An Open Platform Strategy for NTT DoCoMo

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As the Japanese cell phone market becomes saturated NTT DoCoMo should consider opening up their iMode platform.

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  • An Open Platform Strategy for NTT DoCoMo

    1. 1. An Open Platform Strategy 15.914 Winning in Tech Markets Garrett Dodge May 12 2008
    2. 2. Agenda <ul><li>Revisit the Challenge facing NTT DoCoMo </li></ul><ul><li>Recap on Japan’s Mobile/Data Industry </li></ul><ul><li>Analysis using Market Dynamic Model </li></ul><ul><li>Recommendations resulting from Market Dynamic Analysis </li></ul><ul><li>Question/Answer </li></ul>
    3. 3. Project Overview <ul><li>Situation : Cell phone and mobile internet industry have become saturated in Japan. </li></ul><ul><li>Big Question : What strategy or new business should NTT DoCoMo implement to grow revenue and win market share? </li></ul>Business has been Flat Losing Market Share
    4. 4. 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
    5. 5. Current Market Dynamics
    6. 6. <ul><li>How the current dynamics affect DoCoMo (if left unchecked)? </li></ul><ul><li>Regulation (Number Portability) has reduced customer lock in and hence market share </li></ul><ul><li>Increased intensity of competition reduces profitability </li></ul><ul><ul><li>Spawns price wars (flat rate pricing) that leads to commoditization of both voice and data, driving down revenue </li></ul></ul><ul><ul><li>Reduced market share driving down revenue </li></ul></ul><ul><ul><li>Increases cost (promotional activity) </li></ul></ul><ul><li>Under utilization of capacity because of loss of market share increases cost (maintenance) and drives down profitability further </li></ul><ul><li>Reduced profitability over the longer run affects QoS and possibly innovation, reducing market share further. </li></ul>Current Market Dynamics Analysis I
    7. 7. 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 <ul><li>I-Mode PF open to CPs </li></ul><ul><li>Limited APIs </li></ul><ul><li>Strict control for ”official CP” </li></ul><ul><li>No MVNO </li></ul><ul><li>DoCoMo controls HS selction </li></ul><ul><li>HS designed to DoCoMo spec </li></ul><ul><li>Limited suppliers </li></ul><ul><li>Handset centric </li></ul>DoCoMo Status Skype in AT&T network MVNO – Virgin Mobile iPhone in T-Mobile Network Example Focus of Our Proposal Enabler
    8. 8. Solution: Open Platform
    9. 9. New Dynamics W/ Open Platform Strategy
    10. 10. Unique Complimentary Assets <ul><li>Almost 100 Million Unique Customers </li></ul><ul><ul><li>Can push information to a large number of customers </li></ul></ul><ul><li>Largest infrastructure in Japan </li></ul><ul><ul><li>Customer Location Information </li></ul></ul><ul><ul><li>Coverage </li></ul></ul><ul><li>Experience developing marke leading technology </li></ul><ul><li>Reputation to attract top developers </li></ul><ul><li>Transaction Payment System </li></ul><ul><ul><li>Enables transaction based applications (i.e music, books) </li></ul></ul>
    11. 11. Platform Examples <ul><li>Free </li></ul><ul><li>Ad revenue for Facebook </li></ul>Facebook Salesforce.com PC & IBM Pricing Governance Value Creation Value Capture <ul><li>Free to list, develop, and sell </li></ul><ul><li>Charges for storage, sandbox, & premium edition </li></ul><ul><li>IBM paid fixed fee </li></ul><ul><li>Microsoft as sole license </li></ul><ul><li>Developer Terms of Service </li></ul><ul><li>User flagging / ratings </li></ul><ul><li>Partner certification requirements </li></ul><ul><li>User ratings </li></ul><ul><li>Managed by Microsoft </li></ul><ul><li>350,000 developers in one year; 20k apps </li></ul><ul><li>85% of users have installed an application </li></ul><ul><li>800+ applications </li></ul><ul><li>Ability to easily test apps </li></ul><ul><li>IBM helps create the PC revolution </li></ul><ul><li>Users gain value from applications </li></ul><ul><li>Increases user satisfaction </li></ul><ul><li>Extending platform to other sites (stickiness) </li></ul><ul><li>Increase in user satisfaction </li></ul><ul><li>Developer service fees </li></ul><ul><li>Fleeting – Microsoft captures the value </li></ul><ul><li>Other application vendors capture value </li></ul><ul><li>IBM gets out of PC biz </li></ul>
    12. 12. Enhancing Open Platform Contents Providers Customers Contents Management/ Search Contents Platform Network Infra Handset <ul><li>Open API </li></ul><ul><li>Positioning </li></ul><ul><li>Customer Data </li></ul>Contents Personaliztion Application API Native Apps UI Ad/ M- Marketing QoS Security Privacy <ul><li>Enhance Contents/HS APIs </li></ul><ul><li>Embrace standard technologies </li></ul><ul><li>Strengthen security/privacy </li></ul>Payment Official Unofficial
