Valley Girl July 13, 2009, 8:22PM EST

SendMe: Watch Out, iPhone App Makers

Making apps for Apple's smartphone may be sexy, but startup SendMe has built a big, profitable business from games and features for plain old cell phones

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Readers of a certain age will remember TV commercials aimed at showing that Kellogg's Frosted Mini Wheats appeal to both the adult and the kid in all of us. In the 30-second spot, grownups who crow about the cereal's nutritious value suddenly morph into younger versions of themselves who plug the cereal's sweet frosted side.

I'm a bit like that when it comes to mobile startups. The consumer in me welcomes the explosion of fun, useful, and innovative games, activities, and tools on smartphones. I'll admit that I've livened up many a dull train commute with rounds of Flight Control on my iPod touch.

On the other hand, the business reporter in me is getting bored by endless press releases and pitches from companies whose entire business model involves running an app on the Apple (AAPL) iPhone. We get it—the iPhone is awesome. On a recent visit to China, I was stunned at how many expats from the U.S. and Europe have flocked to the country and are spending their time developing iPhone games—this in a country that doesn't officially have the iPhone yet. Many said they were attracted not just by the large market opportunity but also the low-cost talent for designing casual games there. Fair enough.

Under the Radar

But I'm highly doubtful about the prospects of building a lasting business dependent on people like me who will pay at most $1-a-pop to play a game until we get bored and then move on to a new, probably free alternative. And even while the iPhone is very popular, it's part of a niche that still accounts for a small slice of the larger mobile-phone market globally. Smartphones, including the iPhone and Research In Motion's (RIMM) BlackBerry, made up 13.5% of all cell-phone sales in the first quarter, according to Gartner (IT).

What gets the business reporter in me far more excited is the handful of companies designing content, games, or social networks that can run on the much larger pool of plain-Jane cell phones. Some are even making money.

A very under-the-radar case in point: SendMe. The San Francisco startup sells run-of-the-mill mobile content under three brands. SendMeMobile makes ringtones and wallpaper, mBuzzy is a mobile social network, and SoLow.com runs sweepstakes via cell phones.

Driven by Licensed Content

Thanks to its subscriber base of more than 1 million youngsters, mainly in their early teens, who pay an average of $9.99 a month, SendMeMobile is making $10 million a month in revenue and has reached profitability. And since sales are rising, it's not a stretch to expect the company to end the year in the range of about $150 million annually.

The company is just three years old. And unlike almost all Silicon Valley companies, SendMe started generating tens of thousands of dollars in revenue the day it launched, stunning investors. It's raised $35 million to date from True Ventures and Spark Capital, and doesn't expect to raise more—ever.

SendMe is hardly the only company selling mobile games and ringtones. But it's distinct for several reasons. For one thing it invested a ton of venture capital in building a huge portfolio of licensed content, such as music and celebrity images.