Does anyone have a revenue-generating business model for a mobile application that uses SMS as its primary interface? No, I’m not counting Jamster and other ringtone and wallpaper services. I mean a real useful application or fun game that uses SMS primarily? Drop me a hint if you do.

Albert went to a talk at O’Reilly’s E-Tech Conference by Dennis Crowley and Surj Patel from Dodgeball.com on building an SMS service. He sent me the notes. They had a chart showing the relative costs and maintenance of using SMTP, SMS Modems and SMS shortcode services. SMS Modems proved to be the best balance, even with the initial setup annoyance. But if you anticipate your user-base growing heavily, I don’t think this solution scales easily.

Yes, I’ve given serious thought about the SMTP solution, but it’s just too risky for a production-grade product. Depending on your usage, you could be banned by any provider at any time, and then you’ve broken the product for a large segment of your users. There’s slick ways to optimize using these gateways, but down deep it still feels like a hack to me.

With the high cost of the SMS brokering services (especially now that providers are forcing all commercial senders to have shortcodes!), products that use SMS heavily are going to have to pass the cost to the user. This severely limits adoption.

A big part of the problem here is that mobile providers are just making too much money off of text messaging. An article in Knight-Ridder Tribune Business News (2005-03-15) had some unsurprising statements:

Mar. 15–Using her cell phone to silently read or type a short message, Amber Gietkowski can stay connected without causing a distraction while sitting in a lecture hall at the University of Central Florida.

“It’s really embarrassing if your phone goes off in class,” said Gietkowski, 21, a UCF senior and frequent texter — a person who communicates wirelessly via the written word on a cell phone.

“I use it to arrange when I’m going to meet someone, or maybe to send directions. All my friends do it. I’d miss it if I didn’t have text messaging.”

She is among the 27 percent of adults who use their cell phones for text messages, says a survey by the Pew Internet & American Life Project, a Washington, D.C., research firm that studies Web usage.

As a member of Generation Y (ages 18-27), she also belongs to the demographic that is most likely to use text messaging: At least 63 percent of those 18 to 27 are texters, the survey said.

…

It can also be addictive — and expensive, said Helen Donegan, UCF vice president of community relations. Her daughter, Kristina, is a UCF student.

After watching her daughter’s monthly phone bill rise from about $50 to $200 over a period of a few months, Donegan called her wireless provider for an explanation.

It turned out that more than $100 of the monthly bill was due to charges for text messaging, Donegan said.

“I thought she was just talking too much, but when we looked closer, it was the texting not the chatting that was the cause of the bigger monthly bills,” Donegan said.

Her daughter didn’t realize the cost of texting was so high and didn’t complain when her mom said there would be no more text messaging.

“Her phone still rings all the time,” Donegan said. “She has a big circle of friends, and they tell each other every little thing. My generation wasn’t connected like that, on a minute-by-minute basis.”

With this kind of money-making power, it’s obvious why the “walled garden” approach to data services is so popular with carriers. They can’t just provide lots of data for email and IM (except to the power users who want to pay of course) or else SMS will begin to fade and degrade that revenue stream. Case and point is the sidekick. After I started using it, I dropped SMS pretty much completely except to communicate with people who had more basic phones. Unlimited IM and email from the device were much more appealing and they could get to people at their desktops more reliably too. However, I have to pay a relatively high price compared to a basic teenage voice and text plan.

Everyone knows the winds of change will blow through here sometime. I just wonder when that’s going to start, and how unrestricted data plans will priced in the future. Imagine if your DSL or cable provider had a cap on your downloads and charged for overages? It won’t work for mobile carriers either. They have to get smarter.