THE SIX IMMUTABLE
LAWS OF MOBILE
BUSINESS
THE SIX IMMUTABLE
LAWS OF MOBILE
BUSINESS
PHILIP SUGAI
MARCO KOEDER
LUDOVICO CIFERRI
Copyright © 2010 by John Wiley & Sons, Inc. All rights reserved
Published by John Wiley & Sons, Inc., Hoboken, New Jersey
...
CONTENTS

FOREWORD

vii

PREFACE

xi

ACKNOWLEDGMENTS

xiii

INTRODUCTION

xv

CHATPER 1

Immutable Law No. 1: Value Over ...
FOREWORD

When you talk to managers in the Japanese automotive industry about their worst
rival, it is often not another c...
viii

FOREWORD

lack of understanding about what, if any, universal lessons apply to the development
of the mobile interne...
FOREWORD

ix

the slogan of “universal design”, Japanese electronic and car manufacturers want
to create goods that are ea...
PREFACE

At the time this book goes to press, the economy is struggling under the weight of
the worst economic crisis of o...
xii

PREFACE

In looking back at the changes that have already occurred since we finished writing this book a few months ag...
ACKNOWLEDGMENTS

The list of people, who at different stages and in different ways assisted us through
the preparation of ...
xiv

ACKNOWLEDGMENTS

Blokland, Gerhard Fasol, Francesco Fiore, Peter Fuchs, Eran Harel, Michele Manfro,
Jake Myrick, Laur...
INTRODUCTION

THE SIX IMMUTABLE LAWS OF
MOBILE BUSINESS

The future is already here. It’s just not very evenly distributed...
xvi

INTRODUCTION

We are already witnessing the vast changes in society that a mobile phone carrying
population brings. F...
INTRODUCTION

xvii

market also accounts for more than 40% of total revenues generated globally from
mobile data. Moreover...
xviii

INTRODUCTION

profitable in world markets. This simplexity concept even goes beyond mobile services
and has the powe...
INTRODUCTION

xix

Japanese mobile market is both a testing ground and an early warning system for the
possibilities that ...
CHAPTER 1

IMMUTABLE LAW NO. 1:
VALUE OVER CULTURE

Our excitement and determination in writing this book stems from our b...
2

IMMUTABLE LAW NO. 1: VALUE OVER CULTURE

Figure 1.1

Japan accounts for just a fraction of all mobile phone users.

The...
META-MYTH NO. 1: JAPAN IS A LAND OF GADGET-LOVERS

3

So, which perspective is correct? Did the mobile Internet succeed in...
4

IMMUTABLE LAW NO. 1: VALUE OVER CULTURE

we find Italy, Sweden, Australia, and The Netherlands. According to a 2007 pape...
META-MYTH NO. 2: THE JAPANESE LIVE IN SMALL HOUSES

5

This is the country that gave the world the calculator, the Walkman...
6

IMMUTABLE LAW NO. 1: VALUE OVER CULTURE

TABLE 1.1

International Internet Users

Internet Users Per 100 Inhabitants (S...
META-MYTH NO. 3: THE JAPANESE SPEND SO MUCH TIME

7

approximately 31 min per day on public transportation. That is a lot ...
8

IMMUTABLE LAW NO. 1: VALUE OVER CULTURE

Figure 1.4

The Japanese use their mobiles less during their commute.

Japanes...
META-MYTH NO. 4: THE JAPANESE ARE NATURALLY POLITE AND QUIET

9

Of all the pushback we have received while presenting our...
10

IMMUTABLE LAW NO. 1: VALUE OVER CULTURE

TABLE 1.2

Culture Match: Japan and the United States
Culture Match – Japan a...
META-MYTH NO. 4: THE JAPANESE ARE NATURALLY POLITE AND QUIET

11

After considerable research, we chose a relatively new m...
12

IMMUTABLE LAW NO. 1: VALUE OVER CULTURE

Figure 1.5

Mind maps.

director Seamus McAteer gave the BBC, the idea that t...
META-MYTH NO. 4: THE JAPANESE ARE NATURALLY POLITE AND QUIET

Figure 1.6

13

The four broad categories of mobile content ...
14

IMMUTABLE LAW NO. 1: VALUE OVER CULTURE

Figure 1.7 Content and service usage in Japan (copyright © Mobile Marketing D...
META-MYTH NO. 4: THE JAPANESE ARE NATURALLY POLITE AND QUIET

15

Figure 1.8 Revenues by category.
Source: Japanese Minist...
16

IMMUTABLE LAW NO. 1: VALUE OVER CULTURE

November 2004. This is considered to be the fastest listing in the TSE1 whose...
META-MYTH NO. 4: THE JAPANESE ARE NATURALLY POLITE AND QUIET

Dr. Semmoto

Six Laws
Semmoto

17

I would have to say that ...
18

IMMUTABLE LAW NO. 1: VALUE OVER CULTURE

Six Laws

Semmoto

of course, existing operators, new entrants, the media, an...
META-MYTH NO. 4: THE JAPANESE ARE NATURALLY POLITE AND QUIET

Six Laws

Semmoto

Six Laws
Semmoto

Six Laws

19

Do you se...
20

IMMUTABLE LAW NO. 1: VALUE OVER CULTURE

Semmoto

Six Laws

Semmoto

If we look at the mobile industry from the perspe...
META-MYTH NO. 4: THE JAPANESE ARE NATURALLY POLITE AND QUIET

Six Laws

Semmoto

Six Laws
Semmoto

21

feel in shifting to...
CHAPTER 2

IMMUTABLE LAW NO. 2: THE LAW
OF THE ECOSYSTEM

While we hope you agree that specific cultural factors have not l...
IMMUTABLE LAW NO. 2: THE LAW OF THE ECOSYSTEM

23

The differences do not stop there. Examining the revenues generated fro...
24

IMMUTABLE LAW NO. 2: THE LAW OF THE ECOSYSTEM

As we have shown in Chapter 1, the culture of Japan itself is not respo...
A BRIEF HISTORY OF PDC

25

A BRIEF HISTORY OF CDMA
The second technology standard to consider is CDMA, which stands for C...
26

IMMUTABLE LAW NO. 2: THE LAW OF THE ECOSYSTEM

In March 1997, NTT DoCoMo launched Japan’s first packet data communicati...
A WAP PRIMER

27

the ability to create a platform for advanced mobile data use. According to the WAP
Forum (renamed the O...
28

IMMUTABLE LAW NO. 2: THE LAW OF THE ECOSYSTEM

…. CNN Mobile's content is optimized for SMS delivery and
supports the ...
THE VALUE SYSTEM VERSUS THE ECOSYSTEM

