Unused Text Messages Are a Gold Mine to Blockchain-Based Startup

  • SMSChain will use a consumer app to send cheap messages
  • The startup is raising up to $50 Million in a Coin Offering

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With so many mobile-phone plans offering unlimited text messages, it’s easy to think of the 160-character snippets as a cheap commodity. But a Seychelles-based startup, Canopus Technology Ltd., sees a mint to be made from SMS.

The business plan is certain to annoy wireless carriers and raises legal questions, according to researcher Mobilesquared. But Canopus is launching a funding campaign Monday, seeking as much as $50 million through an initial coin offering to fund the technological infrastructure for its app.

Its service, called SMSChain, would let mobile-phone users essentially resell unused parts of their text-messaging bundles. Consumers with an unlimited text-messaging plan could potentially let SMSChain send thousands of messages from their phone numbers on behalf of companies that buy the texts in bulk. A car-sharing service could use your number to announce a driver’s arrival to a passenger, or a hair salon could text a client, “Your appointment is in 2 hours.”

Today, such companies buy text-messaging capability from service providers, such as AT&T Inc., or from so-called SMS aggregators. The latter can run special machines, containing multiple SIM cards -- essentially, phone numbers -- to send out messages. With SMSChain, they wouldn’t have to.

SMSChain’s blockchain technology would connect the SMS aggregators with app users, so the aggregators would be able to enjoy, on average, 40 percent lower costs, according to Oleg Makarov, chief operating officer of SMSChain. His current company, TelQ, is an SMS aggregator, and he said other aggregators will be able to use the service as well. SMSChain Chief Executive Officer Andrey Insarov runs Intis Telecom, which focuses on SMS-related services for companies.

“There are a lot of people in the world that have SMS packages that aren’t being used,” Makarov said in an interview. “With this kind of an application, people can make much more money.”

App downloaders would be paid for every message. SMSChain says a user who resells 500 text messages a day could earn $75 a month.

SMSChain isn’t taking responsibility for whether the service runs afoul of users’ contracts, according to the startup’s white paper. That’s a risk potential investors and users should take seriously.

“They are basically penetrating your account to send messages,” Nick Lane, chief insight analyst at Mobilesquared, said in a phone interview. “The fact it is an enterprise-based message probably would contravene your agreement with mobile operator.”

Still, a carrier may have trouble catching users sending less than 500 text messages per day, the startup said in its white paper. Such reselling may also be legal in some countries and would not violate a user’s contract with some carriers, said Makarov, who declined to name the countries or the operators.

Automated text messages -- those messages you get from your hairdresser -- are a nascent and fast-growing market. It’s likely worth less than $10 billion globally, but growing 18 percent to 20 percent a year, Lane said.

SMSChain joins a long tradition of startups trying to turn wireless carriers into dumb pipes -- investing in wireless infrastructure only to see other companies make money off of the network. An example is WhatsApp, the messaging app acquired in 2014 by Facebook Inc., which attracted more than 1 billion people to a service that lets users send texts and place voice and video calls over carrier networks without paying a dime.

In addition to the questions about violating wireless contracts, SMSChain’s app also raises privacy concerns: Message recipients will see the app users’ phone numbers. So if the message tries to phish or defraud the recipient, the app’s user may be in trouble, Lane said.

“Then all of a sudden that could come back to you,” Lane said. “It could be fraught with danger if you are a consumer downloading this app.” The team behind the app will make sure only legitimate messages are sent, Makarov said.

SMSChain is made possible thanks to blockchain -- the hot technology popularized by bitcoin users that records transactions in an immutable ledger. With blockchain, SMSChain will instantaneously connect buyers and sellers of text-messaging capacity and facilitate transactions.

And in keeping with the trendy world of bitcoin and blockchain, Canopus is raising funds for SMSChain through an initial coin offering -- itself a controversial tool that the U.S. Securities and Exchange Commission is scrutinizing closely, warning it’s susceptible to fraud. In an ICO, a startup creates a new digital currency that investors can use to do business with the company. Canopus will issue tokens called SMSTO in a two-part ICO in October and November.

SMSChain app users will have to buy 1 SMSTO to get going, and so-called network nodes -- people whose computers will support the network -- will have to hold some of these tokens in reserves. The SMSTOs will be for sale on SMSChain’s internal exchange, as well as external exchanges.

Oleg Seydak, CEO of Blackmoon Financial Group, which recently raised $30 million in an ICO, is an adviser for SMSChain.

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