Mobile From East to West

Mobile From East to West Benjamin Joffe, CEO | Plus Eight Star | Jeju, Korea, 2009.09

Agenda 0. Introduction 1. “The West” 2. Japan 3. China 5. Discussion

0. Introduction

Benjamin Joffe ベンジャミン 벤자민 本杰明

4 years 1 year 4 years

www.plus8star.com

Cross-Market Consulting Telecom & Internet Innovation China | Japan | South Korea

Innovation Arbitrage

What we do – Worked with mobile SNS in Japan in 2003 • With avatars, virtual goods and GPS! – Advise leading companies worldwide • Microsoft, Adidas (E-commerce / Digital strategy) • IMVU (US | 3D chat / Virtual World) • MIH (China/S.Africa | Largest shareholder of Tencent) – Published reports • Inside Cyworld • Inside Tencent (Clients include Harvard Business School) • Inside Taoabao (Upcoming)

Our clients EUROPE USA ASIA

30 events | 107 speakers | 3,000+ members | 1,500+ companies

3D Facebook Game Team

1. The West

Digital Population Country USA China Japan Korea Population 300 mln 1,300 mln 130 mln 50 mln Internet users 225 mln 340 mln 100 mln 35 mln Mobile users 260 mln 650 mln 100 mln 45 mln 1/5 1,680 mln 1/2 Total 475 mln 1/3 785 mln

IT Infrastructure 100% Avg. 7 Mbps 80% Avg. 15 Mbps 60% 3G users 40% C hi n 20% a Avg. 4 Mbps www.plus8star.com 0% 0% 20% 40% 60% 80% % of Internet connections measured above 5Mbps (Source: Akamai, 4Q08)

Social games & iPhone games

From University Café to Sand Hill Road

THE iPhone • Sales – 5.2M in 2Q09 – 22M iPhone users (+16M Touch) • Applications – 65,000 applications – 1.5B application downloads • Myths? Source & Recommended Read: Strand Consult - The Moment of Truth, a Portrait of the iPhone

Global Market • Mobile Services Market in 2008 – Total 8.6 billion USD – Mobile games 3 billion USD – Apple 150 million USD! (=1.7%) • Handset Market – Total 250 million / quarter – Apple 5.2 million (=2%) Source & Recommended Read: Strand Consult - The Moment of Truth, a Portrait of the iPhone

Games Images Gambling LBS Social Networking Mobile payment Enterprise

The iPhone Effect • Application stores – App stores are not new • Touch screen – Touch screen is not new • Developers make money? – Not so sure Source & Recommended Read: Strand Consult - The Moment of Truth, a Portrait of the iPhone

Realities • Mobile broadband >> iPhone • Free apps are cannibalizing revenues – And driving iPhone sales. Source & Recommended Read: Strand Consult - The Moment of Truth, a Portrait of the iPhone

2. Japan

3G penetration in Japan >90%

Beyond Voice & Beyond Telecom 3G Mobile TV NFC Flat-rate Data Data ARPU Non-SMS Share

In addition • Business models – Micro-payments since 1999 (“i-mode”) – “App store” since 2001 • Content – Mobile music, mobile ads, mobile commerce… – Financial services by mobile carriers • LTE at 300Mbps starts next year!

48 million i-mode users Applications! (January 2001) 87.7% 3G users

Unlimited Unlimited 30 USD 10-40 USD

KDDI’s Double Flat Fee (introduced in May 2005) 40 USD 10 USD 1.5 MB 6.5 MB~

Flat-rate data users X? 76%

Flat-rate data: 2004 What happened since?

Mobile Market • Mobile content – 4.3 billion USD in FY07 – 40 USD / user / year • Mobile commerce – 7.3 billion USD – 70 USD / user / year

Before & After 3G 2004 2007 1,186 1,200 1,140 1,091 www.plus8star.com 1,000 862 800 Million USD 600 568 500 419 400 204 225 229231 185 200 108 0 0

90% of digital music sold in Japan is mobile

Digital music revenues in Japan Source: Infinity Venture Partners, 2008

Mobile Gaming Market = Online Gaming Market

Japan Game Market [1 billion JPY = 10 million USD]

Mobile Social Networks make A LOT of profit

Some ads SNS + Free games + Homepage Virtual goods

Revenues 2008 (E) $200 mln $60 mln

Profit margin (E) 40% 63%

Average Revenue From Users (E) 75% 75%

Market Capitalization (March 2009) $1.4 bln $1.2 bln

Other Services

Mobile books

Digital books: Internet vs. Mobile Flat-fee data plans are introduced Source: Infinity Venture Partners, 2008

Several best-selling novels in Japan in 2007 were written on mobile phones

One full bookshelf for mobile novels at Kinokuniya, Japan’s largest bookstores chain!

The two volumes of this book “Koi zora” (“Loving sky”) sold…

“Koi zora” sold over 2 million copies (10 USD / book)

Even on TV!

