I had a chance recently to talk to Rahul Gupta, an IIT Bombay alumni and founder of Vakow, a SMS group messaging service. 
The recent hype over mobile advertising combined with the $10 million funding reportedly raised by SMS Gupshup, a similar group messaging service was intriguing and I wanted to find out what Vakow, which have been invested in by Rediff, does differently and the market opportunity it addresses.
There are some fundamental forces that are driving the adoption of mobile microblogging and messaging services like Vakow in India. First, with a much larger mobile subscriber base compared to PCs (300 million vs 60 million) in India, messaging by mobile is simply more accessible to a much larger number of people. Second, the asynchronous publish-subscribe based delivery model of SMS groups is more apt to certain use cases than synchronous instant messaging or asychronous point to point messaging like email. Third, free SMS group messaging is probably a very good substitute for operator driven and charged services.
Combined with these factors, the fact that groups inherently make targeting a particular category of users (by interest in an area) easier lends itself as a better opportunity for advertisers to reach out to. However, whether that itself makes for a strong and sustainable business model depends on
– the economics of mobile advertising : To make SMS group messaging economically viable, the advertising revenues must cover the costs of sending out SMSes. At 6-7 paise per outgoing SMS, the cost per 1k SMSes is Rs 60-70 or $1.50. Will advertisers be willing to pay $1.50 per CPM (1k impressions) ?
– the mobile ad inventory utilization rates : How much of the mobile ad inventory of Vakow or SMS Gupshup can actually be utilized by advertisers ? It makes sense to advertise a product or service only when the intention of the target group is clear, not when they are using it for sharing jokes or using them as workgroups. Any x% decline in utilization rate would require a 2 * x% increase in advertising rates to break even on costs.
– the user adoption of mobile web services : On the positive side, the costs of delivering messages for Vakow and SMS Gupshup may go down as users start using the web more to access messages on the mobile or the PC. This is probably why Twitter delivers a far less number of SMSes than SMS Gupshup. While access to SMS groups on the web will lower the costs of delivery, the advertising opportunity remains the same.
Rahul at Vakow refused to share any numbers with me, so it is difficult to make an opinion on whether these are sustainable businesses or not. However, the facility of sending premium messages to a group, paid subscription to some groups that deliver benefit to users, and charged for APIs to these services by enterprises willing to integrate group messaging to their workgroup applications are ways to tilt the balance towards profitability.
Tech tip : For those of you who would like to know how SMS Gupshup manages such a massively scalable messaging platform, given that SMS Gupshup sends out 10 million messages per day compared to Twitter’s 3 million, read this excellent post by Anand Rajaraman of Cambrian Ventures who is also an investor in Webaroo.