September 1, 2001
At the turn of the 21st century, Japan’s i-mode was the world’s only successful wireless Internet service. The US and Europe were hopelessly behind. The iPhone would eventually change all that, but it would come from Apple, not from anything the carriers were trying to do. Why did NTT DoCoMo succeed when no one else could?
ONE LOOK AT THE 27TH-FLOOR Sky Lobby at NTT DoCoMo and you know you’ve reached the antechamber to something big. The elevators, swift and noiseless except for the crisp electronic ping that announces their arrival, deliver a constant stream of supplicants: Japanese executives in their obligatory business suits, Swedes and Finns looking ridiculously tall and blond, American engineering types pulling awkwardly at their ties. The place pulses with expectation and anxiety. Rising overhead for 17 floors are the offices of the corporate colossus behind i-mode, the world’s most successful — almost its only successful — wireless Internet service.
So far, the wireless Internet has flopped spectacularly in every part of the world except Japan. WAP, the wireless application protocol that was supposed to put cell phone users on the Internet in the US and Europe, is memorable mainly for having inspired the slogan “WAP is crap.” Yet i-mode, introduced with minimal expectations in February 1999, has attracted more than 25 million subscribers — one-fifth of Japan’s population. New subscribers are still signing on at the rate of 43,000 a day, 1.3 million a month. The Internet is never mentioned in the ads they see; the i in i-mode stands for “information,” and the logo — a large, stylized i — plays off the i that marks the information booths in subways and airports. Japan’s infatuation with English-language product names even extends to DoCoMo itself: Ads proclaim it an acronym for “Do communications over the mobile network,” but dokomo is also a word in Japanese. It means “everywhere.”
With 39 million cell phone subscribers and revenues last year of $39 billion, DoCoMo is certainly everywhere in Japan — but the rest of the world knows it, and i-mode, only by reputation. That may soon change. Over the past year or so, DoCoMo — two-thirds owned by Nippon Telegraph & Telephone — has invested in mobile carriers around the world, including AT&T Wireless in the US. Now it’s working with its partners to adapt i-mode to their markets. It has also taken a controlling stake in AOL Japan, a struggling operation that it’s recasting as DoCoMo AOL and using to knit i-mode together with the wireline Internet.
The accepted wisdom is that i-mode works in Japan because the Japanese love cute little gadgets, their homes are too tiny for desk-hog computers, and most of them don’t know what the Internet is anyway. But few purveyors of the accepted wisdom have gone to DoCoMo’s 33rd floor.
Handicapping i-mode’s chances outside Japan has become the parlor game of choice among the wireless cognoscenti. Japan has generated plenty of products — from the Sony Walkman to Nintendo’s Pokémon — that resonate with the global psyche. On the other hand, it’s a safe bet that no one at Coca-Cola spends much time worrying about Pocari Sweat, the pale-green drink that’s a staple of Tokyo vending machines. The accepted wisdom about i-mode is that it works in Japan because the Japanese are pushovers for cute little gadgets like cell phones, because their homes are too cramped for American-style desk-hog computers, because few of them know what the Internet is anyway, and because i-mode is a proprietary service that’s designed specifically for Japanese users. In other words, i-mode is a fluke; other carriers have nothing to worry about.
But few purveyors of the accepted wisdom have ventured past DoCoMo’s Sky Lobby to the 33rd floor, where i-mode is managed by 180 people who sit at desks rowed up Japanese-style on an open floor — no offices or cubicles, not even for i-mode executive director Takeshi Natsuno or for DoCoMo senior vice president Keiichi Enoki. Talk to people here and you begin to realize that i-mode succeeded not because Japan is a mutant market but because its creators made all the right assumptions about how to set up a mobile data service and sell it to the public.
Like most consumer success stories, i-mode is geared to the people who use it. Handsets are manufactured by name-brand consumer-electronics outfits like Sony and Panasonic, but DoCoMo subsidizes the phones heavily to keep the price low: A model that might ordinarily cost $600 retails for less than $350. Because DoCoMo’s wireless network is packet-switched, users are charged only for the number of data packets they send back and forth, not for the amount of time they’re connected, as on most networks outside Japan. Some 46,000 unregulated sites can be reached by typing in a URL, but the 1,800 official i-mode offerings are constantly monitored by DoCoMo to make sure they’re fresh and appealing and easy to use. Official i-mode sites are allowed to charge ¥100 to ¥300 a month (US$0.85 to $2.50), which DoCoMo collects for them in exchange for a 9 percent fee. And although these sites are created with a compact version of HTML, the lingua franca of the Web, terms like HTML and even Web never appear in i-mode ads.
