Barcelona-based Chad2Win has attracted close to 100,000 users, who receive one cent for every advertisement they see, and three cents for every ad they click on, since its launch last month, director Fernando Troyano told Reuters.
Chad2Win, part of a growing number of free texting services, is the first to offer customers payment. Free messaging service WhatsApp said in August it was processing 10 billion messages a day worldwide compared to the 21 billion paid for SMS messages sent daily.
Telecommunications research firm Ovum estimates operators lost $23 billion in messaging revenue last year to these applications, which send the messages over the internet.
But success will prove challenging as companies, including social network Facebook, have so far struggled to monetise a service users expect for free.
Enders Analysis mobile analyst James Barford said similar services that offer something for free in exchange for advertising, including search engines and call services, have ended in failure.
"There's an obvious issue in that the type of person who is that careful with their money is not likely to be that attractive to advertisers," he said.
Companies, including Volkswagen, Panasonic and Spanish lender Caixabank have agreed to advertise with Chad2Win, currently only available in Spain.
It would take more than 800 clicks on ads to hit the 25 euro maximum monthly payout for a user. Troyano said most users were unlikely to view and click enough to make more than 5-10 euros.
To challenge the free text services, Telefonica, France Telecom and Vodafone launched a WhatsApp rival in Spain in November, called Joyn.
In Spain, where one in four of the workforce is unemployed, the number of text messages sent fell to 1.4 billion in the third quarter of 2012 from 3.7 billion in the third quarter of 2007.
Barford said although it was impossible to tell how much revenue loss stemmed from messaging services or from a recessionary environment strangling spending, there are steps operators can take.
"What they can do about it is reprice. Part of the issue is that the cost of the data to send a WhatsApp message is much less than a voice call. It is a question of pricing structure," he said.
© Thomson Reuters 2013