    13. 13. Integrated Services Contents Providers Customers Contents Management/ Search Contents Platform Network Infra Clients <ul><li>Open API </li></ul><ul><li>Positioning </li></ul><ul><li>Customer Data </li></ul>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
    14. 14. How to capture value? <ul><li>Capturing value can be done from end users / 3 rd party developers and as brokers (between developers and advertisers) in 4 areas. </li></ul>NTT DoCoMo’s Open platform End users Contents/ Appl. 3 rd party developers JV (Broker) M-Portal (search) Portal M-advertisement, search 3 <ul><li>Subscription ・ </li></ul>1 <ul><li>Revenue share </li></ul><ul><li>Listing fee </li></ul>2 M-payment Other vendors
    15. 15. Revenue Model Type Type <ul><li>Method </li></ul>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
    16. 16. Revenue Model (Developers) <ul><li>Revenue Strategy </li></ul><ul><li>Can’t charge everything: provide bad customer experience </li></ul><ul><ul><li>Better to charge one large fixed fee than ten small fee </li></ul></ul><ul><ul><li>Hence, create flexible revenue payment package </li></ul></ul><ul><ul><ul><li>One or two payment method bundle </li></ul></ul></ul><ul><ul><ul><li>Example </li></ul></ul></ul><ul><ul><ul><ul><li>Capture Value in Commission: Setup fee+9% commission </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Capture Value via 3 rd party: Listing Fee + Transaction Fee </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Capture Value via portal: Sponsor fee + Listing Fee </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Value Added Services (Application Hosting, SaaS, etc) </li></ul></ul></ul></ul><ul><ul><ul><li>Allow merchants to chose their payment method </li></ul></ul></ul><ul><ul><ul><li>Reasons </li></ul></ul></ul><ul><ul><ul><ul><li>Control their own cost structure </li></ul></ul></ul></ul><ul><ul><ul><ul><li>No one dominate payment standard yet </li></ul></ul></ul></ul>
    17. 17. Quality of Service Critical Factors Recommendation Quality Applications <ul><li>Peer-reviewed application </li></ul><ul><li>Easy to use development kit </li></ul><ul><li>License agreement with 3rd party app. Providers </li></ul>Customer safety <ul><li>Differentiate open and closed personal information </li></ul><ul><li>Personal information access with customer consensus </li></ul><ul><li>Phishing / fraud detection </li></ul>Security <ul><li>Supported Cryptography </li></ul><ul><li>Public Key Infrastructure (PKI) </li></ul>
    18. 18. Open Platform Timeline <ul><li>Selected app. Providers as lead users </li></ul><ul><li>Open specific API’s based on lead user feedback </li></ul><ul><li>Create SDK </li></ul><ul><li>Expand iMode to support OP </li></ul><ul><li>Launch selected applications through iMode </li></ul><ul><li>Allow peer-review filtering through iMode </li></ul><ul><li>Gather feedback through value chain </li></ul><ul><li>Fix critical issues from feedback </li></ul><ul><li>Open platform to all licensed app. Providers </li></ul><ul><li>Incentivate apps with network effect </li></ul><ul><li>Pursue customer experience improvement programs </li></ul>
    19. 19. Recommendations <ul><li>Use price discrimination to capture value from developers </li></ul><ul><li>Plutonium Data – maintain control of sensitive & valuable customer data to act as broker between application and end user </li></ul><ul><li>Provide high quality developer tools to enable all levels of developers & lead users </li></ul><ul><li>Give developers options on how to pay for platfrom access & services </li></ul><ul><li>Create strong, community supported governance mechanisms </li></ul><ul><li>Create strong partnerships with leading players to ensure value capture </li></ul><ul><li>Defend current revenue but grow the pie to create new revenue </li></ul>
    20. 20. Questions &quot;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.&quot; Kevin Kelly, ‘ New Rules for the New Economy ’
    21. 21. Appendix 15.914 Winning in Tech Markets Garrett Dodge
    22. 22. 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)
    23. 23. 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 <ul><li>Music </li></ul><ul><li>Movie </li></ul><ul><li>Auction </li></ul><ul><li>Search/ads </li></ul>Life-Assistant <ul><li>GPS/Nav. </li></ul><ul><li>Credit Card (iD/DCMX) </li></ul><ul><li>e-Wallet </li></ul><ul><li>ToruCa </li></ul>Int’l Services <ul><li>Mobile Alliance </li></ul><ul><li>i-Mode Alliance </li></ul>Infrastructure Telecomm  Lifestyle Step-up
    24. 24. iPhone Apps

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