At the heart of all this is a paradox: i-mode depends on outside providers for everything from handsets to content, yet it’s managed so carefully that nothing is left to chance. Critics see a walled garden, more mobile mall than wireless Web. But in fact, i-mode’s success comes less from being walled than from being obsessively tended. Users are free to browse the thousands of unofficial sites and bookmark any they choose for instant access. But like the meticulously landscaped entrances to Tokyo office towers, i-mode is monitored by a small army of caretakers who, oblivious to the sprawling chaos around them, root out even the most infinitesimal weed in a campaign to ensure that here, at least, perfection reigns. “It’s very carefully cultivated,” says Kazutomo Robert Hori, CEO of Cybird, a company that creates i-mode sites. “Very carefully. Very, very carefully.”
But if i-mode isn’t exactly walled, neither is it, properly speaking, a garden. It’s much bigger than that. It’s a complex ecosystem — a self-sustaining world in which hundreds of companies, from Bandai to Cybird to DoCoMo itself, feed off one another for their mutual benefit. Like water, sunlight, and soil, the elements that make up this world are everywhere. The trick, as anyone who’s ever played God can tell you, is getting the mix right.
Takeshi Natsuno
“HAVE YOU TRIED KARAOKE on a cell phone? No? It’s fabulous!” Takeshi Natsuno gets a charge out of showing what i-mode can do. Sitting in a windowless conference room labeled PRESS ROOM C, he flips open a sleek little DoCoMo-brand N503i Hyper handset — the model number is the only clue it’s made by NEC — and starts punching buttons. Natsuno, a onetime Internet entrepreneur, manages i-mode’s domestic operations and global partnerships. His round face and bright-red lips give him a sweet, almost childlike appearance. The impression is amplified by his voice, which swoops higher as his excitement builds — something that happens every 60 seconds or so. “This is ‘Imagine’ — John Lennon!” he cries. “It’s really fun! ” Suddenly, the N503i’s screen erupts into swirling, multicolored daisy patterns and its tiny speaker emits a deliriously tinny sound. As the lyrics appear in English beneath the daisies, Natsuno gazes lovingly into the screen and bursts into song: “Above us, only sky…”
Natsuno’s passion for i-mode has been great for Japan’s karaoke industry, which is recycling its vast store of digital music to sell as ring tones for mobile phones. Other leisure-time businesses have not fared as well. i-mode brought in more than $2.9 billion last year, up from $300 million the year before; DoCoMo’s voice revenue rose by $2.6 billion, much of it attributable to the new subscribers drawn by i-mode. All this money had to come from somewhere. When the founder of Daiei, Japan’s largest retailer, left the company amid mounting debts and declining sales, he blamed its troubles on cell phones: Young people who used to go shopping now spend their allowances downloading ring tones and sending one another email. In fact, Daiei’s problems went well beyond cell phones — but with bills averaging ¥10,000 a month (about US$80), all of Japan is feeling what’s come to be known as the DoCoMo effect.
What you get with i-mode is the freedom to stay connected anywhere. The basic fee is only ¥300 per month, but for each 128-byte packet of data sent or received, you pay an extra ¥0.3 — a quarter of a penny. Packet switching means you don’t have to waste time dialing in every time you want to use the service, and that in turn makes it seem fairly fast, even though DoCoMo’s network transmits data at a piddling 9.6 Kbps. Most of what gets sent is email — and because you’re connected all the time, you never have to check for it; it just shows up on your handset. The peak hour for traffic is 10 pm, when television’s golden time is over and people start emailing one another about their favorite shows.
Most of the sites you can access on i-mode are “free,” in the sense that you don’t have to pay an extra subscription fee. You can get headlines from Bloomberg or Nikkei or the People’s Daily. You can take a virtual tour of the Universal Studios theme park in Osaka. You can access city guides to places like Tokyo, Kyoto, and Kobe. Check your bank accounts and transfer funds. Make hotel and flight reservations, sometimes at a big discount. Look for a job, an apartment, a car. Buy and sell stocks. Check the weather. The packet charges add up.