29

One wireless viewpoint: “WAP is crap”
By Nicole Manktelow
Source: ZDNet

Too-hi...
30

IMMUTABLE LAW NO. 2: THE LAW OF THE ECOSYSTEM

WAP is still crap
No one's using it, and can you blame them?
By Kieren ...
PLAYER CATEGORY 1: NETWORK OPERATORS

31

The Value Chain

Human Resources / Infrastructure

rgi
Ma

Secondary
Activities
...
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The six immutable laws of mobile business [philip sugai et al.] 2010
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  1. 1. THE SIX IMMUTABLE LAWS OF MOBILE BUSINESS
  2. 2. THE SIX IMMUTABLE LAWS OF MOBILE BUSINESS PHILIP SUGAI MARCO KOEDER LUDOVICO CIFERRI
  3. 3. Copyright © 2010 by John Wiley & Sons, Inc. All rights reserved Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4470, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permission. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic formats. For more information about Wiley products, visit our web site at www.wiley.com. Library of Congress Cataloging-in-Publication Data: Sugai, Philip. The six immutable laws of mobile business / Philip Sugai, Marco Koeder, Ludovico Ciferri. p. cm. Includes bibliographical references and index. ISBN 978-0-471-74146-6 (cloth) 1. Cellular telephone services industry—Japan. 2. Cellular telephones—Social aspects—Japan. 3. Mobile communication systems—Economic aspects. 4. Cellular telephone services industry— Management. 5. New products. I. Koeder, Marco. II. Ciferri, Ludovico. III. Title. HE9715.J3S84 2009 384.5Ј350952—dc22 2009019349 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1
  4. 4. CONTENTS FOREWORD vii PREFACE xi ACKNOWLEDGMENTS xiii INTRODUCTION xv CHATPER 1 Immutable Law No. 1: Value Over Culture 1 CHAPTER 2 Immutable Law No. 2: The Law of the Ecosystem 22 CHAPTER 3 Immutable Law No. 3: Mobility Empowers 58 CHAPTER 4 Immutable Law No. 4: The Value of Time Zones 91 CHAPTER 5 Immutable Law No. 5: Mobile-Specific Business Models are Essential 106 CHAPTER 6 Immutable Law No. 6: The Future Is Simplexity 134 CHAPTER 7 Parting Thoughts 174 BIBLIOGRAPHY 189 INDEX 191 v
  5. 5. FOREWORD When you talk to managers in the Japanese automotive industry about their worst rival, it is often not another car manufacturer that is on their mind, but the mobile phone. Even before the 2008 world economic crisis, passenger car sales in Japan had been shrinking for years. According to an industry insider, one reason was because the vast majority of young men who used to spend significant sums of money on cars now prefer shelling out $100 or more per month for the voice and data services of their mobile companion. This little anecdote shows that something quite extraordinary is going on in Japan. While physical mobility is taken for granted, the mobile phone is about to supersede the car as a symbol of freedom. The attraction is understandable. The car offered people in the analog age the dream of individual mobility—to go everywhere, whenever you liked. Whereas the mobile phone enables people of the digital age to communicate and to link with almost everything and everybody on this planet from anywhere anytime. This process is happening first and foremost in Japan (and to some extent in South Korea), where the use and development of 3G handsets and mobile internet services is 2–3 years ahead of that in many other developed countries. Just imagine, 85% of the > 100 million mobile phone subscribers have already subscribed to 3G services. Several mobile services already boast > 10 million subscribers, and they are making money too. At the same time, online commerce is booming. The handsets have become the personal life hub of homo digitalis, offering not only traditional calls, but also internet access, e-mail, calendar, reading device, still and video camera, TV, radio, electronic key, purse and credit card, GPS tracking, plus additional services like text and voice recognition, and other applications. While quite a few books and articles have been written about why the mobile internet made its breakthrough in Japan first and not in other countries, there is still a vii
  6. 6. viii FOREWORD lack of understanding about what, if any, universal lessons apply to the development of the mobile internet, which Japan offers to the rest of the world. That is where this book, The Six Immutable Laws of Mobile Business by Philip Sugai, Marco Koeder, and Ludovico Ciferri, comes in. As outsiders working inside the Japanese system, and as academic researchers under Professor Sugai at the International University of Japan, as consultants and scouts for western mobile phone carriers and handset manufacturers, advertisers, and hands-on application and content developers for a broad range of Japanese and foreign companies (and, of course, as users), the authors are uniquely positioned to separate myths from facts, microdevelopments from macrotrends, and cultural characteristics from universal rules of the mobile internet. In this book, they start by dismantling the deeply rooted belief still held by many in the industry, that Japan’s mobile industry is an exotic Galapagos Island, with little meaning for the rest of the world. Certainly, the global rise of Apple’s iPhone and the hype about the entry of the global giants of the computer internet like Google, Microsoft, YouTube, or Facebook into the realm of the pocketable web clearly shows that the world is playing catch up. The authors remain convinced, however, that Japan is still the biggest field laboratory of the mobile net. As such, it offers valuable hints for successful business models for carriers and especially for content and service providers in the new era of the mobile internet. One important message the authors impart in this book is that to leverage the power of the mobile device for economic success, the companies have to put the user needs first and stifle the urge to shoot for quick returns. Fortunately for Japan, mobile carriers in that country understood the concept already in the late 1990s and chose instead the role of a gardener, who carefully nurtures a flourishing “ecosystem”, as the authors call it. In contrast to their peers overseas, Japanese carriers charged only small fees from professional content providers on the official sites and focused on data-transfer fees. This created a positive feedback loop: Because all organisms of the ecosystem from the handset manufacturers to the service and content providers could make some money, they developed more content and more phones with new functions, thereby creating rapidly increasing demand for ever-richer data services. In addition to lofty business models, the book also analyzes the biggest success stories in Japan, to give the industry some practical hints on how to create appealing sites. The common denominator is that big successes span two important “time zones” of the mobile internet: the “in-between time”, in which users kill time with quickly consumed contents while waiting on the train or a date, and the “golden time”, which is for consuming richer content-like ordering online or reading novels that others may type on their mobile phone. The book highlights the fact that the biggest challenge is to create “simplexity”; in other words, to combine a highly complex, high-tech device with an enriched service in such a way that both are easy to use. The authors state: While other players struggle to make larger screens and wider keypads, or pump their content and services, simplexity will be what truly empowers individual users through their mobile devices. Based on a centuries-old tradition of serving customers’ needs (the customer is not king in Japan, but god), Japan is pushing the envelope even in this field. Under
