and use of these applications negatively impacting SMS traffic and revenues.

The appeal of IP-based messaging applications, which are being referred to as ‘ping’ messaging applications, is that they provide the illusion of ‘free’ messaging, as opposed to mobile users paying to send an SMS, whether on a per-message basis or by using the SMSes included in their messaging bundle. The ‘free’ messaging is by virtue of mobile users being able to use their Internet-capable smart-phones to send messages to other mobile users who are members of the same community, using the data connection on their devices. Mobile operators generate revenues from the data traffic associated with the messaging.

Essentially, ping messaging is a form of instant messaging. Instead of mobile subscribers using Yahoo Messenger, Windows Live Messenger or Google Talk on their devices, they are using Research in Motion’s BlackBerry Messenger, or applications such as WhatsApp, Kik and Nimbuzz, among others. In addition, some of these applications also enable mobile users to aggregate access to their traditional IM communities.

However, some of the market characteristics that have so far hampered the take-up and use of the traditional instant messaging communities on the mobile will likely also apply to the take-up and use of ping messaging:

• Smart-phone ownership: Mobile users will need to own a smart-phone and to subscribe to a mobile data plan. They will also need to download and install the ping messaging application onto their device. While the penetration of smart-phones and mobile applications is increasing, especially in the developed world, in the short-term these requirements will be a barrier to entry to segments other than the early adopters.
• Fragmentation: The ping messaging provider community is as fragmented as the instant messaging community, in that BlackBerry Messenger users can only ping other BBM users, and WhatsApp users can only ping other WhatsApp users – at least for ‘free’. Unlike BBM however, WhatsApp, Nimbuzz, Kik and others are cross-platform applications, meaning that they are available on more than one of the following platforms: BlackBerry, iPhone, Android, Symbian and Windows Mobile/Windows Phone.
• Market reach: This has not been a problem for Research in Motion with its very popular BlackBerry Messenger, which has about 40 million users, representing 76.5% penetration of its 52.3 million subscribers. Other ping messaging providers have created mechanisms by which their users can invite other contacts to join, and clearly the ‘free’ angle is a compelling message to non-users to do so.
• Platform stability: A number of the ping messaging providers have had problems with ensuring quality of service, WhatsApp and Kik among them. To their credit, however, the companies have been relatively transparent in acknowledging and resolving these problems, using their blogs to communicate with their users.

KPN has stated that it is putting in place a number of measures which are aimed at mitigating the voice and SMS revenue substitution it has highlighted in its 1Q11 results. The measures include the introduction of plans that include voice, SMS and data, and also the introduction of mobile data tariffs that are based on quality of service and speed. Specifically, the mobile operator intends to introduce separate tariffs for IP-based services such as voice-over-IP, instant messaging and streaming video, according to local media reports.

While the Netherlands’ regulator, OPTA, is reportedly unconcerned about KPN’s plans to charge different mobile data prices for selected IP-based services, the European Commission may take a different view. The EC has not gone so far as to define ‘net neutrality’ in telecoms legislation to come into force 25 May 2011 – which will govern transparency, quality of service and the ability to switch operator – but it has stated that net neutrality will be a key requirement under the legislation. Further, European telecoms regulators will be required to “promote the ability of Internet users to access and distribute information or run applications and services of their choice”. The Commission also stated that it needs to gather more information with regards to the de facto blocking of certain services by operators as a result of charging their subscribers more to access these services.

Consequently if KPN Netherlands does introduce separate tariffs for IP-based services – and it intends to provide more detail on its plans at its Investor Day on May 10, 2011 – it may well find itself at loggerheads with the EC. In its bid to shore up declining revenues, the mobile operator is clearly hoping that it will be able to generate more traffic and revenues from SMS by discouraging subscribers from using IP-based messaging alternatives, or that it will be able to generate more mobile data traffic and revenues because smart-phone owners will be prepared to pay extra for the privilege of using IP-based messaging. Whether KPN Netherlands succeeds in this endeavour depends on whether and to what extent the operator is found to transgress the EC’s new rules.