Some news and information sites charge a monthly fee, but most of the sites people pay extra for involve more frivolous things — ring tones, screensavers, anything that takes an off-the-shelf plastic shell stuffed with microelectronics and makes it your own. This year, with the advent of animation (made possible by a Java licensing deal with Sun), the range of possibilities shot up dramatically. Hello Kitty, the adorable little pussycat that already adorns everything from bank cards to hot dogs, now appears on i-mode screens as well, chiming the hour and doing a little dance. J@pan Inc magazine reports that 9 of the top 10 Java downloads on i-mode are games — everything from mah-jongg to Shit Panic, in which you try to catch the stuff as it falls and flush it down the toilet. But Mickey Mouse is big, too — and for just ¥200 a month you can design a clock using any Disney character you want and make it your screensaver. “When the clock strikes the hour, stars go off,” says Mark Handler, who heads international operations for the Walt Disney Internet Group. “It’s exciting to watch.”
Ring tones and cartoon characters have other uses as well. People set their phones to sound a ring-tone version of the latest pop hit whenever their boyfriend or girlfriend calls. They even use i-mode to relieve stress: Gazing at Hello Kitty on their handsets, they’ll relax for a moment as they coo, “Oh, I’m healed!” But i-mode is probably best for killing time. With self-employment increasingly common, Starbucks all over Tokyo are packed with young people indulging in hima otsubusu (literally, “crushing free time”) between appointments. People who used to nod off on subway cars and commuter trains now stay focused on their handsets, playing games and sending email to their friends. The one thing you rarely see anyone do with a cell phone is talk, since imposing yourself on the people around you is considered rude. That’s why Japanese cell phones can be switched to manner mode, which automatically diverts incoming calls to voicemail.
Keitai combine in one sleek device the functions of three separate gizmos: cell phone, handheld computer, and wireless email receiver. “This is the consumer-electronics mentality. It has to be easy, it has to be fun, and most of all, it can’t be boring.”
The Japanese word for cell phone is keitai, which means “portable,” and it’s not hard to see why they’re a bigger hit than home computers. “I know what the Internet is,” says Giles Richter, the American-born publisher of Tokyo’s MobileMediaJapan.com Web site, “but I still don’t want to carry my computer with me everywhere I go.” The first keitai, the so-called candy-bar models, had small black-and-white screens and were about half the size of Western cell phones. Now, with the advent of color and animation, the featherweight candy bars are giving way to slightly heavier, folding handsets with larger, high-resolution screens. They combine in one sleek device the functions of three separate gizmos in America: cell phone, handheld computer, and wireless email receiver. “This is the consumer-electronics mentality,” says J@pan Inc editor in chief Steve Mollman. “It has to be easy, it has to be fun, and most of all, it can’t be boring.”
Technology is an expression of the culture that produces it. Japan leads the world in consumer electronics because it’s a society that places enormous value on convenience. Growing up in Japan, you get used to being taken care of. Even the subway exits are meticulously labeled, with signs and diagrams pinpointing the location of each nearby building and indicating the best stairway for reaching it. Follow the prescribed path, and everything is made easy for you. At the same time, the Japanese feel an ingrained revulsion for mottainai, or “wastefulness.” The United States, with its PC bloatware, supersize-it “value meals,” and pedal-to-the-metal energy policy, is big-time mottainai. The Japanese prefer clean, simple, efficient. Put these impulses together and you get the keitai, a cell phone/Internet device/miniature computer that folds up and slips unobtrusively into your pocket. “You’ve seen it happen with automobiles, you’ve seen it happen with consumer electronics,” says Mollman. “You’ll see it now with post-PC devices. It’s Japan putting its stamp on the times.”
WHEN I-MODE WAS LAUNCHED IN FEBRUARY 1999, fewer than a dozen people bothered to show up for the press conference. Natsuno and his partners, Keiichi Enoki and Mari Matsunaga, had brought in 67 content providers from a cross section of corporate Japan: banks, newspapers, airlines, gaming companies. DoCoMo’s expectations were relatively modest. Yet within six months, subscribers passed the 1 million mark. By February 2000, the number had zoomed past 4 million; a year later, nearly 20 million people had signed on. “They lit a match and saw it turn into a bonfire,” says Mark Berman, telecom analyst in the Tokyo office of Credit Suisse First Boston.