Mobile TV penetration in Japan and Korea is over 40%

Business model = Free

Galapagos Syndrome • No foreign mobile brand is strong in Japan • Too complex to survive abroad? • But Ideas are valid

3. China

Key market figures • Mobile and Internet users growing fast 800 700 Mobile users | 673 million 600 million 500 400 Internet users | 338 million 300 Fixed-line subs | 320 million 200 100 Broadband subs | 90 million 0 Sources: MIITT, CNNIC, +8*

High Growth Potential 60 Penetration rate % 50 Mobile | 50% 40 30 Internet | 25% 20 Fixed-line | 24% 10 0 Sources: MIITT, CNNIC, +8*

Three operators • China Mobile: the mobile leader – GSM + TD-SCDMA • China Unicom: the balanced operator – GSM + WCDMA • China Telecom: the broadband leader – CDMA1X + CDMA2000 Mobile Fixed-line Broadband Sources: +8*

Huge market, but low ARPU ARPU (RMB) 1 USD = 6.8 RMB 10 RMB = 1,750 KRW 80 75 70 63.6 60 50 41.7 40 30 20 10 0 China Unicom China Mobile China Telecom Sources: Company Reports, 1H2009

3G started this year WCDMA TD-SCDMA CDMA 2000 0.1 mln 1 mln 1.1 mln • Started late • Largely expected by the • Better subsidies than • Waiting for iPhone in Q4 government China Unicom • Big issues on handsets • Better handset quality than China Mobile

China Mobile’s Service Strategy Fetion - IM 12580 – Voice Search Mobile Newspapers 12530 - Mobile Music Mobile Game Streaming Mobile TV 139 - Mailbox PIM - Telephone Book Backup Source: China Mobile

China Mobile’s Service Strategy 37M active users >15M USD/month 20M requests / 1M songs 147M registered #1 newspaper in month 85M members Growing fast China! (23M users) Fetion - IM 12580 – Voice Search Mobile Newspapers 12530 - Mobile Music Mobile Game Streaming Mobile TV 139 - Mailbox PIM - Telephone Book Backup 4M active users 6M USD / month 20M registered Source: China Mobile

Popular Services Overview Gaming • From single player game to MMO. • Emerging sector Music • Mature market thanks to Ring Back Tone business • Strong revenue maker LBS • GPS getting popular • Mobile LBS early stage Portal • Getting mature (content and user base) • Web companies and pure mobile players Browsing • Getting mature (user experience, user base) SNS • Getting mature (user experience, user base) • Both pure mobile SNS player and mobile extension of PC-based SNS TV • Emerging market • Both broadcasting and streaming • Lack of business model • Interesting technologies enabling streaming on 2.5G

Tencent / QQ case Mobile QQ client • Tencent integrates various services – #1 online community in China, Chat room leveraging IM Game – 400 mln active accounts WAP Portal – 1 bln USD revenue in 2008 • Mobile extension of QQ: Info: finance, Music book, news player 20% of revenue – WAP, mobile client, SMS – PC-Mobile synchronization E-mail Movie – Good multimedia experience in 2.5G network Qzone (SNS)

PC-Mobile Connection IM + QQ Show (avatar service) available on PC and mobile

Tencent / QQ case Mobile search: Soso Mobile browsing Mobile music Mobile QQ mini player Mobile Qzone (SNS) Mobile email Mobile game Mobile video

Learn from the best! “Inside Tencent” Report 2009 Edition Detailed Analysis, 20 Interviews, 280+ pages

Handset Market size Nokia 38.9% • 160 million mobiles Top 3 for years sold in 2008 Samsung 18.6% 66% of the market – Another 50 mln Motorola 8.8% phones sold in grey K-Touch 8.1% market (not Lenovo 3.9% accounted for) Sony-Ericsson 3% Jinli 2.5% LG 2.3% Konka 2.2% Amoi 2.1% Bird 1.5% Changhong 1% Haier 0.9% Others 6.3%

Handset Market size: MTK Nokia 38.9% • 160 million mobiles sold in 2008 Samsung 18.6% – Another 50 mln Motorola 8.8% phones sold in grey K-Touch 8.1% market (not Lenovo 3.9% accounted for) Sony-Ericsson 3% • Note: MTK phones Jinli 2.5% – All domestic makers LG 2.3% have migrated to Konka 2.2% MTK Amoi 2.1% Bird 1.5% Changhong 1% Haier 0.9% Others 6.3% Sources: Analysys International, ZOL

“We make anything you can imagine” Cigarette case shaped Barbie dressing case phone PSP shaped, popular games preinstalled Car shaped Solar power Watch phone Super lens attachable rechargeable handset

More Creativity With MTK 366 days stand-by, dual- Dark light for money SIM, super powerful battery authentication Big thunder phone Spider-Man design

Market Impact • Foreign brands threatened by MTK phones – Feature phones for <2,000 RMB (300 USD). – Nokia’s China sales down 30% in 2008. • Key results – 90% of China’s mobile phone chipset market. – 160 million chipsets shipped in 2007. – 95% orders from China customers.

From Shanzhaiji to Shanzhai culture iPhone Manufacturer: Apple One SIM card Price: >4,000 RMB iOrange: Fake iPhone Manufacturer: iOrange Made on MTK platform Dual-SIM card Price: 900 RMB

iPhone • iPhone 3G: 8GB • iPhone 3GS: 16GB, 32GB 4Q2009

oPhone: Android Phones for China Mobile DELL Dopod Philips LG Lenovo Hisense

4. Conclusion

1. 3G + Flat-rate

2. New usages New business models

3. Innovation Arbitrage THAT’S WHAT WE DO

Discussion

Contacts www.plus8star.com benjamin@plus8star.com +81 | Japan benjamin0123 +82 | Korea http://twitter.com/plus8star +86 | China Telecom & Internet www.linkedin.com/in/benjaminjoffe + Added Value www.slideshare.net/plus8star * High quality

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Mobile From East to West

by Benjamin Joffe

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