Can i-mode Go Global?Published: August 14, 2002 in Knowledge@Wharton
Mention the wireless Web to a telecom industry insider, and the conversation will probably turn to i-mode, the successful Japanese mobile service that lets users send messages, exchange pictures, play games, and even use their phones for karaoke. Launched in February 1999 by NTTDoCoMo, i-mode left its European and American counterparts in the dust as it took the much-ballyhooed dream of mobile Internet and made it a reality. While other countries were mired in hype, Japan’s DoCoMo was able to execute on the promise, signing up new users at an enviable pace. Takeshi Natsuno, a Wharton graduate who is the managing director of i-mode strategy for NTTDoCoMo, says that there are currently 34 million subscribers to the service in Japan.
i-mode subscription growth, however, can only go so far; with nearly 70% of the Japanese population using mobile phones, DoCoMo is now racing to stay ahead of the game. Anticipating the future, the company has licensed its service to telecommunications companies in several European and Asian countries including the Netherlands, Germany, France, and Taiwan, and it is working with AT&T Wireless on an American flavor of the platform (m-mode). DoCoMo has even set up a consulting firm in Europe as a base station to support its partners. But whether i-mode will be successful as an export is still an open question.
Cultural Anomaly or Cunning Strategy?
How did DoCoMo do it in Japan? One reason cited for i-mode’s success is the Japanese penchant for handheld gadgets (mobile-toting teens are often termed oyayubi-zoku, or the "thumb tribe") and lack of the kind of landline Internet infrastructure legacy that exists in the U.S. Natsuno, however, doesn’t buy this argument, and claims that the real reason is its shrewd control of its value chain. "Do you really think all Japanese (125 million) or even all i-mode subscribers love technology? And why did Europe – where not every country is like the U.S. in terms of Internet penetration – fail to take up wireless Internet? By setting up what ordinary consumers want, you can make new markets. i-mode is the value chain. By setting up the best Internet service in each country, I can make it succeed."
By collaborating with partners at each stage, DoCoMo created a compelling user experience that made no distinction between wireless and wireline Internet. Eschewing the WAP (wireless application protocol) standard used elsewhere, DoCoMo went with a flavor of Internet-friendly HTML for i-mode and allowed anyone to develop applications. It didn’t stop there; handsets are subsidized to make them affordable and users pay for data packets sent over the network instead of airtime.
Natsuno even balks at using the word "m-commerce" to describe electronic fee-based transactions on mobile platforms. "E-commerce never depends on a specific network. E-commerce using the mobile network is already very common in Japan, and to do this, we made our platform and handset work seamlessly with the fixed Internet world as much as possible. For example, we implemented end-to-end SSL [secure socket layer] in the i-mode handset instead of a special wireless-oriented security technology."
Wharton professor Gerald Faulhaber believes there are several factors behind i-mode’s success in Japan. "First, there’s the phone itself. The phone doesn’t look like it made by any cell phone company on the planet – it looks like a cute, cool piece of consumer electronics. Most other cell phones are not cute; they are big and clunky. The handset uses space enormously well, has a color screen, etc., and that’s what drives this business.
"Second – and this is an important lesson – i-mode did not get into the content business. They wanted to be a conduit for content, but essentially had an open-architecture model where others developed the content, and they were satisfied with taking a cut for its use. In the U.S. and Europe, all the conduit companies wanted to get into content, and the resulting content was pretty poor." Faulhaber likens this model to that of IBM when it came out with the personal computer. "They did not try to monopolize the applications market for PCs as they had in the mainframe business, and that’s often cited as one of the great reasons for PC success."
A third factor, says Faulhaber, is the fact that Internet penetration in Japan isn’t as high as it is in the U.S. i-mode, then, simply was also "a good way to access the Internet" in Japan. "In the U.S., this is less exciting. Here we have huge Internet penetration, so that’s something that won’t translate well in this market," he notes.
How i-mode will fare outside Japan, especially in the U.S., depends on whether Natsuno’s vision of its universal strategy holds true. Marshall Meyer, a professor of management and sociology at Wharton, notes that the U.S. is a terribly fragmented market. "At the end of the day, it’s hard to see where the market demand in the U.S. is," he says.
Meyer points out that demand for a service sometimes exists where revenues are difficult to collect. "Mobile operators in Hong Kong, for instance, found that the market for value-added services is mostly kids. Business consumers weren’t so interested in seeing pictures of the party they were conversing with. So, the people with pockets aren’t often the people who want expensive services. That makes it difficult to do anything," he says.
Meyer also suggests that the lack of popularity of short messaging service, or SMS, in the U.S. may mean that an i-mode-style package just won’t catch on. "Here’s a possible test: Is widespread use of SMS a leading indicator? Was it a precursor to i-mode success, for instance? If so, then who’s using it in the U.S.? No one."
In general, says Meyer, "the more country- and culture-specific a strategy is, the more difficult it is to export. You have to customize, you have to have the internal coordination to do so, and then you have to see whether it is going to be paid back from the profit margin."
But others think that i-mode strategy might not be such a hard sell. Faulhaber notes that it is similar to that of America Online, and could very well be replicated elsewhere. "For a while AOL was essentially paying people to be the preferred content providers until it got to be the other way around. At that time [before the Time Warner merger] AOL wasn’t really interested in the content business but was leveraging the other side of the conduit. So I don’t see why i-mode can’t execute it over here."
Natsuno agrees. "Our value chain strategy is similar to that of AOL in the U.S., and Minitel in France," says Natsuno. "It’s nothing special, nothing Japanese – though classical telecom people, especially in the wireless industry in Europe, hardly understand this."
Achieving penetration abroad is important because, as Natsuno acknowledges, there are few barriers to entry for competitors in the Japanese market. "Because we are using standard technology and a value-chain strategy, it is always very easy for our competitors to imitate this. My strategy to be in the lead is to be always ahead," says Natsuno. Japan’s second-largest phone company, KDDI, and a third player, Japan Telecom, are also in the game with their own versions of wireless Internet service.
Faulhaber notes that i-mode’s biggest challenge in the U.S. market could be the payment system. "We don’t pay on a metered basis – most services, including Internet access, have gone to flat rates. So the problem is, can DoCoMo somehow figure out how to monetize activity without metering?"
As i-mode and its sister services ramp up outside of Japan in the next few months, DoCoMo’s external strategy will certainly be put to the test.