One of the findings of the research was that, for the first time in Norwegian history, according to Telenor, mobile users are saying that surfing the Internet using a mobile phone is more important to them than sending SMSs. Unexamined, that statement may send more than a few mobile operators into a tailspin, not to mention other companies working in the mobile messaging value chain.

However, I don’t think that this finding should be cause for panic. For a start, Telenor Norway has not revealed any further information about the methodology of the survey, so it’s unclear whether the sample was broadly representative of the mobile operator’s subscriber base – although it is likely for the sake of credibility that it was broadly representative – nor were the actual questions disclosed.

Beyond questions about the methodology, it should be noted that Telenor Norway is one of the few operators that reported a decline in SMS traffic year-on-year over the Christmas-New Year period – others included Sweden’s Tele2 and 3 and the Philippines Globe Telecom. The operators attributed the decline to the growing use of mobile social networking, which would fit in with the survey finding. Interestingly, however, Telia and Telenor Sweden both saw a small increase year-on-year in their SMS traffic over Christmas-New Year, indicating that any substitution of mobile social networking for SMS still falls a long way short of being a trend.

Another data point worth noting is that SMS traffic for Telenor Norway and Sweden’s Tele2 and 3 also declined year-on-year in 3Q10, which is the latest quarter for which Informa Telecoms & Media’s World Cellular Data Metrics has data. It was a similar picture for a number of other operators in the Nordics and Scandinavia, with the exception of 3 Denmark which saw its SMS traffic increase 49.7% year-on-year.

But in other countries in Western Europe – and indeed for two-thirds of the 269 mobile operators in 121 countries in seven regions tracked by Informa in 3Q10 – SMS traffic growth continued at varying rates. Operators in France, Germany, the UK, Austria and the Netherlands all saw SMS traffic grow in excess of 20% year-on-year, indicating that SMS remains an essential, well-used and in-demand service for mobile subscribers in developed markets in Western Europe, as it is in other regions.

The fact that SMS is a universal and standard service on mobile devices may in fact have influenced the responses of the participants in Telenor Norway’s survey, in that mobile users expect that they will be able to access voice and SMS on any device that they purchase, and therefore they may tend to discount the ability to send SMS as a decision factor. But subscribers cannot assume that they will be able to access the Internet on every device that is on sale from an operator, which is why they might give a higher importance to being able to surf the mobile web on the device they are seeking to purchase.

The finding that survey participants believe being able to use the Internet on their devices is more important than being able to send SMS has not prevented Telenor from including SMS and MMS in its Komplett package, including its FriFamilie unlimited voice, SMS and MMS offer for family members. The mobile operator has also stated that it will use SMS as well as the Internet and e-mail to communicate the new plans to its customers.

Meanwhile, Informa Telecoms & Media forecasts that SMS traffic will grow at a compound annual growth rate (CAGR) of 11.8% between 2009 and 2015, reaching 8.1 trillion events by 2015, though its share of total messaging traffic will fall from 71% of total traffic in 2010 to 45% in 2015. Similarly SMS revenues will increase at a CAGR of 5.4% over the forecast period, reaching US$136.9 billion by 2015, but SMS’ share of total messaging revenues will fall from 80.8% in 2010 to 68% in 2015.

NeuStar has been seeking to offload NGM for some time, since the division was neither profitable nor complementary to the company’s core business as a clearing-house for various telecommunications services. The NGM assets are a better fit for mobile instant messaging provider Synchronica, which also acquired Colibria’s instant messaging and presence (IMPS) assets in Apr. 2010. Informa Telecoms & Media forecasts that global mobile instant messaging revenues will total $5.9bn in 2011, rising to $16.1bn by 2015.