  7. 7. FOREWORD ix the slogan of “universal design”, Japanese electronic and car manufacturers want to create goods that are easy to use for the greatest number of people, regardless of age or disabilities. The iPhone is a good Western example for the realization of what the authors have in mind. But they name numerous Japanese examples as well. Hopefully, this book about developments in Japan, these remote islands at the edge of the Eurasian landmass, will offer some thought-provoking impetus to the global mobile industry. MARTIN KOELLING Japan Correspondent, Financial Times Germany Tokyo, Japan 2009
  8. 8. PREFACE At the time this book goes to press, the economy is struggling under the weight of the worst economic crisis of our generation, with market caps, salaries, employment levels, and consumer confidence having fallen sharply around the globe. Within this context, however, a strange and compelling fact has gone relatively unnoticed. That is, that the pace of mobile subscriber growth has continued to rise, almost undaunted by such “minor” details as the economic tailspin that has engulfed the entire world. Now we have surpassed the 4 billionth mobile subscriber, and in a few more years may soon find mobile operators and handset vendors having to look beyond the human species (after pets, machines perhaps?) to maintain their momentum. All joking aside, if nothing else can convince you of the unprecedented power that the mobile phone is bringing to consumers, businesses, governments, and societies around the world the fact that mobile subscriptions continue to grow even within our current global economic turmoil should do the trick. However, as we will show you throughout this book, subscriptions to voice and SMS services are only the beginning. The real excitement that the mobile platform brings rests in the myriad of content and service offerings that are built upon this foundation of voice and text-based communications. As Apple’s App Store, Google’s Marketplace and other competitive and complementary solutions continue to evolve and expand in both their scope and their capabilities, the Six Immutable Laws of Mobile Business are becoming clearer and more vital to understand. And the point we will continue to make is that because of the astounding levels of adoption of mobile phones around the world, whether or not you, your organization or your company have currently embraced the mobile platform, all indications that we can find suggest that you ultimately must and will; a fact that makes the Six Immutable Laws of Mobile Business essential reading for any individual or organization looking to gain a competitive edge in the coming months and years. xi
  9. 9. xii PREFACE In looking back at the changes that have already occurred since we finished writing this book a few months ago, we are even more convinced today than ever before that you are holding in your hands a guide to the future of mobile business. With more than 4 billion mobile phone subscribers walking around on this planet, we might even be so bold as to say that you are simply holding in your hands a guide to our collective future. And as that future moves closer to becoming the reality within your market, country, or region, we are confident that those who understand these Six Immutable Laws that are shaping this future, will be able to position themselves to take the greatest advantage of the seismic shifts in how businesses and individuals will soon navigate the course of their daily lives. The difficulty with a published version of this book rather than the form that these laws typically take in our seminars and executive training sessions is that the pace of change within the mobile industry is lightning fast. Once we have written and published our thoughts in the form of a book like this, we run the risk of appearing “out of date” with the events and trends of your “today”. We have done our best to remove examples and ideas that will surely fade in relevance as time goes by, and focus instead on the fundamental meanings of the examples that we use. But for the most recent examples, ideas, and discussions, we have created a companion site for this book, www.siximmutablelaws.com, which we hope that you will visit. As these Six Immutable Laws continue to shape the evolution of mobile content, services, and solutions around the world, we will be using this website to integrate these developments, and collaborate with you, and others shaping the world’s wireless development. We are looking forward to continuing the conversation that we begin here within our book The Six Immutable Laws of Mobile Business with you at www.siximmutable laws.com. PHILIP, MARCO, and LUDOVICO Tokyo, Japan
  10. 10. ACKNOWLEDGMENTS The list of people, who at different stages and in different ways assisted us through the preparation of this book, would be too long to name them all. Yet, because our original book idea goes back a number of years, we would first like to thank the many people we interviewed or those who assisted in those interviews, including Takayuki Nozaki and Mikito Ishida, who each spent a considerable amount of time discussing the outcome of this project, while helping with Japanese translation; and Yukie Masuda, who relentlessly assisted in setting up interview appointments. Additionally, our deepest gratitude should go to the interviewees (and their organizations) for generously devoting some time from their busy schedules to share their knowledge and vision. These include (in alphabetical order) Dr. Majid Anwar, Guillaume Briand, Jasper Cheung, Chiaki Fujino, Akihisa Fujita, Kazutomo Robert Hori, Keiiko Iida, Dr. Tomihisa Kamada, Kenji Kasahara, Imran Khand, Hideo Kobayashi, Misao Konishi, Ted Matsumoto, Dr. Hitoshi Mitomo, Brent Mori, Yosuke Morioka, Tom Moss, Dr. Hitomi Murakami, Steven Myers, Masato Nakanishi, Hiroshi Nakata, Tomoko Namba, Takeshi Natsuno, Ikuo Nishioka, Yoshimi Ogawa, Hiroshi Ohta, Motohiro Okubo, Dr. Keisuke Onishi, Haruna Sagao, Mika Satake, Dr. Sachio Semmoto, Akira Tanii, Tsuyoshi Takenouchi, Yoshiharu Tamura, Keith Taniguchi, Susumu Taniuchi, Keisuke Toji, Kiyoshi Toriumi, Takenori Ugari, Satoko Utsugi, Jun Yamada, Yasuyuki Yamamoto, and Hiroshi Yoshino. A very high level of support also came from the discussions with students of the Graduate School of International Management, International University of Japan (Niigata). The case studies and the final reports of the students from the International University of Japan proved an open-minded source of stimulus. At different points of this book’s evolution, we met with several people whose advice has been invaluable in fine-tuning the work, and to whom we are equally indebted: Lawrence Cosh-Ishii, Christopher Billich, Kei Shimada, Arjen van xiii
  11. 11. xiv ACKNOWLEDGMENTS Blokland, Gerhard Fasol, Francesco Fiore, Peter Fuchs, Eran Harel, Michele Manfro, Jake Myrick, Laurence Mcdonald, Iku Mohamed, Yusuke Otsubo, Daniel Scuka, Fuminori Takemura, Glenn Mayhew, Donghun Kim, and Christian Waroquier. Many thanks to the entire team from John Wiley & Sons, inc., who made the book possible, and to Cindy Mullins, our agent and advisor, who relentlessly stuck with us throughout the book development and writing process, from the first proposal, through continuous support and encouragement, to the final editing. On a more personal note, we wish to especially thank our families and loved ones, who were patient enough to tolerate our bad tempers, late nights, and long meetings while the book was under preparation. Finally, a disclaimer: Although much care has been taken in providing updated figures and in checking all names and facts, any inaccuracies, omissions, or mistakes are exclusively the fault of the authors and not our sources.
