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Twilio IPO Thoughts

SMS Background
You would think that this problem would have been solved decades ago, but because the internet is built on standards that competitors must agree upon – typically called ‘protocols’, these standards take a long time to get adopted and a longer time to work with other standards. One of the most basic mobile standards is SMS or Short Messaging Service – you know it better as ‘Texting’. Because the web and mobile standards grew up on different islands so to speak, sending texts from a web-browser or a cloud-based software application is surprisingly complicated and above all, expensive (only a handful of mobile carriers like AT&T, Verizon and T-Mobile control the gateway and charge enormous fees relative to the work they actually do).

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I co-founded a business called LinkTexting. It’s designed to bridge the gap between a desktop browser and your mobile phone. It’s something my cofounder and I built a few years ago because like most good hackers/developers/people who are addicted to building things:

1) We hate when things don’t work properly like they ‘obviously should’

And

2) We’re cheap – preferring to spend hours on coding our main app instead of paying even a penny for something that should be quick and easy.

LinkTexting is the number one way for non-gaming mobile apps to drive downloads from desktop visitors without friction. We rely on SMS as the medium.

We send a few million texts every month. I’ve personally looked at dozens of SMS Application Protocol Interfaces, or ‘API’s’ – the digital version of LEGO brick-like ‘pegs-and-holes.’ SMS APIs are bits of software that take a command from a trigger like a ‘send text’ button and tell the appropriate service what to do with it.

You see them in use all the time, like when you have to verify your phone number or your carrier sends you a bill reminder  – in our case, a line of code allows a website to send a link to your mobile phone. Uber uses SMS to alert you when your driver is about to arrive:

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Enter Twilio  the defacto standard for SMS API

Twilio is a company that figured out early how to create an API for connecting software to the SMS ecosystem. They also understood how to gain rapid adoption in the developer community – by sponsoring hackathons and pricing the service so that anyone that registered would be able to use a significant amount of it for free – a far cry from the difficult and expensive developer tools that were available at the time. Now, developers immediately name Twilio when you say SMS or mention telephony driven applications or features.

Twilio’s rapid growth in the developer/hackathon community was powered by aggressive participation at hackathons.

“At Twilio, I think our strength was contests. I think these contests were really fun and developer contests at that time, there weren’t a ton of them, but now they’re everywhere. Same with hackathons, by the way. Hackathons were not a thing when we started doing hackathons. Now hackathons are everywhere! I would not do a hackathon right now. Maybe I would, but I’m not doing it every day. It’s usually changing all the time.”

Danielle Morrill – Early Twilio Employee

Twilio Does the Best Onboarding

Because of their experience dealing with thousands of developers in a wide variety of situations and environments, Twilio has done an excellent job of creating easy to follow documentation so developers can quickly ramp up into building their apps. This onboarding is a significant barrier to entry for anyone else getting into the space. Twilio is battle-tested, approved and secure – a big selling point for developers who need to use it for Enterprise, Government or Health Care applications.

Twilio is putting on a good show, but they have serious room for improvement

They don’t have the Tier 1 connections to MNOs that their competitors do, in fact they buy access from over 60 different companies to reach mobile networks around the world. Their competitors could reduce or cut access or raise prices if Twilio becomes too big a threat.

Also, one of the flaws that I learned about from a fellow hackathon competitor relates to sending longer messages to Sprint Users. This might not be an issue any more, but what tended to happen is that the longer messages arrived out of order, and while this might not be their fault, I find it hard to believe that twilio still doesn’t have a solution for 1 of the 4 big carriers in the USA.

Initially, we used Twilio, but switched to InfoBip as we desired scale and better pricing. Twilio is better for prototyping, but meh at scaling price and efficient internationalization.

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Already Twilio’s costs are higher than some of their competitors and that is one reason people switch away from them. Twilio’s costs have to be higher because they have to buy access to networks from well-established competitors.

Questionable Lead Funnel

They have 900,000 registered developer accounts, but only 26,000 active users. That’s only 2.8% of people who signed up are actively using it. While some kicking the tires inactive accounts are normal, their entire business is based on a very small number of users. (from their S1 filing)

Other competitors in the space have orders of magnitude more customers than Twilio and those competitors have better infrastructure and stronger direct relationships with the relevant nodes in the telephony chain. InfoBip is my favorite, Nexmo is great too.

In their S1, Twilio noted that WhatsApp accounts for 15% of their business, but doesn’t have a long term contract with Twilio. WhatsApp could leave for a competitor at any time. All the OTTs work with a number of providers already for redundancy, so it wouldn’t be hard for WhatsApp, or any other big name company, to send more or all their traffic to a competitor.

 

They are far from profitable. Losing tens of millions of dollars a year is risky. They have to invest to grow, and that costs money, but is Twilio managing their burn rate?

How much did Signal conference cost Twilio?

Who knows, but putting together an IPO is distracting. As Twilio wants to push IoT and a broader messaging platform, will the leaders have the focus to pull it off?

Twilio is in the SV bubble, there are 579 SMS Apis and many telephony APIs. They understand North America (maybe just the U.S.), but what about the rest of the world? Can Twilio help customers navigate the vagaries of SMS laws around the world?

Twilio wants to be more than just SMS

It’s clear from Signal that Twilio wants to be seen as more than just an SMS provider. From their SIMs for IoT device to their new multi-channel platform, Twilio wants to grow beyond being just the people who supply an SMS API to developers.

Multi-channel is a smart move. Communications is more than SMS and branching out into email and voice is clearly where the rest of the industry is going. Twilio isn’t playing catch up here and are first out of the gate with this offering. Other competitors will soon follow suit.

IoT is a different matter. IoT is a hot sector, but there are lots of questions about security and stability that are unknown. Google/Nest killing off an entire product and stranding customers, give consumers pause. Hackers tapping into home systems puts doubt in the mind of consumers who are already wary of being hacked online.

The Twilio SIM for IoT is an interesting move, but will they get developer traction quickly enough and what if it doesn’t work? Will Twilio continue to support these SIM cards long term?

It shows the industry is going to be a big player

People need to understand sending an SMS from an app isn’t really as easy as sending an SMS to your friend. There are more details and complexities to work out. But having Twilio in the news makes this discussion easier to have. While there are other public companies in the space (CLX), a SV IPO is big news and heralds a shift to a more mature industry. Each big tech IPO paved the way for other companies in their sector. From social networks to search to SaaS, IPOs mean legitimacy in the eyes of the business world. Public companies are held to a higher standard (as they should be).

Twilio’s IPO is good for the industry

The IPO brings attention and money to the sector. Rising tides lift all ships as they say. The whole industry gets a boost and that makes it good for people making apps. Everyone is on their toes and trying to ride Twilio’s buzz too.

Do I believe Twilio has a beautiful monopolistic moat-able telephony API? Not at all. I’ve always believed the value in companies is in Lifetime Value and competitive moating with better offerings to the customer. 

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