Short Codes are a Scam, and SMS Marketing is Dying. Is there Hope?

Editor’s note: This guest post was written by Jared Reitzin, the CEO of mobileStorm, a Communication Service Provider (CSP) that provides digital marketing services including SMS, as well as mobile applications and secure communication technology for healthcare organizations.

Think about it, what other industry or company do you know of that charges you for service every month but you cannot start using the service for 4 months? Go ahead, I will give you a few minutes, please add your comments below. Can’t think of any? It’s because if a company like this existed, nobody would want to do business with them, and they wouldn’t be around for very long.

However if you have a monopoly on the space and people really needed your service to grow their business, they wouldn’t have a choice. For mobile marketers this may sound like familiar territory. We all know that mobile marketing through a short code is ultimately the best way to go. I’m not sold on QR codes yet as the user experience isn’t that great.

I’ve been at the helm of mobileStorm, a top mobile marketing company since 1999, even before short codes really existed (and yes this link is strategically placed for SEO goodness). There was really one aggregator back then, Simplewire, and if you didn’t use them to send SMS messages via SMPP (Short Message Peer-to-Peer Protocol), then you sent your messages via SMTP (Simple Mail Transfer Protocol) which is how email is sent. However, everyone knows that sending SMS messages this way is unreliable and doesn’t offer much in the way of analytics and reporting. I can’t remember when it happened but at one point Neustar, founded in 1996 to meet the technical and operational challenges that arose when the U.S. Government mandated local number portability, and the CTIA, the all-powerful carrier association, got together to create USShortcodes was, and still is, the only service that would allow you to lease a 5 or 6 digit short code that either meant something (a.k.a. vanity short code), or was completely random (a.k.a. random short code). Two major events in the U.S. taught Americans how to text in to a short code. The first was American Idol, where you could vote for Sanjaya by simply texting VOTE to 4701, and the second was Barak Obama’s VP candidate announcement of Joe Biden via his vanity short code 62262, which spells OBAMA. The latest statistics from Pew show that 80% of Americans send text messages, with billions being sent on a daily basis. To say SMS is mainstream is an understatement.

SMS is a brilliant way to engage with potential customers and retain existing ones. Response rates dwarf other channels like email, IVR and direct mail. The average SMS is read within 4 minutes. If you’re still not convinced about the power of SMS, think about how it’s disrupting healthcare. Our client Kaiser Permanente proved they could reduce the number of no-shows by sending SMS appointment reminders. They saved close to $275k in 30 days at one facility. SMS is helping pregnant moms through pregnancy, smokers to quit smoking, and keeping those with Diabetes adherent to their medication.

So why does Neustar and the carriers make it so difficult to do business with them? Wouldn’t you think a technology that improves peoples’ lives, and has 80% of Americans engaged, could be as simple as buying a domain name? If I went to and registered a domain name, it would cost me $10 for the year and I would immediately get to start using it. With USShortcodes, it costs me anywhere from $1,500 – $3,000 for the quarter depending on if I license a random or vanity code. Going back to my opening sentence, the average wait time to get your short code approved is around 4 months, and guess what; you’re paying for that code even though you can’t use it. Most people would consider this a scam, but this is how things are done and you don’t have a choice in the matter. If you want to do SMS right, you need a short code.

At mobileStorm, we spend hundreds of thousands of dollars per year with because SMS is a wonderful channel — but it doesn’t mean we love the experience. The cost of the codes, the time it takes to get them working, and the audits performed each month with the “guilty before being proven innocent” method is beyond frustrating. I really can’t think of another industry that makes it so difficult to do business, other than maybe complying with city code when trying to build an addition onto your house.

Each code is hand approved by someone at the carrier, and they have a pile of applications sitting on their desk. When they go to test your workflow, if your application doesn’t match it seems as if you go to the bottom of the pile. Oh I almost forgot, you can’t talk to the carrier either, you have to work with your aggregator, so it becomes a game of telephone.

Recently Verizon wanted a client of ours to indemnify them of any litigation that would arise from their SMS program. Are you kidding me? How is SMS supposed to be the killer app in healthcare if the carriers demand indemnification clauses on a short code?