  12. 12. INTRODUCTION THE SIX IMMUTABLE LAWS OF MOBILE BUSINESS The future is already here. It’s just not very evenly distributed. —SF author William Gibson, 1999 Currently, more than one-half of the world’s population owns a mobile phone, and we are slowly arriving at the point where the world’s entire population will live in range of a mobile network. Mobile phones have become the most ubiquitous and indispensable digital devices on the planet. In fact, by 2009 the International Telecommunications Union (ITU) showed that there are four times more mobile phone subscribers than Internet subscribers. They also outnumber PC owners 3:1, and television owners 2:1. They even outnumber fixed line telephone subscribers. No other service or technology has ever reached a similar diffusion level in such a short time. If those figures do not impress you, let us put the phenomenon into financial perspective: At the end of 2007, global revenues from mobile phone related services reached parity with those derived from total worldwide crude oil production— figures no business executive can ignore. Andrew Robertson, CEO of BBDO Worldwide, a subsidiary of the Omnicom Group, the world’s largest advertising agency holding company, stated “We are rapidly getting to the point where the single most important medium that people have is their wireless device.” This book charts the future of the mobile platform. We were going to show you where we were, where we are today, and where the many dazzling developments in mobile and wireless technologies, services, and solutions that are being created and deployed globally are leading us. More specifically, we identify the key drivers powering this evolution and assess the impact they will have on our jobs, businesses, and lives. xv
  13. 13. xvi INTRODUCTION We are already witnessing the vast changes in society that a mobile phone carrying population brings. From microcoordinating meetings to negotiating the streets and shops of foreign cities, the mobile phone has evolved from a relatively straightforward communications device into the hub of power for more than one-half of the world’s population. People are using their mobiles to navigate the ebb and flow of daily life, all just 26 years after personal cellular technology first became a commercial reality. No Digital Divide Global PC Internet diffusion led to a stark “digital divide” between the information rich and poor. The mobile channel has not and will not. According to C. K. Prahalad, author of The Fortune at the Bottom of the Pyramid and an expert in global poverty reduction, “emerging markets will be wireless-centric, not PC-centric”. The quickening spread of mobile services in both developing and developed economies is a key to the mobile platform’s burgeoning power. We will focus on the growing technical capabilities of mobile phones, related services, and the long-term effects these will have on consumer behavior. In fact, consensus is growing that the mobile phone will soon replace television in the minds (and budgets) of the advertising industry. With Digital Video Broadcasting-Handheld (DVBH), One-Seg and other mobile digital broadcasting technologies being deployed globally, the mobile phone has actually become the television and will help to lead the way for the next generation of television (Internet Protocol Television (IPVT)) in the next years to come. Simultaneously, it has become a camera, a house key, a corporate security card, a credit card, an airplane boarding pass, a game machine, a music player, an Internet browser, a watch, an alarm clock, an excuse to leave a meeting early, a scheduling tool, and a wallet, all while retaining its original function of plain old telephony. Putting such capabilities in billions of people’s hands in 150 countries, the question becomes not if the powers of mobile phones will change our personal and professional lives, but how and when. A Little Focus Here, Please We have chosen Japan as our focus. At first glance, this may not be the most obvious choice. As of December 2008, Japan boasted more than 100 million mobile phone subscribers in a population of slightly over 127 million. While 70% is a respectable penetration rate, there are more contracts for wireless communication services than inhabitants in Hong Kong, Israel, Italy, Luxemburg, Singapore, Sweden, Taiwan, the United Kingdom, and 50 other nations, meaning mobiles are theoretically in the hands of every citizen there. Japan’s wireless population is the world’s fourth largest behind China, the United States, and Russia, but its mobile phone subscriber base represents < 3% of all users. If we probe deeper, however, we find some astounding figures. For example, of those 100 million subscribers, 80 million were active high-speed (3G, third generation) mobile data users, accounting for 17% of all 3G subscribers. The Japanese mobile
  14. 14. INTRODUCTION xvii market also accounts for more than 40% of total revenues generated globally from mobile data. Moreover, the Japanese mobile industry business model, which NTT DoCoMo’s i-mode strategic visionary Takeshi Natsuno calls “the wireless ecosystem”, has spawned some of the most relevant players in the mobile industry. Japan has also experienced 10 full years of a robust and rapidly developing mobile platform, since NTT DoCoMo’s i-mode service was commercially launched in 1999. While there are several lessons to draw from the Japanese market, we will target the success of the mobile Internet and a thriving worldwide mobile platform. The economic implications are clear. As we discussed above, there are more mobile phones in use today than PCs, TVs, fixed-line telephones, PDAs, or any other consumer electronic device. The mobile phone is a killer platform. But until now the development of a fully functioning value system has eluded the West, as well as most of the East, North, and South, save for Japan and South Korea. At the same time, we will concede that global attention has shifted away from Japan to the United States and European markets as the innovative giants of the PC Internet world (Google, Microsoft, Yahoo!, My Space, YouTube, Facebook, Amazon, and others) realign to target the mobile platform. This book distills the most important lessons from how Japanese businesses and consumers have optimized the mobile channel into Six Immutable Laws for mobile business, and through these provides the most viable path forward for global success of mobile Internet content, services, and solutions. The End-User Game There are a number of reasons for the mass diffusion of any technical innovation. The end user, however, remains the constant, as well as the most critical decision maker. Throughout the book we will analyze these developments and trajectories from the consumer’s viewpoint. Here is why. After working with network operators, handset manufacturers, and content and service developers within the mobile industry, as well as many other fields, we have discovered that a huge gap often exists between the development of mobile technology and the end user. Device complexity leaps exponentially, often from month to month, but upgrading the “internal processor” of most consumers to handle the new complexity is not easy. From the engineer’s perspective, end users are the biggest barriers to technical innovation and product diffusion. When the mobile phone was first introduced, for example, it was simply a wireless, bulky, exorbitantly priced cousin of the fixed-line telephone. Mobiles got smaller and cheaper, but also far more complex, adding mail functions, mobile web access, and personal information management tools that transformed them into digital Swiss army knives that now come with massive instruction manuals. Impressive? Yes. Usable by the average person? Unfortunately, no. To us, the issue is not how many more cool functions or features we can cram into mobile devices, but how these devices and their related services can become accessible again. This concept of simplicity merged with complexity (what we call simplexity) will serve as the foundation for many of our ideas on how to make mobile services
