Table of Contents
In the payments industry, your leverage is your proximity to the payment providers: Visa, MasterCard, and American Express. In the messaging industry, your leverage is your proximity to the wireless carriers. In the US, you do that by using Sinch & OpenMarket for shortcode messaging and SAP (now Sinch) & Syniverse for long code messaging.
Fast forward to 2021, a lot had changed.
Twilio’s focus on building products for the developer would come at the cost of not watching its flank.
The Syniverse Play
If OpenMarket, Sinch, SAP, and Syniverse were the only A2P connections to the wireless carriers, Twilio’s competitors owned three of them. InfoBip owned OpenMarket; Sinch owned SAP. This left only Syniverse. Twilio had no other option but to make a move on Syniverse.
What About ZipWhip
If there were a dive bar where all the messaging industry veterans converged, a coffee shop where they gathered, or a running group where they met, few topics would be as loud and gossipy as ZipWhip. There is no use in rehashing them here.
But from a Founder’s perspective, like Jeff Lawson, John Lauer had displayed both a zealot’s focus on the prize and a renegade’s disdain for the status quo. Like Jeff, the market would reward John well for his spunk.
New Ways to Connect
In the US, toll-free lines typically start with an eight (888, 800, etc.), where the caller pays nothing for calling, and the owning business bears all the costs.
ZipWhip was essentially two businesses. One was its Text-to-Landline (TTL) business, wherein it text-enabled any landline and allowed companies to use traditional voice-only lines for texting. The other was Toll-Free Texting.
Like Twilio, ZipWhip came to be because it commercialized established technology at scale. Toll-free and landline texting had existed before but in selective niches. HeyWire (acquired by Salesforce), for example, had been doing toll-free messaging long before ZipWhip.
In a masterstroke of negotiation, John convinced the carriers to give him exclusive rights to the arbitrage of every toll-free message in the US. This ensured that if you wanted to send a message to or from a toll-free number, it had to go through ZipWhip.
Zipwhip executed the perfect cooperative interoperability play. It convinced the platform providers (the Wireless operators) to make it the sole arbitrator for the medium. If toll-free was a highway fast lane, ZipWhip was the only toll booth.
Changing Rules of Interoperability
Twilio’s exploitation of the messaging backdoor created by Syniverse and SAP did not go unnoticed by the carriers. Longcode messaging had exploded. Burned as they were by blocking what turned out to be legitimate traffic, the carriers decided to bless these routes as accepted A2P messaging.
The end solution is still very much under construction. Some brilliant, hardworking brains are creating a solution that everyone can support. However, all the change as to “what’s next” has created a lot of uncertainty. And with this uncertainty has come the loss of speed in provisioning phone numbers and the ability of the developer to build.
While 10-digit texting is still under construction, toll-free messaging is alive and well. It is the only carrier-sanctioned way to do messaging without the need for a lengthy vetting process or the fear of being shut down without notice. Outside of shortcode, toll-free messaging is the only way to ensure predictability to deliverability. And that road takes you to only one player—ZipWhip.
On The Valuation
This is where Twilio’s acquisition of ZipWhip and the price they paid for it makes sense. It’s not because Twilio decided to go after the SMB or mid-market. Twilio doesn’t want to build the next SMB solution—it wants you to make it but use its platform. As long as Lawson’s in charge, its sole goal will be to let developers build on their platform.
In the new world that came to be in no small part because of Twilio, that promise to the developers is getting hard to keep. Instead of real-time provisioning by writing code, the first step is to submit documentation? Its customer would never stand for that. Jeff would never stand for that.
From 2013 to 2022, Twilio grew over sixfold to $2.8B in revenue. Twilio bought out ZipWhip, paying $800M today, to help ensure $16B in 2027.
Finally
Twilio’s acquisition of ZipWhip unearthed how interoperability is a driving force in the market. In part I, we saw how Twilio pushed the boundaries of indifferent interoperability to scale quickly. In Part II, we got to know how that interoperability became adversarial. Finally, we saw how ZipWhip used cooperative Interoperability to build a market monopoly and why Twilio had to buy it. Next, we discuss how interoperability is disruption’s secret weapon.
Author’s Note: This is the fifth installment on interoperability. Links to the entire series: I, II, III, IV, V, VI