Synchronica is very much pursuing a diversified model for providing mobile messaging services, which has included creating its own messaging-focused device as well as enabling e-mail, IM and mobile social networking on its flagship Mobile Gateway platform. To this diversified model Synchronica can now add NeuStar’s Rich Communication Suite technology, which was an element that was missing from its acquisition of the Colibria assets. The customers and the RCS technology that Synchronica has acquired from NeuStar means the company has now expanded its focus from emerging markets to developed markets. Synchronica faces some competition in developed markets from over-the-top providers such as eBuddy, Nimbuzz and Palringo; it also faces competition from Miyowa, a close rival of NeuStar NGM and Colibria which has also diversified its messaging products and services in the past two years, and which is profitable and growing.

Synchronica’s acquisition of its second set of mobile-instant-messaging assets within a year, and for a bargain basement price, is a clear signal that the pure-play, managed-service business model for mobile IM has passed its expiry date. At least this is the case in developed markets where the over-the-top providers are competing with mobile operators to provide far more compelling applications that allow mobile subscribers aggregated access to multiple IM communities on their mobile phone and on their PCs.

Synchronica will need to continue to be nimble and to evolve its messaging platforms if it is to succeed where NeuStar and Colibria have failed.

Many of those who are following the disaster online or in print, by television or radio, would probably gladly give their right arm if they thought it would help. Failing that, there has been a generous outpouring of donations to a number of charities that are committed to providing assistance to the Haitian people. These charities include the Red Cross, Unicef, the Salvation Army, Oxfam, World Vision, Save the Children, CARE and the Yele Foundation.

The donations have been pledged via multiple channels, but what has been extraordinary about the fund-raising appeal for the survivors of the earthquake in Haiti is that SMS has taken center stage as a donation mechanism, especially in the US. By January 21, about $30m in donations had been promised to various charities by the US mobile subscribers of all four Tier 1 mobile operators, according to the Mobile Giving Foundation. Mobile users in the US have been able to text a keyword to numerous charities’ common SMS short codes, in order to pledge $10.

Donate to the DEC Haiti earthquake appeal

Similarly in Canada and the UK, mobile subscribers have also been able to donate CA$5 ($4.72) and £5 ($8.05) respectively by texting a keyword to a common SMS short-code. However it has not yet been confirmed how much has been raised in Canada, and it’s also not clear how much of the £42 million ($67.6m) that had been raised in the UK by Jan. 22 is via SMS donations alone since the UK’s Disasters Emergency Committee (DEC) is also enabling people to donate online or over the phone. Those mobile users wishing to donate by SMS to DEC can text the keyword “Give” to 70077 but, unlike in the US, standard SMS charges will apply since the UK mobile operators are not waiving charges. Indeed, only Orange UK is promoting a charity separately, enabling its customers to text “donate” to 864 233 in order to to send a £2.50 donation in aid of Unicef’s relief efforts in Haiti.

Using SMS to donate to a charity is not new, but up until the earthquake in Haiti it had not been well-used. Indeed, a recent global survey conducted by messaging infrastructure vendor Tekelec found that SMS donations was the least-used of six services about which it canvassed 500 users in September 2009. The other five services were news and sports alerts, reality-TV voting, entering competitions, paying for services and alerts on special offers. But the response to the Haiti appeal has certainly set the bar higher for SMS donations.

A number of factors have seemingly combined to drive SMS as an effective donations platform for charities in the US at this particular point in time, not least of which is the growing penetration of SMS use among mobile subscribers. Another key element is that there is a value chain for mobile giving already in place in the US, which was quickly able to swing quickly into action in order to respond to the emergency in Haiti. This value chain consists of the mobile operators, the Common Short Code registry (run by NeuStar on behalf of industry organization the CTIA), providers of mobile giving platforms including the Mobile Giving Foundation and Mobile Accord, and mobile messaging aggregator Mobile Messenger.

Also, the four Tier 1 mobile operators in the US all threw their considerable weight behind the promotion of the common SMS short codes associated with each of the charities, and in particular, the 90999 short code for pledges of $10 to the American Red Cross. Each of the US mobile operators has waived their SMS fees for the back-and-forth communications associated with setting up the SMS donations. That kind of in-faith attitude can only have helped US mobile subscribers to decide to give.