  15. 15. xviii INTRODUCTION profitable in world markets. This simplexity concept even goes beyond mobile services and has the power to reshape the current technology related consumer industry into a posttechnology society that focused not on the gadget, but on the user. Chapter and Verse Chapter 1 deals head-on with the importance and relevance of the Japanese mobile market in global terms. We will explore a number of common myths that have been given as reasons the mobile Internet has succeeded in Japan, but not elsewhere, and debunk them. Our first law of mobile business focuses on the value of mobile services rather than the cultural environment within which they are developed. Chapter 2 presents our second law, the law of the ecosystem. We explore the different wireless technologies that have been deployed globally, and the achievements of the operators in Japan in developing a platform for mobile innovation unlike any other in the world. We will also get into why Japan’s ecosystem model is imperfect, and has not traveled well. Yet the spirit of such development is worthwhile, and has valuable implications for the growth and expansion of global mobile markets. Chapter 3 will introduce our third law, focusing on the empowering nature of the mobile platform versus any other communications channel deployed to date. This vibrant, robust mobile platform has had a great impact upon consumer behavior in Japan, empowering consumers in unprecedented ways, and bringing wide-ranging consequences as well. For example, we will show you how the mobile platform empowers modern businesses to attract and retain more loyal customers. We will also examine negative elements that arise, including breaches of security and privacy. Our fourth immutable law of mobile business, covered in Chapter 4, describes new “time zones” peculiar to the mobile channel. We will introduce you to the idea of “in-between” versus “golden” time, and what each means for businesses hoping to obtain high loyalty levels from mobile consumers. Chapter 5 introduces our fifth immutable law, which focuses on the emergence of some of the most viable mobile business models to date, using a number of short case studies to show how the more advanced mobile services in Japan are folding Web 2.0 applications into their service offerings. In Chapter 6, we present the concept of simplexity and its importance to the evolution of mobile Internet services and beyond, both in Japan and globally. In exploring this concept and its overall impact on the technology related industry and society itself, we return to where we began, looking out at the world, on the brink of the true Big Bang of mobile Internet innovation that will empower consumers and businesses in ways we cannot imagine, all based on one important subject: the user. Those overall innovations are coming soon. While Japanese consumers have already grown accustomed to robust mobile services and solutions woven into the fabric of their lives, the real source for innovations appears to be all of us. The final section, Chapter 7, is designed to give you food for thought as you evaluate your next moves relating to the mobile realm and maybe even beyond. The
  16. 16. INTRODUCTION xix Japanese mobile market is both a testing ground and an early warning system for the possibilities that a fully functioning mobile ecosystem can provide. Linking current consumer behavior and market realities will reveal many opportunities for you, both in business and on a personal level. This book should also serve you as the springboard for new ideas required to take the mobile platform to its next evolutionary step.
  17. 17. CHAPTER 1 IMMUTABLE LAW NO. 1: VALUE OVER CULTURE Our excitement and determination in writing this book stems from our belief that the lessons learned in the Japanese mobile market can serve as effective guides for the global evolution of the mobile Internet and the products, services, and solutions created for it. While presenting our research and insights in a variety of international forums, however, we found that many audience members do not share our views. When we say those who study and learn from the Japanese mobile market will hold a competitive advantage in their own markets, for example, the typical reaction is “Gentlemen, is that not just a Japanese thing?” No, it is not. If you will take our word for that, or already believe Japanese culture has had no significant impact on the success of the mobile Internet in Japan, please jump to Chapter 2. If you are still in doubt, however, we are here to convince you. First, let us provide some essential background. Japan has had an advanced mobile data market since NTT DoCoMo launched its i-mode service in February 1999. (Japan Telecom’s J-Phone actually launched its “SkyWeb” mobile Internet service 3 months earlier in December 1998, but regionally rather than nationwide.) The Japanese market has also racked up a number of innovations over the years. In addition to being the first to successfully offer 2.5G data services above and beyond SMS text messaging (in February 1999), it introduced the camera phone, third generation (3G) services, and full-song downloads through a wireless network. The financials are there as well. As Figure 1.1 shows, Japan’s mobile subscriber base accounts for less than 3% of the world’s mobile subscribers. Yet data from Chetan Sharma’s “Global Wireless Data Market Update 2007” shows that the Japanese market accounts for nearly 40% of all global revenues generated from advanced mobile data use. The Six Immutable Laws of Mobile Business, by Philip Sugai, Marco Koeder, and Ludovico Ciferri Copyright © 2010 John Wiley & Sons, Inc. 1
  18. 18. 2 IMMUTABLE LAW NO. 1: VALUE OVER CULTURE Figure 1.1 Japan accounts for just a fraction of all mobile phone users. The politically incorrect view that many have expressed is that Japanese culture has unduly influenced the country’s mobile market. They claim that it makes the Japanese more “susceptible” to the mobile Internet, and things are different everywhere else. We have examined a number of specific arguments, which we call “meta-myths”, that support these claims. While the exact reasons for the disparities between Japan and the rest of the world are too long and involved to include in detail here, we have categorized them into the four meta-myths below. These meta-myths are all prefaced by the phrase “The mobile Internet succeeded in Japan because … ”. THE FOUR META-MYTHS 1. Japan is a land of gadget-lovers. 2. The Japanese live in small houses and lack the space for a computer, so mobile phones became the primary channel for accessing Internet content. 3. The Japanese spend a lot of time on public transportation. 4. The Japanese are naturally polite and quiet, so mobile phone-based communications suit the culture. As a counterpoint, we offer the words of Takeshi Natsuno, one of the founding fathers of the i-mode service and a true visionary in the wireless communications industry. In a 2004 Washington Post interview about Japan’s mobile industry, Natsuno commented: “Everyone wants to say, ‘Oh, the Japanese are strange. They love tiny and miniature things and that’s why cell phone services have taken off here.’ But the truth is that we are normal, and it’s the other guys who are something odd. It’s not about being Japanese. It’s about knowing what people want and how to sell it the right way.”