It’s impossible to know whether i-mode would have succeeded so dramatically if the Japanese had already been surfing the Web on home computers — but not many Europeans have home Internet access either, and they certainly didn’t jump on the WAP wagon. Somehow, i-mode has generated a response that WAP has not. What’s more, Japan hasn’t just one successful wireless Internet service but three; together they claim 30 percent of the population. DoCoMo has three-fifths of the market. The other 15 million subscribers are almost evenly divided between KDDI’s EZweb and the J-Sky service from the wireless unit of Japan Telecom — a company now controlled by Vodafone, the largest and most aggressive wireless carrier in the world. EZweb is a WAP service, but both EZweb and J-Sky were introduced after i-mode, and in most key respects they’re a lot closer to it than they are to other wireless services.
As the mobile unit of NTT, Japan’s former national phone company, DoCoMo has been the country’s dominant wireless player from the start. i-mode came about because the company could no longer handle all its traffic. Confined to a limited spectrum, DoCoMo was trying to serve so many subscribers that calls were being dropped and text messages couldn’t always get through. So in the mid-’90s, it reengineered its cellular network to provide packet switching. Rather than holding a circuit open for the entire time it took to send a text message, the network could now interleave data packets with the voice stream, easing the congestion. That left DoCoMo with a marketing challenge: How could it persuade customers to make fewer voice calls and start using more data services?
The problem was handed to Keiichi Enoki, a lifelong engineer at DoCoMo, and before that, NTT. Enoki knew NTT engineers to be as sclerotic as telecom people anywhere, so he refused to have any in his unit. Instead he hired Natsuno, a Wharton MBA who’d returned to Japan in 1995 and started a free ISP called Hypernet. He also brought in Matsunaga, an editor at Recruit, a company that publishes popular women’s magazines (and who’s since left i-mode to start a Web business). Working out of a high-rise in the central Tokyo district of Kamiyacho, where office towers share the narrow, twisting back streets with modest houses and luxury hotels, they created a skunk works atmosphere far removed from the stiff, corporate environment of DoCoMo. Blue jeans, not suits, were the rule. So was the mind-set Natsuno describes as “Internet way of thinking,” as opposed to “telecom way of thinking.”
“I can explain the difference,” he says, smiling eagerly. “First, technology. We selected Internet technology — HTML, MIDI for ring-tone downloads, Java. But telecom people only care about what’s best for their infrastructure. So in Europe they invented a new technology” — WAP — “to fit the wireless space, but it was very difficult for Internet people.
“Second, business model,” he continues. “US approach or European approach is to gain some mileage on content providers by sharing in their ecommerce revenue. But a normal fixed-line operator cannot take any portion of ecommerce. We thought in the same way. By providing a better platform, transactions will increase — that is the biggest benefit to us. So we keep our traffic revenue, and they keep their transaction revenue — and if we can provide value-added services, like a billing system, of course we can share some revenue.
“The third thing is marketing,” he explains. “In the telecom way of thinking, technology is very important. But AOL — they have never mentioned technology. Amazon.com — they just say, ‘We offer the best price.’ That is Internet way of thinking. So we never mention ‘Internet’ or ‘protocol’ or ‘wireless something,’ because content is everything.”
Natsuno loves to rail against “boring telecom guys.” If his “Internet way of thinking” were actually typical of the Net, however, dotcoms would be rolling in dough and the Nasdaq would be pushing 10,000. In fact, the scheme he, Enoki, and Matsunaga devised — let’s call it “i-mode way of thinking” — was a clever blend of off-the-shelf Web technologies, telecom pricing schemes, and savvy consumer marketing. The 9 percent DoCoMo takes for collecting the bill for i-mode services, for example, is the same percentage NTT takes for billing customers of its Dial Q2 service, which works like 900 numbers in the US. Like its American counterparts, Dial Q2 became synonymous with raunch — a fate DoCoMo has been careful to avoid with i-mode.
