Evan Williams and Biz Stone of Obvious Corp very promptly and properly responded to my posting last night on How does Twitter not make money? in which I reported that some Twitter users had been surprised by big phone bills for their SMS messaging. I added that I'd be "astonished" if Twitter wasn't getting a cut of those SMS fees. In a posting Biz made to the Twitter blog, which Ev reposted here as a TalkBack comment, the Twitter duo firmly quashed that suggestion:
"Phil also floats the idea that Twitter somehow earns money from your texting while in fact the opposite is true. We've negotiated for good bulk rates but we still pay for this SMS traffic just like we pay for storage, hosting, employee salaries, Odwalla bars, tea, the occasional team lunch, and all the other parts of running Twitter at Obvious HQ."
It's great to have that confirmed so unambiguously, and I also applaud their commitment to "scour the site and see if there aren't some more prominent places we can make sure folks are aware" of the potential costs of Twitter texting. Even though Twitter isn't responsible for those costs and makes no money from them, there's still a moral duty to make sure users are fully aware of the charges they could incur.
Now that Twitter's innocence is established, the cellular networks can be seen as the clear villains of the piece. They are making handsome profits from Twitter's SMS users. Cellular subscribers typically pay 10 to 15c for any message beyond the monthly total included in their calling plan. Even if they sign up for a high-volume plan, at say $15 per month for 1500 texts, that's still 1c per message. With a maximum 140 characters per message, that grosses up to a $75 per megabyte charge [UPDATE: a 7314% markup, says The Consumerist].
One can only guess at how much Twitter is generating in revenues for the networks. Twitter is currently getting 70000 messages posted to its site a day, and many of them are distributed to large numbers of subscribers, so even if each message earns the networks 2c or less, that still adds up to thousands of dollars per day. We don't know how much of that usage is incremental and how much is already paid for on people's existing subscriber packages, but however you look at it, Twitter is leaving a lot of money on the table by not taking a cut of those fees.
So here's the interesting question: Will the networks see sense and cut a deal with Twitter to maximize SMS usage by, for example, letting Twitter sell plan upgrades to its users in return for a cut of the revenues? Twitter would look good to users by helping them minimize their texting costs, and the networks would get more income from subscribers as well as better returns on their investment in SMS circuits. They would also find a leap in innovation on the back of Twitter's newly extended API, which would lead to even more SMS takeup. Twitter's future would be assured with a solid revenue model established.
Or will the networks act defensively, interpreting Twitter's API as a threat to their existing shortcodes revenue streams (see yesterday's post for more on this)? Unfortunately, the telecoms industry doesn't have a good track record of encouraging innovation and new entrants, especially when it relates to the Internet.