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Wireless > Book Reviews > The Mobile Internet: How Japan dialed up ... >

The Mobile Internet: How Japan dialed up and the West disconnected;

What Japan's experience tells us about the mobile Internet.

by Jeffrey Lee Funk

2001 ISI Publications, Bermuda (www.isipublications.com)

200 pages

Review by Madanmohan Rao (madan@techsparks.com)

How does the mobile Internet differ from the fixed-line Internet? How did the mobile Internet become so phenomenally successful in Japan? What new business models, content strategies, and alliances does the mobile Internet unleash? And what can other countries do to get around their initial blunders on the mobile Internet front, for current and upcoming generations of wireless technologies?

These are perhaps the most intriguing and pressing questions facing wireless Internet markets around the world, and this book by Jeffrey Lee Funk provides a comprehensive treatment of the business dynamics underlying the success of NTT DoCoMo's i-mode service, along with comparisons and advice for Western markets.

The book provides insights drawn from 150 interviews with 60 market innovators, and combines a historical treatment of the mobile Internet explosion in Japan along with a strategic template of what other markets can learn from Japan.

Jeff Funk is an associate professor of business at Kobe University's Research Institute for Economics and Business Administration; he first came to Japan in 1985. His previous books include "Competition Between and Within Standards: The Case of Mobile Phones."

The material is divided into 10 chapters, and is copiously illustrated with figures and charts and packed with references and market research statistics.

In a nutshell, the wireless Internet exploded in Japan due to a superb positive feedback loop between the initially chosen content, mobile device capabilities, phone prices, packet networks, business models, and user targeting. At first the users were young and the services provided were simple; then the user base expanded, content became more complex, and the devices much richer - which is not how the US and Europe are approaching this market. In fact, WAP seems to have generally failed in the West, but is working well with Japanese carriers.

The successful players in Japan's mobile Internet value chain include carriers (NTT DoCoMo, KDDI, J-Phone); content and service providers in areas like finance (Daiwa, DLJDirect), entertainment (Bandai, Dwango), horoscopes (Index), ringtones (Giga), concert tickets (Lawson, Pia), navigation (Toshiba, Matsushita), music information and sales (Tsutaya), employment (Recruit), restaurant information (Guru Navi), travel (Open Door), virtual shopping (Rakuten, NetPrice), books (Kinokuniya), portals (Digital Street, Yahoo Japan), m-payment (Bit Cash, NTT, Japan Net Bank); advertisers (ValueClick, D2C); and dozens of phone manufacturers.

The key lessons, according to Funk, are to view the mobile Internet and fixed-line PC-based Internet as complements to one another and not substitutes; to begin with simple content and applications (unlike complex ones, which is the mistake made in the US and Europe); to grow the mainstream market with young users first and then business users; to first increase reach of the medium and then richness of the medium; to convert subscribers into heavy users and then paying users; and to innovate in the areas of new content partnerships and m-payment services.

"The reason why the mobile service providers must create such a comprehensive business model for the mobile Internet is that the service provider plays a much more important role in the mobile than in the fixed-line Internet in creating the necessary positive feedback," argues Funk.

This must happen quickly since the mobile service providers make the most money (in Japan almost seven times that of all content providers put together). In addition to airtime and packet charges, revenues are derived from content subscriptions, ads, ticketing, entertainment, messaging, product/service sales, coupons, and transaction commissions. People are willing to pay for content if it saves time or kills time.

If the device and content pricing is right, young people quickly gravitate to the medium since they are more mobile, place less emphasis on richness of content, and are interested in the expressive power of customized ringtones, screensavers and animations - which may not appeal as much to older audiences.

Japanese phones can be priced as low as US$50, and have full colour, Java capabilities, and polyphonic sound.

"The US success in the fixed-line Internet has blinded many Americans, and to a lesser extent Europeans, to the possibilities inherent in the mobile Internet," says Funk; it is a mistake to look at the mobile Internet through the filters of fixed-line Internet users.

One chapter documents the explosion of Japan's wireless Internet market. In May 2001 alone, service providers made US$700 million from monthly and packet/air time charges on the mobile Internet, while content providers made almost $100 million.

NTT DoCoMo, the first to start the positive feedback loop (before KDDI's EZ Web and J-Phone's J-Sky), launched the i-mode service in February 1999. It had a simple menu, and charged 9 per cent handling fees to its handpicked "official" partners for content accessed from this menu. A large variety of cheaper handsets with colour screens and the launch of simple entertainment content marked the second phase of i-mode's growth, with 350,000 subscribers signing on each week in late 2000. The third phase in explosive growth was marked by the increase in unofficial sites, advertising on these sites, newly launched trade magazines, favourable press, and clicks-and-bricks hybrid services for content creation (eg. PhotoNet's 10,000 locations for uploading user content) and merchandise delivery (eg. picking up tickets at Lawson's convenience stores).

Entertainment and email were the two killer apps; followed by news and weather. Much content is delivered as email, with multimedia plug-ins. Interesting experiments on the ad front include quiz competitions on newly launched products, to test ad reach and recall.

Japanese service providers subsidise handsets, and pay much higher activation commissions to cellphone retailers than in the West; the West also prices mobile Internet phones in its markets as high-end phones.

Japanese players also exploit cross-media synergies between wireless and PC Internet (eg. financial planning services), TV (ringtones based on theme songs), print (catalogues with abbreviated codes for placing orders on cellphones), and convenience stores (shopping, demand aggregation via viral marketing).

Upcoming trends to watch include phones with still/video cameras, higher bandwidth, car navigation systems, Intranet usage (eg. Tokyo Gas employees accessing maps), and location-based services.

Challenges in Japan, though, arise in avoiding spam, reducing the lagtime for registration of official sites, opening up i-mode's payment gateway to all providers, and ensuring more linkages between official and unofficial sites,

Western players must avoid these mistakes and create a new wheel of positive feedback, Funk urges. "Firms often focus on complex technological solutions when they could obtain better results with a simpler approach. They often focus too much on existing users, even when the technology is more appropriate for new and different users. Firms also modularly modify their systems when an entirely new system, including new business models, is needed. Finally, many mobile service providers are trying to create closed systems when today's economy requires openness," he concludes.


The reviewer can be reached at madan@techsparks.com


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