- On April 7, 2020
- By efesent
3 reasons why blockchain will disrupt the SMS market
The blockchain technology is disrupting industries with each passing day. It’s allowing everybody to use new payment methods, ranging from big banks to millions of people. Using asset tokenization, blockchain gives individuals access to premium sustainable infrastructure. In a different example, IBM’s Food Trust network is boosting Carrefour’s sales by creating supply chain transparency. So, what area will blockchain disrupt next? I’ll present 3 reasons why one of the answers is the SMS market.
Fragmented market, with no big players
The SMS market requires physical infrastructure, which GSM providers maintain in most situations. The infrastructure needed to operate SMS at an international scale spans not only the territory of each country on earth but also space. There are around 2000 interconnected operators worldwide. To provide service, operators have to work out contracts with each other. Negotiations include rates, availability, capacity, delivery times and many more. For example, an operator in New York can easily mount an antenna tower on a skyscraper and serve millions of devices. An operator in Alaska might need to place towers in distant regions for its infrastructure and it will give service to just 10,000 people. That’s why these operators might charge differently for delivering messages. Besides the operators, some businesses re-sell SMS capabilities by negotiating bulk deals. This leads to a market with a wide range of suppliers, all with different prices.
When sent, an SMS gets transferred between multiple providers and more than one route is available for delivery, each route with its own cost.
Blockchain can reduce bureaucracy and exclude middlemen by establishing real-time marketplaces. Suppliers can bid offers and anyone could participate, from big GSM providers to small operators and re-sellers. In this approach, customers would benefit from lower prices for the delivery of international messages. Also, it could allow end-users to participate in the supply side with their unused quotas. An example of such a project is BirdChain, an A2P solution, that is already working in several countries. With BirdChain anybody can install an app and resell their unused SMS quotas to companies. With this initial implementation, SMS marketplaces can develop and allow the blockchain technology to expand.
SMS is expensive, but also cheap
SMS messages are cheap from the consumer’s perspective, but costly for small and big businesses. SMS is more pricey than email, WhatsApp or Telegram. Except for traditional mail letters, SMS is the most expensive data service on the planet. However, bulk SMS is cheaper than WhatsApp in some countries. In Canada, it costs 0.0042 cents to send an SMS, while WhatsApp costs 0.005 cents per message. This is a huge difference when sending millions of messages. On average, there are around 6 billion messages sent every day. A marketplace for SMS built on top of smart contracts would optimize the costs for both regular customers and companies using messages for marketing or OTP use cases, balancing the supply and demand.
So far, the smart contracts space is experiencing scalability issues. The popular platforms, such as Ethereum, can process around 5 transactions per second while the latest established platforms, such as Fleta, scale to 13,000 TPS. With 6 billion messages delivered every day, the number of TPS required to support smart contracts for all SMS messages delivered today is around 100,000. That represents a large discrepancy between what is supported and what is needed to move SMS delivery on the blockchain. To start, smart contracts would have to be developed slowly. And this is what the blockchain platforms need. With a slow build-up and prices that allow increased margins with scalability, platforms can secure funds for future developments. As more and more providers join the marketplace, this would be an incentive to increase the TPS, provide a real business solution and receive the investments required. It would make blockchain compete with the solutions of private companies that do similar operations (Visa processes around 4,400 TPS)
With a fragmented market, composed of both big and small suppliers, SMS is an easy space where blockchain technology will be disruptive. Projects like BirdChain encourage more suppliers to join the market and therefore disturb the price. In the long run, the demand side will enjoy the lower prices and help platforms secure funding for scaling up. How do you think it will play out?