The marketing focus came from Mari Matsunaga. She knew nothing about Internet technology, but she did know consumers — especially women in their twenties, who were identified early on as a key market for i-mode. Matsunaga made sure the service had features they’d like — hopping sites, horoscopes, ring-tone downloads, easy email capability. She also made sure the maximum price for subscription sites was ¥300 a month — low enough that customers could sign up without thinking about it. The first major ad campaign for i-mode was launched in April 1999, two months after the service debuted, and featured a fresh-faced young movie star — perfect for the target demographic. This also coincided with the start of the Japanese school year, traditionally a time for fresh beginnings — like new cell phones for teenagers. By the end of the month, the number of subscribers was snowballing.
For ¥300 a month, you can download games ranging from chess to Samurai Romanesque, a warlord contest that’s playable by 500,000 people at once and updated with real-life weather reports—if it’s raining in real life, your virtual gunpowder gets wet.
Natsuno provided the Internet focus. The crucial choice was to forgo WAP, which was then being developed by an industry consortium led by Ericsson and Nokia. WAP relies on protocols that send data faster and more efficiently over wireless networks than the protocols used on the Web, and it requires a special language that, unlike HTML, is optimized for small screens. Natsuno and Enoki had been considering WAP until they learned that DoCoMo’s handset division had just conducted a successful trial of a microbrowser developed by Access, a small Tokyo company that designs software to connect consumer-electronics devices — TV sets, game consoles, cell phones — with the Internet. Tomihisa Kamada, the engineering whiz behind the enterprise, had not only found a way to compensate for the limited memory and processing power of cell phones, he’d developed a compact form of HTML to build sites with.
Kamada’s microbrowser opened i-mode to anyone who can create a Web page. Satoshi Nakajima, a Japanese expat who heads a Seattle startup called UIEvolution, discovered what that means when he set out to construct a little wireless site that converts US measurements to the metric system. Because he knows HTML, he was able to create an i-mode site in one evening; a day later he discovered that several hundred people had already visited it. It took him two weeks to develop a WAP version for the American market. “It was a really painful experience,” he says, “and at the end of it I got no hits.” During the next year, both WAP and the Web will migrate to a new language called XHTML — but until then, WAP will be stuck in the telecom ghetto.
I-MODE TOOK OFF BECAUSE IT WAS ADVERTISED as a fun consumer experience and because it delivered on that promise, thanks to technological choices that made it easy for services to proliferate. But what sustains it is the carefully modulated environment Natsuno describes as a “win-win business model.” Things are set up so that everyone in the i-mode ecosystem can make money. This has created opportunities not just for big corporations like Nikkei, the 125-year-old business publishing giant, but for any would-be entrepreneur with a cell phone and an idea. “That’s kind of a miracle,” says Nobuo Kawakami, the 32-year-old cofounder of Dwango, a company that delivers games over i-mode and other networks.
A wiry figure with dyed-brown hair in a Beatles cut and a long chain swinging from the belt loop of his faded jeans, Kawakami is the antithesis of the Japanese salaryman. For ¥300 a month, you can go to one of his i-mode sites and download a variety of games to play on your keitai, from chess to Samurai Romanesque, a warlord contest set in 16th-century Japan. Samurai Romanesque can be played by as many as 500,000 people at once. Players enter a world in miniature, traveling from town to town, chatting with other players, waging war, getting married, having children. Dwango updates the game with weather reports from the Japan Weather Association, so when it’s raining in real life it’s also raining on your handset — which means your gunpowder is damp and you can’t fire your musket. In i-mode, even the content providers have content providers.
Dwango is hardly the only i-mode success story. Kazutomo Robert Hori of Cybird started out on the Internet in 1995, setting up bulletin boards and chat rooms and enabling people to put up their own homepages. “But there was no billing system,” he says, “so we had no revenue — none. We were deeply in debt.” Now, in addition to the sites it has created for corporate giants like Disney, Cybird has 23 official i-mode sites of its own — and because DoCoMo collects its subscription fees, Cybird is finally in the black. “For a company like us,” says Hori, “the i-mode environment has turned out to be very profitable.”
WAP was supposed to put cell phone users on the Internet in the US and Europe. And yet, says an entrepreneur in Paris, “WAP is a total joke. We have a WAP site, but no one visits it except other developers. It’s quite depressing.”
