SMO is an acronymic portmanteau of SO (Significant Other) and HMO (Health Maintenance Organization).
And, as you might guess from that combination, an SMO is used to describe a friends with benefits arrangement that focuses very little on romance and very much on quid pro quo practicality and embodies a transactional view of dating. The hallmark of an SMO is that there's a real or implied service level agreement at play in this type of relationship. The partners in an SMO typically split costs in such a precise manner as to make a tax accountant uncomfortably aroused. Or, if there's a significant income/resource differential, one partner pays an agreed-upon major share of financial costs (concert tickets, groceries, restaurant bills, etc.) while the other provides agreed-upon nonmonetary benefits to the other party (sexual acts, event companionship, cooking, nighttime cuddling, etc.)
What's the difference between an SMO and prostitution? First, in an SMO there is an implied ongoing personal relationship (which can also sometimes develop between sex workers and their regulars, but a genuine personal relationship is not the expected outcome in most instances of sex work). Beyond that, a partner in an SMO will often find him or herself offering both sex and money to the other partner to compensate for some agreed-upon event:
"It's great that you bought snacks, but I spent nearly $70 in gas to get us up here, and the room's $90 a night."
"Okay, how about I'll pay half the room, and I'll do that thing with the rubber chicken that you like?"
Conversely, in a prostitution situation, the money always flows from a client to the sex worker:
"It's $200 per hour to do that thing you like with the rubber chicken, and it's up to you to find a room."
"Okay, do you take plastic?"
Another hallmark of an SMO is that it seldom leads to marriage, often because the more fiscally-minded partner is reluctant to spend the money on a proper wedding (and gets chills at night thinking about the expense of divorce) and the other partner hasn't been inflammed with passion by the unceasing accounting and probably isn't in it for the long term anyhow. However, if both partners are inveterate bean counters it may be a perfect match that does lead to frugal matrimonial bliss.
A person who finds him or herself in an SMO may begin to feel that he or she is not splitting a bill so much as ponying up a copay whenever he or she goes out with his or her partner.
The letters in SMO could therefore stand for "Sexual Management Outlet" or "Sex Maintenance Organization" or whatever you'd prefer that fits a particular situation.