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China Gets The Mobile Message Text messaging via cellphones is taking China by storm. Can the simple platform deliver profits where fancier wireless services have failed? Step into the Beijing offices of mobile-game developer Enorbus and you could be back in the dotcom bubble of late 1999. It's start-up city all over again - open-plan premises, a conference table that doubles for ping pong, a couple dozen disarmingly young programmers hammering out code, and a pervasive sense of energy and conquer-the-world optimism. Enorbus is a prospector in China's newest gold rush. It's one of a growing number of mainland firms - from software developers to Internet portals - hoping to take advantage of a boom in the use of short message service (SMS), a technology that lets mobile phones exchange small files and text messages with other phones or computers. Unlike most of their dotcom predecessors, firms such as Enorbus stand to become profitable. Enorbus's most popular game is "Battle SMS," in which mobile-phone users exchange text equivalents of kung fu kicks and punches. The game is a long way from arcade quality. But anyone with a standard phone can play, and users pay 1.8 cents for every electronic blow they zap to their buddies. That illustrates key differences between SMS and many of the ill-conceived ideas touted during the dotcom stampede. SMS works with existing technology, generates immediate revenues and has a potential paying audience of millions. And at the moment, SMS fever is sweeping China like foot-and-mouth in an English shire. An estimated 20 million of the country's 123 million cellphone users regularly exchange text messages, play simple games, enter contests and download screensavers or ringtones. Tencent Technology, an SMS chat service, has seen its monthly message volume grow from 30 million in May to 80 million in July. China Mobile, the country's biggest cellular operator, predicts 10 billion messages will be sent this year. Mainlanders are quickly adopting a phone-messaging culture. Part of the reason is cost: A one-minute phone call is four times the price of an SMS message. But a bigger factor is fun. Most people use SMS not just to communicate, but to receive more expensive "value-added" messages - an industry shorthand for anything other than straight text. With so many ways of idling away time on a cellphone, people are changing their habits - not always for the better. "I got my first SMS message about two months ago," says software salesman Zhang Shi. "Now I'm addicted." Zhang isn't the most serious case, either. When Shanghai-based Linktone launched an SMS-based intelligence quiz in March, one determined contestant reportedly played the game 10,000 times. At a time when telecoms talk centers on 3G and the arrival of video on mobile phones, it's strange that a primitive text-messaging platform is making a splash. "The initial excitement was about WAP, not SMS, which has been around for like 10 years," says Ted Dean at Beijing-based consultancy BDA (China). But WAP, which was supposed to display websites on mobile phones, has been a disappointment. And with widespread commercial implementation of high-speed 3G services still far off, wireless data companies instead are focusing on what already works: SMS. But the biggest catalyst for the spread of SMS has been the advent of billing platforms modeled on Japanese firm NTT DoCoMo's successful i-mode. The first was China Mobile's Monternet wireless data service, introduced last November. China Unicom is following suit with Uni-Info, which launches this month. These platforms make life easy for both users and content companies. Users pay for messages on their monthly phone bills, a method that encourages impulse usage because each item costs just a few cents. Content providers get access to cellular subscribers - China Mobile has 60 million - and billing services in return for sharing 12%-15% of revenues with the mobile operators. The fundamentals are attracting investors in an otherwise arid venture-capital scene. A consortium including ING Barings plowed $17.5 million into New Palm, the creator of an SMS platform for playing a state lottery. Mint, an incubator linked to Perkins Coie and PricewaterhouseCoopers, has backed Beijing-based Mezzme, which makes, among other things, software for gameshow voting. Shanghai's Linktone , which sends out more than 400,000 graphics, ringtones and quiz questions a day, just got a $4-million investment from Mitsubishi and Index, one of Japan's top i-mode content providers. Among the most closely watched SMS entrants will be China's embattled Internet portals, which are desperate for revenue and facing extinction. Five months after inaugurating an SMS division, Netease processes more than 200,000 value-added messages a day and is making money on the service, according to Jim Zheng, who leads an SMS team of nearly 50 at the Chinese portal. Still, almost no one - not analysts, nor even portal operators themselves - thinks messaging revenues will be sufficient to boost them into the black. Portal purgatory notwithstanding, it's hard to find contrary voices when it comes to the money-making potential of SMS. But the market is quickly getting crowded and successes are likely to be outnumbered by failures - as the shakeout of wireless-data companies starting in Europe ominously illustrates. Shenzhen-based Tencent, which claims to handle the most SMS messages among China's independent operators, is just breaking even. Even if someone makes a killing, it's far from certain that the aging technology will last much longer. Text-messaging is crude when compared with video transmission and other whizzy technology promised by next-generation wireless networks. But the next-generation 3G services are being delayed by mobile-phone operators, who are unconvinced they can make back the enormous investments required to upgrade their networks. BDA's Dean says SMS will be popular until high-speed mobile networks are firmly established. "There's going to be a lot of people out there for two to three years whose primary wireless service is going to be SMS. There is time for SMS operators to make money." And a lot are trying. Beijing resident Tang Minrui, 28, says his phone buzzes several times a day with junk SMS ads, including one claiming to be from the Fujian Coast Guard offering deals on confiscated luxury cars and mobile phones. Everyone, it seems, thinks they can make a buck through SMS.
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