But Verizon Wireless has gone a step further, moving to address one of the pressing issues surrounding the delivery of aid to Haiti, and that is that pledges are quickly transformed into usable funds for the charities involved. By January 20, the mobile operator had advanced a total of $7.8m to the American Red Cross since it enabled SMS donations on January 13. Typically, it can take between two to three months for mobile donations to clear; Verizon is only waiving this process for the Red Cross’s Haitian appeal however.

The fact that the US cellcos have all set the pledge amount at a minimum of $10, chargeable to their subscribers’ mobile phone bills, will also have helped to quickly raise substantial funds. It is possible that even more funds could have been raised if subscribers were given the option to pledge amounts lower than $10, thus enabling even more subscribers to give.

The remarkable response to the call for SMS donations in the US serves to illustrate many things, of which generosity and good-will towards one’s fellow man are not the least. Clearly the mobile giving industry has tapped into a previously unmet desire by many people to donate to charitable causes using SMS, a channel that an increasing proportion of people find easy to use and which is provided by a trusted third party, that is, their mobile operator. It is those who are aided by charities that will benefit most from this welcome development.

Given that rivals Microsoft, AOL and Yahoo all snapped up mobile advertising networks two years ago – Screen Tonic, Third Screen Media and Actionality respectively – it would seem that Google has come a little late to the party. And perhaps its lateness to the market has cost it dearly. The privately-owned, venture-capital-backed AdMob has gone from being a start-up in 2006, to become a leading provider of mobile web display and application display advertising, with an ad serving network that spans 160 countries. According to its latest Mobile Metrics report, AdMob served 10.2 billion advertisements in September 2009 across its footprint. In 64 countries, the company served more than 10 million ads, and in 14 countries, it served more than 100 million ads. That is pretty impressive.

There is no doubt that AdMob has a lot to offer Google: in addition to its extensive network of advertisers and publishers, the company is able to provide its customers with comprehensive data about their mobile advertising campaigns, which it then also anonymizes and aggregates in order to publish a monthly report on its web site. This is the kind of data that the industry desperately needs if mobile advertising is ever to go mainstream.

Still, I am staggered by the sum that Google was prepared to pay to acquire AdMob, especially since as recently as January 2009, AdMob was seeking venture capital investment. The January 2009 round totaled US$12.5 million and in all, AdMob had received $47.2m since inception – or at least, the company had publicly disclosed that it had received that amount of funding. Also, Google itself says, in its FAQ with respect to the deal and regulatory approval: “Currently we do not believe this purchase requires regulatory review outside the United States. AdMob’s business simply is too small.” It’s a somewhat arrogant statement by Google, which also seems to contradict the price that the Internet giant was willing to pay to secure AdMob.

Under the circumstances, it almost goes without saying that AdMob CEO Omar Hamoui is an astute businessman; clearly he is also a skilled negotiator who knows what his company is worth and is not prepared to accept anything less than top dollar, as it were. Google’s CEO Eric Schmidt has reportedly said that the company will buy back $750m in stock once the AdMob acquisition is completed, in order to avoid share dilution. This reportedly first-time share buy-back for Google comes less than a month after Schmidt’s statement in the company’s 3Q09 quarterly earnings call that the company would not ever consider a share buy-back.

AdMob’s investors Sequoia Capital, Accel, Draper Fisher Jurvetson and Northgate Capital must be kicking themselves at this point; they will have made back their meager-looking investments, but nothing else, unless they also agreed some kind of exit deal with AdMob that gave them a share of the profits (or stock in this case) from the sale of the company to Google.

“Yoo-hoo! Over here,” says Google

What is also interesting about Google’s acquisition of AdMob is that Google has highlighted the fact that it currently doesn’t have an offering with regards to SMS advertisements, on a web page detailing its competitors in the mobile advertising market. Just to push the point home about how important it regards SMS advertising from a revenue perspective, Google also publishes a pie chart illustrating that an estimated 55 per cent of mobile advertising budgets in 2009 will be spent on SMS advertising, compared to 25 per cent on applications and web site advertising, and 20 per cent on mobile search. In addition, Google has helpfully provided a list of five players it believes are major players in the SMS advertising market: 4INFO, Cellfire, HipCricket, iLoop Mobile and VeriSign Messaging. Google is already active in the mobile search display market, and has acquired AdMob to provide application and mobile web site advertising, which means that the above players could conceivably be regarded as acquisition targets for Google.