  19. 19. META-MYTH NO. 1: JAPAN IS A LAND OF GADGET-LOVERS 3 So, which perspective is correct? Did the mobile Internet succeed in Japan because of indigenous cultural characteristics that make Japanese consumers especially prone to becoming mobile Internet users? Or did the Japanese mobile industry create the operating model—along with the right handsets, content, and services—that consumers in Japan wanted to use? Answering this question is fundamental to our premise. If we can remove culture as a deciding factor in Japan’s mobile Internet success, we feel that others will agree that the lessons learned from the Japanese market can and should be applied to other mobile markets. We are going to investigate each of the four meta-myths in detail to see if we can remove culture from the table. META-MYTH NO. 1: JAPAN IS A LAND OF GADGET-LOVERS Variations of this meta-myth include “the Japanese are the world’s early adopters”, and “the Japanese love small, miniature things”. Let us start by examining what that all suggests. If Japan is a land of gadgetlovers, we can logically assume that any gadget popular elsewhere would find a loyal following here. How then can we explain Research in Motion’s abject failure to sell Japanese business executives on the BlackBerry™, and Nokia’s continuing inability to achieve market dominance in Japan as it has in other mobile markets? The logical conclusion is that Japanese consumers are just like consumers in most advanced markets, only falling in love with gadgets they find appealing and useful. Forrester Research published a report in 2006 that makes our job a little easier, comparing gadget adoption levels across many leading markets around the world. Figure 1.2 reveals that South Korea actually has the highest level of gadget adoption, followed by Hong Kong and Japan. Gadget-lovers do not just live in Asia, either: after those three Figure 1.2 Gadget-lovers around the world (copyright © 2006, Forrester Research, Inc.).
  20. 20. 4 IMMUTABLE LAW NO. 1: VALUE OVER CULTURE we find Italy, Sweden, Australia, and The Netherlands. According to a 2007 paper by Gordon Bruner and Anand Kumar in the internationally acclaimed Journal of the Academy of Marketing Science, there is actually a Gadget-Lovers demographic segment distinct from citizenship and culture. If a love of gadgets had a direct correlation to mobile Internet adoption, we would expect South Korea and Hong Kong to be the hottest mobile Internet markets around. China and Italy would be only slightly less avid than Japan. Since this is not the case, we believe we can eliminate this rationale for Japan’s rate of mobile Internet adoption. While Japanese consumers acquire mobile gadgets at a higher rate relative to consumers in many other countries, no direct correlation exists between this and the success of the mobile Internet in Japan. META-MYTH NO. 2: THE JAPANESE LIVE IN SMALL HOUSES AND LACK THE SPACE FOR A COMPUTER, SO MOBILE PHONES BECAME THE PRIMARY CHANNEL FOR ACCESSING INTERNET CONTENT Bill Ray gave the best summary of this argument in a July 2007 article entitled “Culture Matters” for The Register: “ … the way in which the Japanese live drives them toward mobile content in a way that just doesn’t exist in the West … Japanese houses consist of spaces that are multifunctional depending on what the occupants are doing. Walls may be moved around during the day, and it’s extremely unlikely that a child would have its own room. Entertaining at home is also unusual—socializing is done in restaurants, bars and coffee shops.” “ This makes Japanese youths the perfect mobile consumers—they have no TV or computer in their bedroom because they have no bedroom of their own. In such a market it’s unsurprising that Internet access from a mobile phone has been so popular, and equally unsurprising that Western youth haven’t proved so receptive to the idea.” While Ray’s hypothesis may be true, let us analyze his argument. First, Japan does have a highly urbanized population: Approximately 45% of its 127 million people live within the major metropolitan hubs of Tokyo, Osaka, and Nagoya.1 Since the entire Japanese archipelago is about the size of California, it is reasonable to assume that Japanese houses are smaller than those in America or similar, but less urbanized markets. Still, this housing situation is not unique to Japan. In addition, Japan’s mobile Internet was launched in 1999, long after laptop computers had appeared and gained wide acceptance in the world’s second-largest economy. It is therefore tough to imagine that the size of houses has had an impact on PC-based Internet adoption. Even if house size is not the reason, doubts about Japan’s adoption of PCs and the Internet have been aired repeatedly over the years. Take, for example, this excerpt from a January 2000 article in BusinessWeek by Irene M. Kunii and Stephen Baker: “Japan has long lagged behind the U.S. in PC and Internet penetration, largely because of a lack of familiarity with the keyboard. But personal electronics are another story. 1 Source: Statistical Handbook of Japan, Japan Statistics Bureau, 2007.
  21. 21. META-MYTH NO. 2: THE JAPANESE LIVE IN SMALL HOUSES 5 This is the country that gave the world the calculator, the Walkman, the pocket TV, the Game Boy, and the camcorder. Millions of Japanese grew up playing video and pocket computer games—the so-called push-button generation. Many are now migrating to Net-ready cellular handsets, often bypassing home computers altogether. They form a perfect testing ground for new Net appliances.”2 What these and many other authors are suggesting is that the Japanese bypassed purchasing computers and using the PC Internet, moving directly to the mobile phone for their online needs. For the sake of our investigation, let us look at what the International Telecommunications Union (ITU) has to say about information communication technology deployment and diffusion rates across more than 200 countries annually since 1960. Figure 1.3 and Table 1.1 show the ITU Internet user data per 100 inhabitants in 13 countries between 1999 and 2006. While Japan’s Internet usage in 1999 did Figure 1.3 Internet user data for over a dozen countries between 1999 and 2006 (copyright © International Telecommunications Union, 2008). Source: International Telecommunications Union. 2 Available at http://www.businessweek.com/2000/00_03/b3664010.htm.
  22. 22. 6 IMMUTABLE LAW NO. 1: VALUE OVER CULTURE TABLE 1.1 International Internet Users Internet Users Per 100 Inhabitants (Source ITU World Tele communications Indicators) 1999 United States Japan Korea (Rep) Finland France Germany Italy Spain Sweden Switzerland United Kingdom Australia New Zealand 2000 2001 2002 2003 2004 2005 2006 CAGR 36.6 21.4 23.8 32.3 9.2 20.8 14.3 7.0 41.4 20.5 21.0 29.6 29.0 44.1 29.9 41.4 37.2 14.4 30.2 23.0 13.6 45.6 29.1 26.4 34.5 39.3 50.1 38.4 51.5 43.0 26.4 31.5 26.9 18.0 51.6 38.6 33.0 39.7 45.4 55.2 46.5 55.2 48.6 30.3 33.9 35.1 19.1 57.3 41.0 42.3 45.8 48.4 55.6 48.3 61.1 49.1 36.3 40.0 39.5 25.8 63.0 44.8 43.7 47.8 53.5 63.0 62.2 65.7 51.4 39.3 43.3 46.0 35.1 75.5 47.2 47.0 50.2 58.9 66.3 66.6 70.2 53.3 43.2 43.2 48.2 40.4 76.2 50.9 53.8 52.6 68.4 69.1 68.3 72.8 55.6 49.5 46.7 49.6 42.8 77.0 58.1 56.0 54.2 78.8 10% 18% 17% 8% 27% 12% 19% 29% 9% 16% 15% 9% 15% Source: ITU World Telecommunications Indicators. lag behind that of Sweden, the U.S., Finland, Australia, New Zealand, and South Korea, it topped the United Kingdom, Germany, Switzerland, Italy, France, and Spain when i-mode appeared in February that same year. Comparing the Internet diffusion rates versus the compound annual growth rate (CAGR) between 1999 and 2006, we find that Japan’s PC Internet growth was actually fourth highest at 18%, even though Japan had the most robust mobile Internet platform in place over this entire period. So while we can accept the general statement that homes in Japan may be on average smaller than those in the United States, the correlation between house size and PC Internet adoption appears nonexistent. Similarly, if a correlation existed between house size and mobile Internet adoption, the mobile Internet would succeed in any country where the average house is small. That argument clearly does not hold up. The truth is, Japan’s PC Internet adoption rate matches closely with many other developed markets, and therefore does not represent a reasonable explanation for Japan’s successful mobile Internet deployment. The mobile Internet therefore did not succeed in Japan because Japanese people live in small houses. META-MYTH NO. 3: THE JAPANESE SPEND SO MUCH TIME ON PUBLIC TRANSPORTATION As previously mentioned, Japan’s population is heavily urbanized. The Japanese typically use public transportation to avoid the dense traffic in major metropolises like Tokyo, Nagoya, and Osaka. According to the Japan Statistics Bureau, which gathers information on how the Japanese occupy their time during a typical day, the average citizen spends