There’s a trade-off: accepting DoCoMo’s supervision. “Our goal is very simple,” says Natsuno. “We are providing links to the good-quality content. If you have three minutes to kill, you don’t have time to waste just on searching.” To make sure you’ll like what you find, Natsuno has 20 people who monitor the official sites. They also review 50 to 100 proposals a week from companies eager to gain official status so that DoCoMo will collect their subscription fees. Is the site easy to navigate? Will it be updated often enough? Will it run up so much in packet charges that people will feel burned when they get the bill? Content providers often assume that DoCoMo wants all the traffic it can get, but what the company actually wants is to make sure its users feel good enough about i-mode to keep coming back.
Not surprisingly, this process creates a lot of resentment among site developers, who frequently have to jump through hoops for months to gain official status, if they get it at all. But that’s preferable to what their counterparts in Europe and America face. Take Kiwee, a startup in Paris that sells ring tones and screensavers for mobile handsets — or tries to. Two years ago, Kiwee was expecting as many as 20,000 WAP users a day; it’s lucky if it gets 10. “WAP is a total joke in Europe,” says Francis Cohen, a cofounder. “We have a WAP site, but no one visits it except other developers. It’s quite depressing.” Kiwee does better selling its products on SMS, the short message service that’s built into European wireless networks: Though designed for sending brief text messages from one mobile handset to another, it’s also capable of handling music and graphics. The problem is that European wireless carriers want 50 percent of the take.
Just as there are official i-mode sites, so there are official i-mode handset manufacturers — “codevelopers,” in DoCoMo parlance. Because DoCoMo has such an outsize share of the Japanese wireless market, it has the clout to define the features of the phones it sells. The co-developers — NEC, Panasonic, Mitsubishi, Fujitsu, and now Sony — are allowed to work with DoCoMo engineers in setting the specs. The handsets that result are so sleek and advanced that not even Nokia has been able to compete. However, the manufacturers don’t get to put their names on the devices; the DoCoMo logo is the only one users ever see. Nor do they get to set the retail price or decide when to introduce new models, since it’s DoCoMo that sells them to consumers. Yet they eagerly compete to produce phones with the latest features because DoCoMo gives them the inside track in an extremely lucrative race. “It’s not a stand-alone product,” observes Kanji Ohnishi, product planning chief at Sony’s handset division.
Ultimately, i-mode isn’t a stand-alone product, either. That’s the reason for DoCoMo’s partnership with AOL, which is based on the idea that i-mode and the Internet should converge. After spending $100 million to become the largest shareholder in AOL Japan, DoCoMo announced that i-mode subscribers could get an AOL email account and access it either on their mobile handsets or personal computers. The next step will be to offer services that can be reached on either device — travel sites, for example, that you can use to get a hotel room or rebook a ticket on the fly.
The DoCoMo approach is deliberate, methodical: For example, i-mode has been slow to implement advanced features such as mobile commerce. European carriers have been hyping this possibility for a year or more, and Sonera has actually introduced a crude system in Finland that lets you use a cell phone to buy items from vending machines. But Natsuno becomes agitated at the mere mention of Finland.
“No one is going to topple DoCoMo in Japan,” says an analyst. “But they can’t get bigger here without risking further regulation. That’s why they need to go overseas.”
“That’s just a bluff!” he insists. “What they are offering is, you will see a phone number on the vending machine and if you call it up, the can of Coke comes out and it will be charged to your bill. We can do that tomorrow! But what is the advantage of this application? Nothing! You should just push a button! That’s all! Right? That’s why we announced an alliance with the Coca-Cola Company. You already have IrDA here” — he points to the infrared port at the end of his keitai — “and by end of this year, Coca-Cola will provide special vending machines in the Tokyo area and you can communicate with them with your cell phone.” DoCoMo has announced a similar deal with Lawson, a Japanese convenience-store chain: Before long, i-mode phones will become electronic wallets that you simply point at the cash register. “Everybody can say, ‘It’s coming, it’s coming!’” Natsuno declares. “But we are considering how to make it user-friendly.”
Before it could do any of this, DoCoMo had to introduce Java, which enables the security mechanisms that make commercial transactions possible. But Java’s more immediate benefit is the animations it serves up on handsets. Though the Java service, i-appli, wasn’t introduced until the end of January and requires the purchase of special phones that cost nearly $350, it had attracted more than 4 million users by the end of June. DoCoMo got a head start on its rivals: J-Sky didn’t have Java until June, and KDDI’s EZweb got it in July. And though DoCoMo isn’t playing it up, the company has told analysts that Java users generate 2.5 times as much packet traffic as ordinary i-mode subscribers — a number with big implications for the bottom line.
