An Open Platform Strategy for NTT DoCoMo

An Open Platform Strategy 15.914 Winning in Tech Markets Garrett Dodge May 12 2008

Agenda

Revisit the Challenge facing NTT DoCoMo

Recap on Japan’s Mobile/Data Industry

Analysis using Market Dynamic Model

Recommendations resulting from Market Dynamic Analysis

Question/Answer

Project Overview

Situation : Cell phone and mobile internet industry have become saturated in Japan.

Big Question : What strategy or new business should NTT DoCoMo implement to grow revenue and win market share?

Business has been Flat Losing Market Share

Japan Mobile Market Overview Commoditized market Market Revenue Anticipated Market Size Growth Opportunity (B¥/year) Data Voice Data Voice Market ARPU (Average Revenue per User) (¥/year) (year) (year) (Source : Nomura Institute) 2006 2011 (anticipated) * M-contents : Entertainment (Ring tone, game, etc) + Info (news, weather, etc) 2006 2011 CAGR Mobile Telecomm. 70,000 72,000 0.6% M-Solution 6,460 17,000 21.4% M-Commerce 4,600 12,300 21.7% M-Contents 3,324 3,873 3.1% M-Ad 406 1,440 28.8% M-Payment 154 385 20.1% Sum 84,944 106,998 4.7% Mobile Telecomm M-Solution M-Commerce M-Contents M-Ad M-Payment

Current Market Dynamics

How the current dynamics affect DoCoMo (if left unchecked)?

Regulation (Number Portability) has reduced customer lock in and hence market share

Increased intensity of competition reduces profitability

Spawns price wars (flat rate pricing) that leads to commoditization of both voice and data, driving down revenue

Reduced market share driving down revenue

Increases cost (promotional activity)

Under utilization of capacity because of loss of market share increases cost (maintenance) and drives down profitability further

Reduced profitability over the longer run affects QoS and possibly innovation, reducing market share further.

Current Market Dynamics Analysis I

Types of “Openness” Contents Platform Network Infra Handset Layers Abilty for third party contents provider to offer services on carriers’ network Abilty for third parties to access to carriers’ netwrok infra Abilty for users to use handsets not tied to carries Openess Definition

I-Mode PF open to CPs

Limited APIs

Strict control for ”official CP”

No MVNO

DoCoMo controls HS selction

HS designed to DoCoMo spec

Limited suppliers

Handset centric

DoCoMo Status Skype in AT&T network MVNO – Virgin Mobile iPhone in T-Mobile Network Example Focus of Our Proposal Enabler

Solution: Open Platform

New Dynamics W/ Open Platform Strategy

Unique Complimentary Assets

Almost 100 Million Unique Customers

Can push information to a large number of customers

Largest infrastructure in Japan

Customer Location Information

Coverage

Experience developing marke leading technology

Reputation to attract top developers

Transaction Payment System

Enables transaction based applications (i.e music, books)

Platform Examples

Free

Ad revenue for Facebook

Facebook Salesforce.com PC & IBM Pricing Governance Value Creation Value Capture

Free to list, develop, and sell

Charges for storage, sandbox, & premium edition

IBM paid fixed fee

Microsoft as sole license

Developer Terms of Service

User flagging / ratings

Partner certification requirements

User ratings

Managed by Microsoft

350,000 developers in one year; 20k apps

85% of users have installed an application

800+ applications

Ability to easily test apps

IBM helps create the PC revolution

Users gain value from applications

Increases user satisfaction

Extending platform to other sites (stickiness)

Increase in user satisfaction

Developer service fees

Fleeting – Microsoft captures the value

Other application vendors capture value

IBM gets out of PC biz

Enhancing Open Platform Contents Providers Customers Contents Management/ Search Contents Platform Network Infra Handset

Open API

Positioning

Customer Data

Contents Personaliztion Application API Native Apps UI Ad/ M- Marketing QoS Security Privacy

