Update: There is a darker side to the Snackable Media story. Further investigation reveals a host of complaints about the company’s marketing practices and how it makes all of that money.
There is no doubt that the iPhone and iPod Touch are glitzy game machines (just check out the ads for the IPod Touch). But don’t underestimate the reach and earning power of apps based on the lowly text message. New York City-based Snackable Media sold $170 million worth of text-based games through carriers in 2009, according to CEO Eyal Yechezkell. That number is gross revenue, which it splits about 50/50 with the mobile carriers, and is up from $90 million in 2008 and $30 million in 2007. The company is profitable, says Yechezkell, and it never took a dime of venture funding. It employs 100 people in New York City and Fort Lauderdale, Florida.
Snackable Media develops and sells a family of SMS-based games. The most popular one is Predicto, which boasts more than a million monthly active users, all paying a $9.95 per month subscription. Predicto sends players text messages with multiple-choice questions asking them to make predictions about celebrity news and pop culture. “Who will host the Tonight Show by 3/1?” “Will Best Actress nominee Julia Roberts wear an Armani gown to the Golden Globes?” Players text back their answers, and get a chance to win prizes up to $50,000. On average, people sign up for 3 to 4 months.
The company also offers a text version of the TV game show “Deal Or No Deal,” and another game called Celebrity Squares. It’s next game will be called “Guess SMS.” They are all extremely simple and addictive in the way that many causal games are. But why do people pay $10 a month for the mobile equivalent of Zork when they can get full graphics and gyroscopic controls on an iPhone, where a typical game costs $10 or less for a download that lasts as long as you own your phone? Not everyone has an iPhone, but everyone has a mobile phone that supports text messages.
Also when games are added to people’s cell phone bills, they are just not as price-sensitive as when they buy a lá carte. SMS games are an “extension of ringtone clubs,” explains Yechezkell. Remember those? Don’t laugh. The numbers that Snackable Media is posting, along with those of competitors such as SendMe Mobile and Thumbplay show that SMS is far from dead and can support applications beyond just messaging.
But Snackable Media offers another object lesson to mobile game developers everywhere. Much of its success is because it acquires new users through aggressive online marketing. Before changing its name to Snackable Media last November, the company was called Next Web Media because it started life in 2000 as a cost-per-acquisition ad network like ValueClick. They raised $150,000 from Friends and family back then and quickly got to the point where they were self-funding. The company took the marketing skills it learned as an ad network and applied it to mobile SMS games in 2007, and now SMS games make up pretty much all of its revenues.
Snackable Media advertises online directly to consumers, and signs them up by sending them a text message. When they reply “Yes,” they get signed up for a subscription. A newly launched game typically turns profitable after three months. That ongoing subscription revenue is the key to Snackable Media’s business model. It is what allows it to pay for advertising and acquire new customers economically.
Yechezkell realizes that the mobile world is moving towards fully functioning Web phones and graphics-heavy game apps, and he has smartphone apps under development. But Facebook integration will come first (for instance, send a prediction to your stream), and he still prefers the economics of SMS games. He points out: “Right now, these applications are just sitting in the App Store and not really advertised. When you start advertising applications, 99 cents might not be a profitable model. At the end of the day there needs to be some margin.” He thinks it would be better if apps could be delivered directly from ads on the mobile Web or through SMS-linked downloads. In other words, he’d rather bypass the App Store, market directly, and give carriers a cut for delivering the apps and handling billing.
My prediction: Apple is never going to let that happen.