But given the nature of the companies that Google has listed under SMS advertising, it seems that the company’s definition of SMS advertising is broad, and includes all forms of marketing in which SMS is used, not just the relatively nascent market for the insertion of advertisements into the unused characters of a text message. Only one of the five companies that Google has highlighted as players in the SMS advertising market, 4INFO, is operating under this business model. Meanwhile HipCricket, iLoop Mobile and VeriSign Messaging could be regarded as full-service mobile marketing companies, while Cellfire specializes in mobile coupons. All of these companies would, however, use SMS as a delivery channel for mobile marketing campaigns that, for example, include a text-to-win component or an SMS coupon.

While I don’t doubt that Google has considered or is considering one or more of these five companies as an acquisition target, I believe that either 4INFO, iLoop Mobile or HipCricket are probably the best fits for the company, depending on whether Google is going to continue to focus purely on SMS advertising, or whether it enters the mobile marketing industry sector.

If Google continues to focus purely on mobile advertising, then 4INFO is probably the best suited, since it has a lengthy history in inserting advertisements in the unused characters of SMS messages. 4INFO has also secured venture capital from Draper Fisher Jurvetson, one of the companies that funded AdMob.

But if Google is also interested in the wider mobile marketing sector, then either iLoop Mobile or HipCricket is going to suit its needs better. iLoop Mobile has already essentially said “Pick me!” by publishing, almost immediately after the Google/AdMob deal was announced, a landing page on its own web site that highlighted that it sits squarely in the SMS advertising space that Google left vacant on its web page detailing the mobile advertising market. This landing page has since been removed.

I don’t think that either VeriSign Messaging’s Mobile Delivery Gateway mobile content business (the former M-Qube) or Cellfire are in with a chance. VeriSign’s MDG has been up for sale for some time, but had Google been interested I feel that it would have snapped this asset up already, since VeriSign is keen to sell and Google has the cash (or stock) to buy. Meanwhile Cellfire specializes in mobile coupons, and that’s a capability that HipCricket also provides as part of a wider portfolio of services. If Google is interested in mobile marketing, it’s probably going to want to be a full-service provider rather than a niche market player.

But will Google be prepared to pay as much as it did for AdMob for a company (or companies) that will enable it to access a market which, by its own calculations, is much more lucrative than the mobile search, web, and in-application display advertising markets put together? Only time will tell.

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However, the privately-owned SpinVox, which is backed by venture capital from companies such as Goldman Sachs, GLG and Ariadne Capital, was less forthcoming about its financial position, leaving itself open to speculation that it is representing itself in the best possible light ahead of the execution of an exit strategy by its founders and investors.

SpinVox’s July 23 statement largely rebutted claims made by the BBC’s technology correspondent Rory Cellan-Jones, which centered on the level of automation of the SpinVox service, and whether its use of human agents in call centers not only contravened EU data privacy legislation but was also proving to be an unsustainable cost for the company.

It should come as no surprise to anybody who is familiar with SpinVox or its technology that its service is not 100% automated. Co-founder Daniel Doulton told Informa Telecoms & Media over a year ago that human agents are necessary for quality control, to “confirm” messages and as back-up in the event of a system failure. Essentially, the VMCS platform calls an agent when it comes across a word of a phrase that it doesn’t recognize, so that rather than transcribing the whole message, the agents confirm a message that has already been processed.