Enhance Contents/HS APIs

Embrace standard technologies

Strengthen security/privacy

Payment Official Unofficial

Integrated Services Contents Providers Customers Contents Management/ Search Contents Platform Network Infra Clients

Open API

Positioning

Customer Data

Contents Personaliztion Application API Native Apps Ad/ M- Marketing Payment SNS Maps Rich Phonebook Personalized Menu Daizo Ikeda In Aoyama: Map Listning: Chemistry I like this game! Photo: Karaoke party Friend locater Top News Menu Search Friends Personalize Ad Information Advertiser Today’s offer New Restaurant Payment

How to capture value?

Capturing value can be done from end users / 3 rd party developers and as brokers (between developers and advertisers) in 4 areas.

NTT DoCoMo’s Open platform End users Contents/ Appl. 3 rd party developers JV (Broker) M-Portal (search) Portal M-advertisement, search 3

Subscription ・

1

Revenue share

Listing fee

2 M-payment Other vendors

Revenue Model Type Type

Method

CP Revenue Share Transaction Fee For every purchase, charge a fixed processing fee Revenue Sharing Charge a percentage of sales CP connection fee Listing Fee Fee per time period per product listed on the platform Content Charging Make money on ad for content provider; After reaching critical mass, charge a fixed fee after that. Setup Cost Charge a one-time fee for the right to sell on the platform Store Front Allow merchants to pay and setup a virtual storefront M-Advertisement Sponsor Fee Allow merchants to bid for a spot on feature product list

Revenue Model (Developers)

Revenue Strategy

Can’t charge everything: provide bad customer experience

Better to charge one large fixed fee than ten small fee

Hence, create flexible revenue payment package

One or two payment method bundle

Example

Capture Value in Commission: Setup fee+9% commission

Capture Value via 3 rd party: Listing Fee + Transaction Fee

Capture Value via portal: Sponsor fee + Listing Fee

Value Added Services (Application Hosting, SaaS, etc)

Allow merchants to chose their payment method

Reasons

Control their own cost structure

No one dominate payment standard yet

Quality of Service Critical Factors Recommendation Quality Applications

Peer-reviewed application

Easy to use development kit

License agreement with 3rd party app. Providers

Customer safety

Differentiate open and closed personal information

Personal information access with customer consensus

Phishing / fraud detection

Security

Supported Cryptography

Public Key Infrastructure (PKI)

Open Platform Timeline

Selected app. Providers as lead users

Open specific API’s based on lead user feedback

Create SDK

Expand iMode to support OP

Launch selected applications through iMode

Allow peer-review filtering through iMode

Gather feedback through value chain

Fix critical issues from feedback

Open platform to all licensed app. Providers

Incentivate apps with network effect

Pursue customer experience improvement programs

Recommendations

Use price discrimination to capture value from developers

Plutonium Data – maintain control of sensitive & valuable customer data to act as broker between application and end user

Provide high quality developer tools to enable all levels of developers & lead users

Give developers options on how to pay for platfrom access & services

Create strong, community supported governance mechanisms

Create strong partnerships with leading players to ensure value capture

Defend current revenue but grow the pie to create new revenue

Questions "Every time a closed system opens, it begins to interact more directly with other existing systems, and therefore acquires all the value of those systems." Kevin Kelly, ‘ New Rules for the New Economy ’

Appendix 15.914 Winning in Tech Markets Garrett Dodge

Japan Mobile Market Overview 1 Big + 1 Middle + 1 Small Competitive Structure (Source: NTT Docomo website) Market Share (Acc. Subscriber) Market Share (Net Addition) Competition Since MNP (2006.10)

NTT DoCoMo’s Current Strategy Telecomm Infrastructure Overcome Commoditization Migration to 3G : 80% of total subs. Flat-rate / Life-Assistant / Int’l Services Mid-term Strategy : 3 Directions Total ARPU ↓ (even data ARPU ↑) Personal Ubiquitous & Seamless Flat-rate