Innovation Chasm

Hard copy print out of the Internet with yesterday's news.

As companies grow, seemingly small changes become difficult. Change is even more difficult when companies have been around for a long time. Most companies think in terms of what they do rather than focusing on the benefits they provide. It's hard for many companies to recognize they could be left behind when technology changes. The classic example is the ice trade of the 1800s. More recently, we saw it in the newspaper industry over the past decade.

One clear example of this is SMS. It is a shrinking technology. Since 2005, the cost of sending a single text message rose steadily from 5¢ to 25¢ over the next few years. This falls under category #3 of the The Good, The Great, and The Bad Business Models.

Rarely do people send SMS text messages through their computer. It would be a simple feature, but the carriers didn't implement it. Other companies have stepped in because the wireless carries didn't innovate SMS. It was Grand Central that brought texting via computer to the masses. Apple has taken this one step further with Messages. Messages strongly encrypts the content and deliveries it to multiple devices at the same time at no cost.

The markets are bigger than any one person or company. A company can fight change by controlling or cornering the market, but that won't last forever in high tech. The companies that tend to fight it and succeed for long stretches of time tend to be oligopolies (Think: Big, as in Big Media, etc). It lasts for a while, but what companies truly last for centuries?

SMS is Dying, Viva SMS!

My love affair with text messaging started when I arrived in Nairobi, Kenya in May 2005. I was amazed that the wireless carriers in East Africa were so much more advanced than in the U.S. What I found particularly useful was that they could text money to each other using SMS - no apps required. As soon as I returned to the U.S., I created a proof of concept, using a GSM modem, and partnered with an angel investor as we tried to raise funding from Tech Coast Angels for the now defunct Acasero.

This morning, I was very pleased to see that Amazon announced a new web service which allows anyone to send text messages from a short code. Sending an SMS from a short code, which is a five or six digit phone number, is not an inexpensive proposition. It will cost a company at least $1,000/month not including the metered costs of sending each text message. I've covered the details in this white paper that I wrote a few years ago. But, with today’s announcement from Amazon, that cost is literally reduced to pennies.

SMS is Dying
The wireless carriers' approach to marketing SMS is what I call "bad." RIM has gotten around it, for years, by allowing direct messaging from Blackberry to Blackberry. Now, Apple's iOS 5 has done something similar by allowing text messages to be sent over the data portion of device's payment plan vice the SMS portion. The wireless carriers have priced themselves out of the market when you consider that it would cost about $6,000 to download a 4 MB song if wireless data cost as much as SMS.

Viva SMS
Yet, even though SMS is dying, it's still very useful in both developed and developing countries. It will continue to serve a niche for many years to come. The key strength of SMS is that it's a push (event driven) messaging system compared to e-mail which generally has to poll a server (even with "push" e-mail utilizing the IDLE command, it's still not a responsive as SMS).

So, now that SMS is available to the masses via a short code, what are some of the possibilities? I can think of a few, very marketable, ideas.

State of Mobile Apps Before the iPhone

iPhone too closed?

Before complaining about the iPhone being too closed, keep in mind what the state of mobile phone apps was like before the iPhone.

A $1.99 ring tone, wallpaper, or app delivered "over-the-air" would earn the developer less than 50%. About 95¢–$1.10 went to the wireless carrier and about 10¢–15¢ went to the short code provider (SMS aggregator) - not to mention the 2.5¢–5.5¢/SMS sent.

Each purchase required at least two SMS text messages to be sent to the buyer in order to meet the carrier's double opt-in requirements. Additionally, the wireless carriers would only allow content to be sold which could be "consumed by the phone". In other words, none of the carriers would allow you to walk up to a vending machine and make a purchase that would show up on your phone bill.

Also, every developer had to negotiate a deal with each wireless carrier in order to get them to support your SMS short code. If a carrier didn't approve your short code application then no wireless subscribers on that carrier's network could access your service.

Short codes are expensive (the short code, SMS aggregator, etc. typically costs more than $2000+/month) resulting in a $15K-$30K per year expense not including the costs of sending each SMS.

It has been less than three years since the iPhone's introduction and how quickly we forget what it used to be like.

You can see the details in this two year old SMS white paper.

What's so sacred about 140 characters?

Why 140 characters? The obvious answer, which I'm sure you know, is so that a tweet can fit into the 160 character limitation of an SMS text message. In other words, the Twitter user name (which can be up to 15 characters) followed by the 140 character tweet can all be packaged nicely into a single SMS text message.

Which begs the next question: Why restrict a tweet to the limits set by SMS when this is the World Wide Web? One of the "limitations" of e-mail and the Web is that you need Internet access for connectivity. In developed countries, we take Internet connectivity for granted. Having spend some time living in East Africa I was amazed to see how important SMS was to the locals who don't own computers, printers, or even have an e-mail address. But, nearly all of them had pre-paid cell phones and they used SMS just like we use e-mail (they also had trivial SMS to e-mail and e-mail to SMS bridges).

Additionally, their cell phone networks have features which I wish we had here in the US. Basically, people in developing countries have substituted the computer, printer, and Internet with the cell phone, fax, and the carrier's wireless network. This is how most of the world gets "online" with technology.

Imagine if Twitter didn't just go after the consumer market who own computers and smart phones with Internet access (I'm guessing about one billion people), but, instead, what if Twitter went after every person on the planet who's an active cell phone subscriber (which will reach 4.6 billion by the end of 2009). Now, that would be a fantastic communications tool!

Twitter's "Track" Command: Gone But Not Forgotten.

Twitter used to have a fantastic real time search command: Track

Sometime in 2008 it seems to have been turned off - probably because it generated too much SMS (text messaging) traffic.

Fire!
During the San Diego Wildfires of 2007 I was splitting my time between San Diego (Carlsbad) and Santa Cruz (Capitola). The wildfires broke out over the weekend when I was in the Bay Area. By Monday morning two separate fires were threating our home in Carlsbad. I went to sleep, Monday night, trying to prepare myself, mentally, for what it was going to be like once our home burned down.

Tuesday, as I drove down to Carlsbad, I wanted every piece of information I could find about the fires. Listening to XM channel 247 (emergency channel - a wordplay on 24/7) helped, but it was too broad since it was covering all the fires burning in San Diego, Orange County, and L.A.

This is where Twitter's Track command was a saviour (keep in mind that there were no iPhone apps back then). I simply texted some keywords to Twitter and every time someone's tweet contained one of those words it was relayed to me via SMS. I had Twitter track "Carlsbad" and the major road near my home, "Palomar".

Retweeting wasn't as popular back then as it is now so I received very few duplicate tweets. Nearly every tweet that I received - and I was receiving a new tracking tweet every five minutes - was helpful:
"It doesn't look like the fire's reached Carlsbad."
"Winds dying down and reversing direction - I can see flames from Carlsbad."
"Voluntary evacuation south of Palomar Airport Road."
"KPBS reports that fire in San Marcos, near Carlsbad, is 20% contained."
etc.

Luckily, the closest both fires got to our home was about four miles. Now, if only Twitter could bring back the Track command and ignore retweets.