This is good news, if it holds, because in 2003, DoCoMo is facing a deadline that threatens its carefully tended world. Prodded by a government commission looking into its outsize share of the wireless Internet market, DoCoMo announced last March that, in two years, i-mode will be open to competitors. Among other things, this means users will be able to make sites like Yahoo! their default portal instead of just bookmarking them. DoCoMo has also agreed to make its billing system available to any company that wants to use it. Meanwhile, EZweb has upgraded its servers to open i-mode sites to its subscribers. Obviously, all this could hurt i-mode, since much of what differentiates it from the competition will be lost. Paradoxically, however, open access could end up drawing more customers, stimulating more traffic, and generating more revenue — especially for the carrier that already has the best brand and the biggest slice of the pie. “No one is going to topple DoCoMo in Japan,” says Credit Suisse First Boston’s Mark Berman. “But they can’t get bigger here without risking further regulation. That’s why they need to go overseas.”
SOME 4,800 MILES FROM TOKYO, in a low-rise office complex in Redmond, Washington, Tom Trinneer is making the inevitable comparison between DoCoMo and his own company, AT&T Wireless. Last winter, DoCoMo put down $10 billion in cash for 16 percent of the third-largest wireless unit in the US. But AT&T Wireless is no DoCoMo, and its PocketNet service is no i-mode — a fact that Trinneer, its VP for multimedia strategy, is at pains to admit. “Theirs is the most successful wireless Internet business in the world,” he says, “and ours is not. Nonetheless, we have 700,000 or so customers” — less than 3 percent of i-mode’s total, in a country with more than twice the population — “and lots of partners. There’s a lot we can learn from them — and there are things they can learn from us as well.”
Does AT&T Wireless really get the i-mode phenomenon? Sanada fires off a torrent of Japanese. Hori, translating, tries to be diplomatic. “He doesn’t think they understand precisely every detail.” And then he bursts out laughing.
Score one for defensiveness: It’s safe to say that Natsuno does not fly to Seattle to take notes. Still, AT&T Wireless, with 16 million voice subscribers and profits last year of $76 million, is doing a lot better than some of the other foreign carriers DoCoMo invested in. DoCoMo says the idea behind its overseas strategy is to buy into top carriers around the world, but it seems to have had trouble finding any. It put $3.4 billion into the wireless unit of KPN, a small Dutch telco that then bid $6.2 billion for licenses to operate high-speed, third-generation networks in the Netherlands and Germany, leaving it more deeply in debt for its size than any other carrier in Europe. In the UK, DoCoMo paid $1.7 billion for 20 percent of Hutchison 3G, a startup with no customers but billions to pay in third-generation license fees and infrastructure costs. Now, with telecom stocks collapsing across Europe and America, DoCoMo’s investments have collapsed as well. The company had profits last year of $3 billion, so it can afford some losses — but so far, its overseas strategy has done little except expose it to the mayhem that wireless carriers elsewhere in the world are encountering.
At the same time, however, DoCoMo has laid the groundwork for a global alliance that could compete with the big four of wireless — France Telecom, Deutsche Telekom, British Telecom, and, above all, Vodafone, the world’s largest wireless company, which has sizable stakes in carriers across 29 countries (including Verizon Wireless in the US). But Vodafone’s strategy has been to gain a controlling interest in as many carriers as possible; DoCoMo is not that bold. That may be wise: “DoCoMo was a government institution until not too long ago,” says Frank Sanda, CEO of Japan Communications, a company that provides wireless services to the corporate market. “You can’t expect them to become a global operator overnight.” But how much it can accomplish with minority investments is open to question.
Nonetheless, DoCoMo is moving ahead with its plans for i-mode. Last winter, it agreed to set up a joint venture with KPN and Telecom Italia Mobile to create i-mode-type services across Europe. AT&T Wireless has set up a similar operation in Redmond, with teams of engineers and marketing execs flying back and forth between Seattle and Tokyo to trade information. “We don’t intend to export i-mode as it is,” says Natsuno. “It’s sharing all the experience and the information — not the technology itself. We are not vendors, so just to provide technology is not our goal. But we invested a lot of money, and by sharing our experience and know-how and all these strategies, we believe we can leverage the value of AT&T Wireless, of KPN. To maximize their corporate value, that is the big mission for us.”
