LAS VEGAS - The per-message fees that carriers charge mobile marketers are killing the business model for SMS and MMS-based marketing, according to a panel at the CTIA Wireless 2009: Mobile Life conference.

More than 2.6 billion text messages are sent every day in the United States, giving it the largest reach of any mobile channel and making it a powerful enabler to brand recognition and development, with some of the biggest brands in the world having embraced texting as a significant consumer touch point. However, the messaging business model needs serious retooling to make it viable for advertisers and aggregators, according to the panel.

"Messaging is the most ubiquitous form of mobile communication, and there are great new opportunities in the long tail, but the per-message fee obliterates the business model, because that leads to unbounded liability," said John Styers, panel moderator and president of Moblico LLC. "A new model is required for the industry to take the next step to the new frontier of messaging, and that model cannot include a per-message fee.

"All organizations have to work on flat fees, and the original models were only meant to support the ecosystem for 6 or 9 months," he said. "The carriers have done little to speed the robust development of the messaging ecosystem in the U.S., and it needs support from the back end."

Many panelists seconded Mr. Styers' call for more carrier support -- and a different business model.

Messaging types include SMS, XHTML, optimized XHTML, iPhone-specific messaging and XMPP. Eric Collins, vice president of Nuance, discussed his company's voice-to-text and text-to-voice offerings.

Whatever the type, companies have struggled to build a stable business taking advantage of the inventory within the various types of messaging.

"For advertising-supported SMS, the net revenue per message is $0.004, and the carriers dispute this, but that's the reality of the business," said David Oberholzer, vice president of Limbo. "The model isn't completely solid, and it's unrealistic to think the CPMs we'll be able to charge will go up dramatically, so it's unrealistic for carriers trying to impose these types of per-message fees.

"Even relatively small carrier fees will drive out innovation to other platforms, and that's already happening -- look at all the advertising in iPhone apps," he said. "If carriers raise costs, then that will be exacerbated."

Panelists seemed eager to reach out to carriers and discuss alternatives to the per-message-fee model.

"We're having an open dialogue with carriers as to what the model should be," Mr. Oberholzer said. "We're looking for a way to grow the pot, such as including demographic and location information so we can charge higher rates and everyone can make more money.

"To grow the platform, everyone involved in the ecosystem has to engage in open dialogue," he said.

Verizon Wireless has told SMS aggregators it will not impose an additional 3-cent transaction fee for every outbound SMS message sent to its subscriber base.

That charge from the nation's No. 1 wireless carrier would have either doubled or tripled the cost to marketers who send out SMS text messages to opted-in consumers who are subscribers of Verizon Wireless' mobile phone services (see story).

The major media brand on the panel said that it is hard for it to sell SMS advertising because messaging is not plugged into its ad infrastructure, DART.

"SMS advertising is difficult to package and sell if we can't see what next month's inventory is," said Chip Canter, vice president of wireless platform development for NBC Universal. "On the other hand SMS is the easiest to do, everyone's texting, so it's a wonderful ways to engage consumers.

"You can say ?text this to this when you're out and about' and have consumers click-to-call, forward messages to friends and family, click to mobile Web, click to download content, but if it's not part of the infrastructure to sell, and if message fees eat into costs, that's uncapped liability, meaning we don't know what the costs are going to be," he said.

Especially given the state of the economy and the fact that the advertising pie is fixed at the beginning of the year, that is a problem.

NBC has had success building SMS into other campaigns, often encouraging TV viewers to engage with their favorite shows via SMS.

"There are lots of opportunities in messaging, but we're struggling to find the multimillion dollar way to make messaging in and of itself a business," Mr. Canter said. "We had to reduce our costs and use text messaging as part of something larger to drive usage of the mobile Web, mobile video and apps.

"There are infrastructure and cost issues, because we don't want to drive billions of messages and get a billion dollar invoice and $100 in revenue," he said. "That's a fundamental issue in terms of investment, because we cannot make that investment if there's uncapped liability on wholesale pricing.

"The fundamental thing is scale, figuring out how to plug it into our existing mature digital infrastructure, because everything that's a stand-alone will hang out by itself at the lunch table."

Other panelists agreed that messaging works best when integrated with other media.

"SMS is great when you weave it in as part of your overall mix, but it's not incredibly exciting as a stand-alone," said Eric Harber, president/COO of HipCricket. "The good news is that we are seeing deeper, richer engagements built on the foundation of SMS."

Mr. Harber said that HipCricket customers from last year, including large brands such as Jameson and Nestle, are increasing their investment this year.

"Mobile is working for them, and there are structural dynamics that need to be worked out, but we're also getting new customers such as Arby's, Dr. Pepper and Sunkist, which have moved from the experimentation stage in mobile to make it a part of their overall marketing mix, because they understand the power it can wield for their brand," Mr. Harber said.

Brands still need to understand how advertising within messaging is purchased, because it is still too hard to buy today. Brands also need to be able to provision short codes quickly and easily, which currently takes months.

Despite these challenges, Mr. Harber believes that mobile will progress faster than the Internet did.

"ROI is super important, and fortunately mobile analytics are able to show and demonstrate ROI -- mobile is very measurable," Mr. Harber said. "If you think of a pyramid, start with a firm foundation, and the bottom foundation layer is SMS, because it has the broadest possible reach and you don't have to change behavior because they're already doing it.

"Start with that then layer the mobile Web or WAP on top, which doesn't have as much reach but has richer engagement, then on the very top rich customized apps," he said. "It's important to use all of those together."