  23. 23. META-MYTH NO. 3: THE JAPANESE SPEND SO MUCH TIME 7 approximately 31 min per day on public transportation. That is a lot of commuting, especially considering that the figure mentioned represents an average for Japan’s entire population, from babies to the bedridden. A quick trip on any urban train or bus will inevitably reveal at least a few passengers staring at their mobile phones and frantically working the tiny keypads. Clearly, a strong correlation must exist between this high rate of commuting “downtime” and the mobile Internet, right? Well, let us dig deeper. First, anyone who has ridden public transportation in Japan knows there is nothing unique about the country’s buses and trains. So no factors related to the specific types of public transportation available in Japan can account for differences in mobile Net use. Japanese commuters are also far more likely to be doing something other than fiddling with their mobile phones, including sleeping, listening to music, and reading. Only a small percentage of the typical commute is devoted to mobile phone use. (We will provide evidence of that later in this chapter.) Sitting on a close-packed commuter train or bus, it is hard to tell exactly what commuters are doing as they tap away on their handsets, which are packed with a dizzying array of features, capabilities, and functions that require no Internet connection. A lot of them, however, are undoubtedly playing games, doing data entry (e.g., scheduling or editing phone book records), or browsing through pictures, videos, or music files. To get more detail on the environments in which people use their mobile phones, we first consulted with the research division of Japan’s largest media and advertising agency, Dentsu, which conducted a 2005 study on mobile phone related services, including traditional voice calls, e-mail, and Internet browser use. Dentsu found that the location people cited most often for e-mail use was at home, while they were commuting, work, or school, and then other locations. These findings provided us with some overall usage trends, but not how much people are using their phones in each location. To answer that, this book’s coauthor, Philip Sugai, conducted a comprehensive study in March 2007 that asked mobile phone subscribers in Japan to rate their mobile use in four primary environments (home, work or school, leisure time, and while commuting). While the international media regularly report about excessive mobile phone use by Japanese commuters, which the Dentsu study supported, Sugai’s study showed that for both genders and across all age categories, overall mobile data usage while commuting was the lowest of all four environments. For men, the environment of most intensive use was the workplace, at their desk or office; for women, it was at home in the living room. When comparing these results to Japan Statistics Bureau data, it turned out that mobile Net use closely matched the general time and location allocations that Japanese citizens follow during their day. As Figure 1.4 shows, mobile phone use followed the general time allocation by location, with the most time spent at home, then work or school, then leisure time, and then the commute. While these results looked somewhat similar to time allocation for the three other categories, we found that Japanese consumers spent nearly 10% of their mobile Internet time during their commute, which only required 2% of the average day.
  24. 24. 8 IMMUTABLE LAW NO. 1: VALUE OVER CULTURE Figure 1.4 The Japanese use their mobiles less during their commute. Japanese consumers were spending a significant percentage of their overall mobile Internet time during a very limited interval. That is undoubtedly why the media and visitors to Japan believe the local commute was such a vital piece of the mobile Internet’s success. However, our results show mobile Internet use mostly took place at home and at the office. Our findings make perfect sense when we set these results against the marketing of mobile phones as “anytime, anywhere” devices, not just while users are out and about. Since at least 90% of mobile Internet use occurs outside commuting hours, we can conclude that long commutes have not driven the success of the mobile Internet in Japan. Just in case you think this may be confined to the Japanese market, here is another parallel. The French mobile game company IN-FUSIO conducted a survey in 2002 to understand their mobile game customers better. IN-FUSIO went in figuring that subscribers mostly used its games during daytime leisure times and commuting. To the contrary, the company discovered that subscribers mostly played games at home during the night. META-MYTH NO. 4: THE JAPANESE ARE NATURALLY POLITE AND QUIET, SO MOBILE PHONE BASED COMMUNICATIONS SUIT THE CULTURE Variations of this myth typically include references to singular elements of Japan’s culture that supposedly make Japanese consumers more “susceptible” to the mobile Internet than consumers elsewhere. Since the Philippines, Europe, and the United States have become avid users and advocates of Short Message Service (SMS) messaging and e-mail messaging via mobile phones or more advanced smart phones, such as the BlackBerry, it is difficult to say that texting is only for a “quiet” culture, such as Japan. (Even the notion that Japan is a quiet country is suspect, as anyone who has lived there can tell you.) But we will leave that debate for a different forum and get back to the underlying issue related to this meta-myth.
  25. 25. META-MYTH NO. 4: THE JAPANESE ARE NATURALLY POLITE AND QUIET 9 Of all the pushback we have received while presenting our research on Japan’s mobile market, the culture argument is by far the most difficult to dismiss. This claim occurs mostly because Japan’s culture is rich, distinctive, and mysterious to many outside (and even inside) Japan. To counter this claim and convince skeptics that the lessons learned in the Japanese market can boost the global expansion of the mobile Internet, we will have to get into the science of culture. In 1980, cultural anthropologist Geert Hofstede called culture “the software of the mind”. We could easily argue that if Japan’s culture is the impetus for local mobile Internet and mobile phone use, Japanese consumers must view the mobile Internet differently than consumers in other cultures. In that case, just as DVDs from Japan will not play in U.S. DVD players, insights from Japan’s mobile market would not “play” in the United States—or likely any other world market. We are not talking about language, layout, or user interface design, either, but something more fundamental in how groups of consumers view the value, impact, and importance of the mobile Internet. The operative question for the cultural researcher is how to examine this software of the mind. Even opening up someone’s skull to study their brain will not reveal