SpinVox went to great lengths in the July 23 statement to explain that the company is compliant with all relevant data privacy requirements, including the Data Protection Act 1998, and that its services are ISO-certified. In its July 26 press statement, SpinVox also provided additional detail about its Voice Message Conversion System (VMCS) automatic speech recognition platform, claiming that improvements to its accuracy levels over the last two years has resulted in a reduction of its human Quality Control agents to “a few hundred” per market, compared with the “thousands per market” when its launched its first service in June 2007 with US cellco Cincinnati Bell. This is significant, in that the higher the level of automation of a service, the more profitable that service is likely to be. However, Informa understands that SpinVox is still paying about 3,000 human agents for message conversion services; clearly this still represents a significant cost to the company.

The fact that SpinVox has been able to so quickly and comprehensively respond to the BBC’s story suggests that its house is largely in order when it comes to its technology platform and the way that it provides its services. Indeed, had SpinVox not adequately addressed these items before it made its service commercially available, it is unlikely that the company would have progressed beyond the due diligence stage to win contracts with the ten publicly-announced mobile operator customers who have launched or are scheduled to launch SpinVox services (or 23 cellcos in total if the operating companies of recent contract win, Telefonica Moviles in Latin America, are also included).

However, SpinVox has been less clear about its finances; the company devoted just four paragraphs at the bottom of the five-page missive it issued on July 23 to addressing points raised by Cellan-Jones. At the end of the statement dated July 26, just five paragraphs were taken up with the co-founders Christina Domecq and Daniel Doulton, and Julie Meyer, from SpinVox backer Ariadne Capital, making general statements about the health of the business.

Financial transparency

The lack of financial transparency speaks volumes; surely if SpinVox has nothing to hide, then it can afford to be as forthcoming about its finances as it is about its technology. SpinVox is clearly drawing on one of the benefits of being privately-owned, in that it is not required to publicly disclose its financial results, so there is no real visibility on its balance sheet.

Neither of SpinVox’s press statements confirmed the wording of an e-mail that Domecq, also SpinVox’s CEO, is alleged to have sent SpinVox staff in early July, requesting that employees take some or all of their pay in July and August as share options, adding that the targeted £1 million (US$1.6 million) in savings would help tip the company into profitability. The July 23 statement merely claimed that the company is operating profitably, that offering its employees share ownership is routine and that the offer had been taken up by more than 50% of the company.

But if all is indeed well with SpinVox, and if the company is already profitable, it begs the question as to why Domecq asked employees to sacrifice all or part of their salaries over a two-month period in order to help SpinVox reach profitability – especially when the company secured US$100 million in venture capital finance from Goldman Sachs in March 2008.

Informa understands that at end-2007, SpinVox reported that it made a loss of £36.3 million on revenues of £2 million, though revenues increased about 350% on its 2006 revenues of £436,000. In 2008, the company secured a number of mobile operator customers, but for each of these it would also be accruing higher costs.

What should also be of concern is whether SpinVox has been spending money in the wrong places. For example, Domecq has admitted in an interview with Paid Content UK that the company flew all of its employees to London for a summer party in 2008, which was held on a boat on the Thames River. While good for employee morale in the short-term, the expense associated with this kind of jolly seems excessive for what is essentially still a start-up company that is relying on venture capital.

Similarly, it’s questionable whether there has been sufficient return on investment from likely costly brand-building initiatives such as purchasing relatively high-profile stand space at industry trade shows, not to mention merchandising, such as the SpinVox dolls that were displayed on its booth at the recent Mobile World Congress and presumably given away to attendees. Among other projects and causes, SpinVox is a sponsor of the Institute of Contemporary Art in London, and its Figures of Speech fund-raising gala which was held for the third year in May. Were all of these expenses really necessary to grow the business?

In the interests of full disclosure, I have a SpinVox trial account, and I have found it useful, though recently I have been concerned about the increasingly garbled nature of the messages I am receiving, the fact that I have received messages which were not intended for me, and also the considerable time lag between when I get the converted/transcribed message as an e-mail versus as an SMS. I’m not too concerned about receiving garbled messages or the time lag, but I am a little worried that I’ve been receiving messages meant for others, since I would assume that messages meant for me are being similarly misdirected; if this is indeed the case, then it should be an additional concern for SpinVox.