The system is completely inefficient. Let’s recap:

  1. It’s expensive: Small businesses cannot afford the cost of a short code. Most have to resort to a shared code. But oh yeah, there’s rumblings that USShortcodes wants to do away with that as well. Soon most companies in the U.S. will not be able to use SMS. It’s as if the industry is forcing people towards QR codes.
  2. The time to market seems like an inside joke, but it’s not:  If your business is built on top of SMS and you need to wait 4 months to get your business going, you might as well stop everything you’re doing and wait for the code to be approved. Just don’t pay any attention to the stat that most businesses fail within the first year, because you only have 8 months left.
  3. The cost of doing business is high: The CTIA spends millions of dollars a year on independent auditing firms. Their entire goal is to find SMS programs that do not follow the original workflow and shut them down because spam is such a huge problem with SMS. Can you hear the irony in my voice? Think about email. Now think about how many unwanted SMS messages you get. Is there even a comparison? Keeping spam out is one thing the carriers did right. Unlike email they control the pipe and can shut someone down quickly. So if it’s not spam, why the audits? It must be the lawsuits they don’t want to be involved in right? When you get an audit, you have to stop what you are doing and respond. To say this disrupts your business is an understatement. Imagine having to manage and audit 20 clients. Now imagine trying to find every single location these clients have ever promoted their short code and add some copy that would further indemnify the carriers from a lawsuit. Our friends over at TextPower wrote a great article on this called “It’s Official: Cellular Carriers Have Gone Nuts.” Audits are nightmares that take important employee resources away from other revenue generating activities, like helping a client understand how to properly build and market to their database. It’s as if the carriers are looking for ways not to do business with you.
  4. It feels like a scam, but supposedly it’s not: Why do we need to pay to license the code when it is not usable? Can someone please answer this for me? Now is your chance to tell the industry why they pay for a service they can’t use. If you give us a good reason we’ll forgive you, but we want our money back for the years we spent on codes we couldn’t use.

It almost feels to me like the carriers don’t want to provide short codes, but they have to. Why else would they make it timely, expensive, and wasteful?

There’s something else that doesn’t sit well with me. The carriers should be a lot less worried about the small businesses that occasionally send a coupon to their customers, and a lot more worried that legitimate companies are being sued because they were following the MMA’s consumer best practice guidelines. Let me repeat that, businesses are being sued for millions of dollars because they followed consumer best practices, as set forth by the MMA (and the guidelines were created with the carries input as well). I would laugh, but I feel bad. Sounds like these companies were just trying to do the right thing. Soundbite Communications, Redbox, and American Express were just a few of the companies blessed with lawsuits for sending a confirmation message to consumers after they’d opted out of their SMS program. These companies were sued under the Telephone Consumer Protection Act (TCPA) because they sent someone a message confirming an opt-out. This is a classic “damned if you do and damned if you don’t” situation. If they send the message they are sued, if they don’t send the message the carriers will audit them and shut down their short code. Oh the joy!

On April 5th and April 9th of this year, two mobile marketing companies (Eztexting out of New York, and TextPower out of Los Angeles), filed punitive class action antitrust lawsuits in the Southern District of New York against the country’s major wireless carriers, the CTIA trade association, and various text-message (or Short Message Service) aggregators.

I know the CEOs of both companies and for years we’ve discussed how the squeeze is becoming more like a choke. In short, these entrepreneurs reached their breaking points and decided to fight back. All eyes right now are on these lawsuits. Will they bring the change needed to reverse the industry’s biggest problems? Or will they be crushed by the unlimited funds of the powerful association?

I personally don’t think the parties involved (the CTIA, Neustar and USShortcodes) are evil, I just don’t think they have a very good process for how things work and it’s too expensive for them to go back and fix anything. Maybe they don’t see this as that big of a revenue stream, even though it’s reported that the CSC industry brings in  roughly $2.3 billion a year in revenue.  Hey Neustar, spend 1% of this revenue and create a fully automated approval system. This would bring the cost of short codes down and get businesses up and running in the same day. Don’t you think SMS marketing would at least double in size?

My hope is that these lawsuits will wake someone up over there that has the power to bring swift and immediate change. If we continue down the path we’re on, businesses will be forced elsewhere; and we already see it happening. Push notifications and in-app messaging are already threatening SMS usage.

This is a warning to the carriers — if you guys don’t make changes necessary to make mobile marketing more attractive, you will lose billions in revenue a lot sooner. This isn’t a threat, it’s a fact. We know how much money SMS brings in revenue so I understand the need to protect it, but you’re guarding it the wrong way. The security team at Fort Knox isn’t packing squirt guns.

Please make marketers happy again about sending SMS. If you make it cheap, easy and free like the Internet is supposed to be, then you have a shot at the 88 million small businesses in America. I know we’ll need to add a couple more numbers to the short code, and maybe they’ll need to be called medium codes, but hey, that would be considered a good thing right?