Group Texting May Be a Hit at SXSW

(Corrects the number of messages sent by GroupMe in the fourth paragraph.)

Cineastes have Sundance; startups have South by Southwest. The annual technology and arts conference, which runs Mar. 11-20 in Austin, Tex., began as a music festival in 1987 but added an "interactive" component in 1994. It's where tech's early adopters get to act like Hollywood studio heads, passing judgment on new ideas and propelling some into the national consciousness. South by Southwest, commonly known as SXSW, was the scene of Twitter's big break in 2007, and location check-in service Foursquare premiered there two years later.

This year's hit, if there is one, is likely to be one of the buzzed-about "group messaging" startups—GroupMe, Beluga, or textPlus, among others. Group chats are easy to arrange online through instant messaging services or social networking features such as Facebook Groups. But they don't work well on mobile devices, or if they do, they require a smartphone app and a decent cellular signal, which excludes lots of potential users. Steve Martocci and Jared Hecht, co-founders of New York-based GroupMe, frequently encountered communications problems while at concerts for their favorite act, the jam band Disco Biscuits. "No one's checking e-mail on their phone, the Internet connection doesn't work at the venue," says Martocci. "There's no good way to stay in touch in real time with a group."

GroupMe and its ilk are designed to work for anyone, on any phone. In general, users set up groups either online or through a smartphone app and then invite members—family, colleagues, jam-band fans—to join. The service assigns each group a unique phone number; when a member sends a text to that number, everyone receives the message. There are extra features for those with smartphones (such as the ability to send photos or start new groups), but anyone with enough thumb dexterity to send a text can join in conversations. And because texting works just fine even when cell reception is faint, it's often usable when the Internet and voice calls aren't.

There are nearly a dozen startups, most less than a year old, that hew to this basic framework, then add their own twist. GroupMe, which made its debut in August and says its users are now sending over a million text messages a day, emphasizes its ease of use. "Normal people get this," says Hecht, who cites church groups and PTAs as some of GroupMe's not-so-typical early adopters. TextPlus, a group messaging app that is popular with teens and now has almost 8 million users, offers themed "communities" to discuss specific topics; there are more than 20,000 groups dedicated to Justin Bieber.

The idea behind group messaging got a vote of confidence on Mar. 1 when Facebook acquired Beluga, a group chat app built by three ex-Google (GOOG) employees. "It validates the space entirely," says Hecht. It also means more competition. "If you are a consumer Internet company, whether you like it or not, you will compete with Facebook," Hecht says.

Investors and entrepreneurs see group messaging as a venue where advertisers and local merchants will be able to interject themselves into people's conversations, potentially at the very moment they're deciding what to do or whether to buy something. GroupMe's founders plan to offer local deals similar to those found on Groupon, only in a more targeted, immediate way. Hecht describes the idea as "real-time Groupon." If friends use GroupMe to start discussing dinner options at 6:30, they might be offered a coupon at a nearby restaurant with seating available at 7. Fast Society, another messaging startup based in New York, will allow advertisers to sponsor groups and send pitches via text.

TextPlus, which is built by Marina del Rey startup GOGII, includes advertising but also sells add-on services. For a $3 fee, users can turn off ads for a year or choose the area code for a group's phone number instead of receiving a random one. About 6 percent of new users pay to select their number, according to Chief Executive Scott Lahman. "Over the next five years, the people who do well in this category will become enormous businesses," says Mark Suster, a venture capitalist at Los Angeles-based GRP Partners, who contributed to a $15 million investment in GOGII in February.

Michael Gartenberg, an analyst at Gartner Research, says that these startups have "some incredibly uphill battles" to fight. "People don't want to continue to recreate their social graph over and over" each time a new service comes along, he says.

At SXSW, they'll be selling themselves hard. GroupMe will give away grilled cheese sandwiches and sponsor a "Major Rager" party. Fast Society is trying to get attendees' attention as soon as they arrive in Austin by offering free hotel shuttles at the airport. "We think it's important to grab people before they hit the noise," says CEO Matthew Rosenberg.

The bottom line: Group messaging apps may become a venue for advertisers trying to reach small groups as they make buying decisions.

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