Even to mention Hans Snook, is to reveal one’s age. But back in what now feels like prehistory, he led Orange in the UK from 4th entrant MNO to the heights of style and leadership. One of the many things he is reputed to have said was that SMS revenues were the only example of profits coming from nothing. And those profits were lovely – more than lovely, they were vast, unanticipated and growing year on year.
“Weren’t we clever?” mused the various CEOs of the MNOs. But Hans was wiser than that. SMS functionality was not designed by COOs, or CMOs, or CEOs. Not even by CTOs. But by some now forgotten techies who thought a text-based communication channel could be embedded in mobile networks for very little effort and could be useful for some reason at some time by someone. Maybe.
The thing about SMS was that it really was money from nothing. It tapped into something people really liked, and it grew like crazy. And best of all, almost all the revenues earned by the MNOs from SMS dropped straight through to EBITDA as there were virtually no incremental costs to offset against it.
Of course, a goldmine like that was never going to be left uncontested and so today we have WhatsApp and all the other OTT messaging providers. Meanwhile the MNOs have the wizzened carcass of SMS revenues that they now give away for free, should anyone want to bother using SMS rather than any of the better, newer options.
Sure there is RCS and the improvements that could have brought to SMS, but that is a story of stable doors and horses. The race has been run. The prizes awarded. The losers vanquished. The winners victorious.
But this is not a story about SMS per se. It is a story about “super profits”.
SMS or “messaging”, to give it a more generic name, was a case of super profits – huge returns for minimal investment. Entrepreneurs looking to spot the next growth opportunity in communications technology need to be looking for the SPBs – the super profit bubbles.
“Ah”, you say. “There are none. It is too late. They have all been identified”. What rubbish you speak!
Consider, for example, roaming costs, which have been excessive forever – because the MNO stranglehold was unbreakable – well, almost unbreakable. eSIMs changed all that. Now only the rich, the lazy and the uninformed pay exorbitant roaming costs. The rest of us click a few buttons on our smartphones in a magical sequence and “voila”, we have cheap roaming costs. This assault on a seam of super-profit gold is creating new companies as we speak, some of which are now growing into giants.
IOT connection revenue is another area being attacked. The MNOs that want to earn the high per-SIM revenues typical of SIMs used by people are experiencing a very nasty shock. Horror of horrors, but some hungry MNOs are meeting the demand for lower prices for IOT use. “Stop!” cry the old guard. “You’re taking value out of the market! Keep the prices high. Exploit our monopoly. Don’t respond to the demand or we might have to work for our huge salaries!” But it is too late. The earthquake is coming, despite the MNOs’ attempted fightback using differential rates and contractual mechanisms.
Other industries are seeing the same thing – often adjacent industries. How many of you reading this now have a Wise card in your wallet? Or a Mondo or one of the others. Those cards target the SPBs (remember that term, the Super Profit Bubbles) that were earned for years by the banks and by the currency exchange providers at airports etc. Many of us will remember back only a few years ago to the huge fees we used to pay for exchanging or sending currency, coupled with the poor exchange rates we used to get if ever we tried to send money abroad. But that SPB has now shrunk and Wise and the others have arrived and grown to impressive size.
So the lesson – look for the SPBs. Don’t assume they are all gone. There are plenty still about in the communications sector. And if you want a hint of where one might be lurking, think about the way data is exchanged at no cost in the fixed internet, but at significant cost in the mobile one.