If i-mode were an American product, DoCoMo executives would already have reverse-engineered it so thoroughly they’d be able to reproduce it in their sleep. But Westerners are not used to learning from Japan — as Detroit can attest. Asked if AT&T Wireless and KPN really understand the i-mode phenomenon, Hori and his partner at Cybird, Tetsuya Sanada, who’ve been working with both companies, ponder the question. Hori, whose command of English is as impeccable as his gray suit, has been doing most of the talking, but this query sets Sanada off in a torrent of Japanese. Hori listens impassively for several minutes, then turns to translate. He pauses, searching for a way to be diplomatic. “He doesn’t think they understand precisely every single detail,” he says. And then he bursts out laughing.
There’s nothing uniquely Japanese about the factors that made i-mode a success. “The phenomenon is definitely portable,” says a Seattle-area VC. “But because carriers in the US do not have the same control over their environment, a DoCoMo-style service is threatening to their brand.”
Does i-mode translate to the US? “Some of it does,” says Tom Trinneer, but he seems a little hard-pressed to say what. The relationship with handset manufacturers is admittedly problematic: DoCoMo, with most of the Japanese market and suppliers that sell mainly in Japan, obviously has more leverage than AT&T Wireless, which has one-fifth of the US market and relies on global suppliers like Ericsson and Motorola. But the Seattle team doesn’t seem to be copying much else from DoCoMo, either. Despite the dismal failure of WAP, for example, AT&T Wireless is rolling out a WAP-based upgrade of its PocketNet service to run on a new, higher-speed network it’s building. Next year it plans to introduce a browser that reads both WAP sites and Compact HTML sites, but in the meantime, Trinneer seems oblivious to the implications of having 150 sites — PocketNet’s current total — as opposed to 47,800. “We have enough good content,” he says. “Do you need 30 ways to check Mariners scores, or is three or four enough?”
There’s nothing uniquely Japanese about the factors that made i-mode a success — packet switching, HTML, a billing service, a fair revenue split, smart marketing, careful monitoring of content providers, even the ability to make handset manufacturers toe the line. “The phenomenon is definitely portable,” says Michael Wehrs, a principal in Ignition, a Seattle-area venture firm that focuses on software and wireless. “But because carriers in the US do not have the same control over their environment, a DoCoMo-style service is threatening to their brand.”
You might wonder how a service that could draw tens of millions of subscribers could threaten their brands, but that would be to question the phenomenon known to content providers as carrier fear and greed. “Most of them are scared to death of losing control of the customer,” explains Francis Cohen, who before starting Kiwee was a consultant in the Paris office of Arthur D. Little. “They had lessons from all these consultants — I was one of them. We told them that the network is just a commodity,” that it has little value. “So the fear is that they will control only the network, and the content companies will control the relationship with the customer. They don’t want to be just a pipe.”
Yet that’s exactly what DoCoMo is — a conduit of raw data. DoCoMo does not itself supply any of the services available on i-mode. But it’s not a dumb pipe, because in addition to the technological infrastructure, it provides the billing system that enables its partners to make money, and the marketing to sell the service to consumers. The lesson of i-mode is that rather than try to morph into media companies, wireless carriers should focus on how to be a better pipe. Instead, they’re paying their developers a pittance and slapping their own brand on as much of their content as possible. “In the US, we’re just way further down the evolutionary ladder,” concludes Wehrs.
Ultimately, however, the concepts that made i-mode a success will permeate the wireless industry, if only because they work. It may happen piecemeal, and it might not even start with DoCoMo’s partners: Sprint, for example, has just introduced a Sanyo handset that looks exactly like the superlight candy-bar models that were hot in Japan a year ago. This is why DoCoMo isn’t trying to license i-mode to AT&T Wireless — because there’s nothing to sell. i-mode isn’t a technology; it’s an idea. “The wireless Internet is going to happen because it’s like water flowing down,” says Frank Sanda, one of the old hands of Japan’s mobile-phone industry, an exec in Motorola’s Tokyo office back when DoCoMo was still part of NTT. “God meant for us to be wireless. The last cord we were connected to was cut at birth.” ■
