By Amol Sharma
New Delhi, Jan 13 : A service called SMS GupShup is winning the race to become India's version of Twitter by promoting social networking through text messaging on cellphones. But it faces a challenge: It can't afford to be too popular.SMS GupShup lets groups of cellphone users discuss everything from stock tips to poetry through free mass text messaging. The service reaches 26 million users and says it accounted for 5% of the 148 billion text messages sent in India last year.
The social networking boom that began in the U.S. with services such as Facebook and Twitter is spreading to emerging markets, but the models that were successful in Silicon Valley won't work in countries like India where Internet penetration is low and consumers use cellphones more than PCs.
![[GUPSHUP]](http://s.wsj.net/public/resources/images/MK-BA574_GUPSHU_DV_20100112174721.jpg)
Given those economics, SMS GupShup is being careful not to let its message traffic grow beyond its ability to generate revenue, which is coming in from advertisers such as local insurance provider ICICI Lombard and international brands like Puma, Microsoft and Cadbury.
Thus far, its strategy has been to limit usage. Users can post a maximum of four to eight messages per day, depending on the size of their audience. Larger groups get a smaller allowance of messages.
"Messages cost money. There is a cost constraint to how fast we can grow," said Beerud Sheth, chief executive of Webaroo Technology India Pvt. Ltd., which launched the SMS GupShup service in 2007. The service generates about $225,000 in monthly revenue, mostly through paid ads that run at the bottom of users' messages. Mr. Sheth said he expects the service to turn its first profit in the third quarter.
Marketers also have the choice of paying to send messages. Mr. Sheth said he hopes to grow the advertising enough to eventually relax the constraints.
U.S. social-networking start-ups haven't had to restrict usage, because they grew up via the Web, where the cost of the messages users send is minimal. In India, social-networking companies have little choice but to focus on mobile phones.
The country has nearly 500 million cellular users, but 52 million PC Internet users, most of whom have slow connections. "In India, mobile is the right medium for companies like this, not the Web," Mr. Sheth said.
Since wireless networks and most mobile devices don't yet support fast Web browsing, the easiest way to target Indian cellphone users is through text messaging, which is hugely popular.
U.S. companies are racing to adapt. Twitter is hyped in India, because of high-profile users like Bollywood actor Shah Rukh Khan and politician Shashi Tharoor. The company has 1.3 million Indian users via the Web, according to online audience measurement firm ViziSense, but is still trying to reach the mass market via cellphones. Last November Twitter Inc. struck a deal with Indian wireless giant Bharti Airtel Ltd., allowing the 140-character updates known as tweets to be sent to the carrier's subscribers via text messages.
"With India, the key is definitely getting into mobile phones," Twitter said in a statement. "The deal with Airtel was a leap in the right direction."
Google Inc. in November 2008 launched an experimental service in India called SMS Channel that works like SMS GupShup, offering free text messaging to groups. A Google spokeswoman wouldn't disclose how many users it has, but said the product has seen strong word-of-mouth growth despite no marketing.
Facebook Inc., which has 9.5 million Web users in India, according to ViziSense, last July chose to partner with SMS GupShup for mobile. Under the deal, Facebook pays an undisclosed fee to the Indian company to deliver its users' status updates via text messages.
Facebook said SMS GupShup had the "most relevant infrastructure and team" and allowed the company to "cover 100% of all Indian users on Day 1." Facebook has since struck some deals with individual Indian operators.
All the U.S. companies let users access their services through cellphone Web browsers, but analysts say it could take years before average Indians have Internet-ready phones. "The inflection point will happen when 3G [high-speed] wireless services finally take off," said Diptarup Chakraborti, a wireless analyst for Gartner in India. The Indian government is preparing to auction radio spectrum for 3G services.
SMS GupShup also has homegrown competition. Another Indian company called MyToday SMS delivers text-messages to 3.8 million users on topics such as astrology, cricket and jokes. But members don't exchange messages with each other.
SMS GupShup has a strong lead, with users sending roughly 500 million text messages per month. Celebrities such as actress Konkona Sen Sharma use it to keep in touch with fans. A Sikh religious group has 100,000 members.
The Hmar tribe from northeast India has 17,000 members on SMS GupShup—roughly 20% of its entire population, according to Lalchungsiem, a Hmar who set up the group. Mr. Lalchungsiem says SMS GupShup functions as a newsletter for the Hmar community on happenings such as marriages and deaths.
SMS GupShup has raised about $25 million from angel investors and venture firms, and its growth has been rapid. Already, Mr. Sheth is talking of expansion into Asia and Latin America.
Mr. Sheth acknowledged that controlling costs is challenging. Some operators recently began levying surcharges for sending SMS traffic to each others' networks, fees that were passed on to vendors. As a result, SMS GupShup's per-message costs rose about 20% to 30% in recent months, Mr. Sheth said.
Analysts say restricting the number of user exchanges is the only option SMS GupShup has to hold down costs. "If 1,000 people in a group can keep sending messages to everyone else, that cost quickly becomes unmanageable," said Gaurav Mishra, CEO of 2020 Social, a social-networking media consultancy based in New Delhi.
*Amol Sharma can be contacted at amol.sharma@wsj.com
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