the details of this particular “software”, so gaining a clear understanding of culture remains a controversial area of academic research. Psychologists have one perspective, sociologists another. Do not even think of ignoring the viewpoints of anthropologists, market researchers, management scientists, and the vast array of other academics, all with their own cultural software models in place to try to understand culture. We chose to take a simpler and more direct approach: Do respondents from distinctly different cultures have similar views of the mobile Internet, its value, and uses? If so, it would help eliminate culture as a viable reason for the differences in mobile Internet use. The trick was to find a culture (or cultures) distinctly different from that of Japan, and a culturally unbiased way of assessing views on the mobile Internet. Satisfying the first criterion turned out to be far easier than meeting the second—we simply opened a copy Geert Hofstede’s 1996 book “Cultures and Organizations: Software of the Mind”. Hofstede conducted one of the most comprehensive studies of culture ever undertaken, and in the process developed four widely accepted scales to “measure” cultures: power distance; individualism; masculinity; and uncertainty avoidance.3 He rated each country using those criteria and a vast amount of international data he collected. To find countries with cultures very different from Japan’s, we took the absolute value for each variable and added them up. Japan and the United States, for example, had the scores shown in Table 1.2. Hofstede measured 68 countries. Table 1.3 shows the 10 countries whose cultures differ the most from that of Japan. This table also includes the mobile penetration 3 Power Distance Index (PDI) is the measurement of how members of a society accepted inequality of power. A higher score indicates greater acceptance. Individualism (IDV) measures how much a society stresses the importance of the individual over the group. A high score means that a society values individual welfare over the welfare of the group. Masculinity (MAS) measures the level of assertive and/or competitive “male” characteristics within a culture versus the more “feminine” (modest and caring) characteristics. Uncertainty Avoidance Index (UAI) measures the level of discomfort a society experiences when dealing with new or unstructured situations. The higher the UA index, the more averse people within that society are to such situations.
  26. 26. 10 IMMUTABLE LAW NO. 1: VALUE OVER CULTURE TABLE 1.2 Culture Match: Japan and the United States Culture Match – Japan and the U.S. Power Distance Japan U.S. Difference Absolute Value of Difference Sum of Absolute Values TABLE 1.3 Individuality Masculinity Uncertainty Avoidance 54 40 40 14 46 91 45 45 95 62 33 33 92 46 46 46 138 Looking for a Culture to Compare to Japan’s Hofstede’s Comparisons and Mobile Phone Penetration Levels Rank Country 0 1 2 3 4 5 6 7 8 9 10 Japan Denmark Sweden Singapore Norway Malaysia Netherlands Vietnam Indonesia Guatemala U.K. Difference from Japan (Hofstede) Mobile Penetration Rate % (2003)1 — ITU 0 212 201 177 175 171 170 159a 149 148 148 67.9 88.3 98.1 85.8 88.8 44.4 81.1 3.3 8.6 16.5 91.2 a Estimated. rates for each country as reported by the International Telecommunications Union in 2003 when we originally conducted this research. Because we were looking for consumer images of the mobile Internet originating from truly different cultural experiences, we also chose to focus on the level of mobile phone adoption within each of these culturally distinct countries. If both the culture and the level of mobile technical deployment were radically different than in Japan, we believed we would be able to negate the impact culture (including mobile phone culture) had on consumer perspectives of the mobile Internet. As outlined in Table 1.3, the two countries with mobile phone penetration levels far below the rest were Vietnam (3.3%) and Indonesia (8.6%). However, because Hofstede’s measurements of Vietnam’s culture were based on estimates rather than actual data collected in the country, we chose to use Indonesia as our comparative culture. The second issue involved finding an unbiased way to explore differences in how these two cultures viewed the mobile Internet. Culture being the software of the mind, we needed a different “diagnostic tool” that would not taint the results by influencing the people we were studying.
  27. 27. META-MYTH NO. 4: THE JAPANESE ARE NATURALLY POLITE AND QUIET 11 After considerable research, we chose a relatively new method called the Zaltman Metaphor Elicitation Technique (or ZMET) developed by Dr. Gerald Zaltman of Harvard with the support of Dr. Robin Coulter at the University of Connecticut. The fundamental logic behind ZMET—and what appealed to us as we examined the similarities and differences in perceptions of the mobile Internet across cultures—was its use of photos and other images as the primary sources of research information. Zaltman and Coulter state that at least 80% of human communications is nonverbal in nature. Most modern research methods, however, rely exclusively upon data in written form taken from surveys or derived from phone or face-to-face interviews. To circumvent that, ZMET begins the research process by asking a simple question: When you think of “X”, what images come to mind? Our variation was When you think of the mobile Internet (defined as any nonvocal use of a mobile phone requiring network connectivity), what images come to mind? We asked our respondents to go home and collect 8–10 pictures—including personal photos, pictures from magazines, newspapers or the Internet, and their own drawings—that reflect those images. The respondents returned 1 week to 10 days later and were guided through a structured interview process to create a “mind map”: A structured view of how that individual perceives the mobile Internet. These individual mind maps from each country were combined to form aggregate country maps. This was a fascinating process to follow, especially because we were looking for cultural differences between the two countries as we did our analysis. Although the pictures collected in these disparate cultures differed significantly, we found the underlying reasons for choosing them were very similar. In fact, they were so similar that the fundamental ideas about the mobile Internet and its value clearly extend beyond culture. Figure 1.5 combines two mind maps, one for Indonesia and the other for Japan. Shared concepts included “anytime/anywhere; access (to information); and communication (for both business and personal use). Differences arose not because of culturally specific elements, but from the state of the underlying mobile infrastructure. For example, Japanese consumers might be expected to talk about their “cool devices”, while Indonesian respondents would not. That proved untrue. Respondents from both cultures stressed the importance of handsets within the context of the mobile Internet. In Japan, where mobile Internet use has been widespread since 1999, our 2003 survey found that the mobile’s convenience had made it essential to daily life. In Indonesia, however, where major technical and price barriers prevented most Indonesians from taking advantage of mobile telephony, the mobile Internet was considered high tech, but riddled with infrastructure-related inefficiencies. The paper published about the study details these results.4 However, we can tell you that culture did not appear in respondents’ views of the mobile Internet. We therefore concluded that Japan’s culture was not responsible for the country’s widespread use of the mobile Internet. To paraphrase an October 2000 interview that Jupiter Research 4 Sugai, Philip (2005) “Mapping the Mind of the Mobile Consumer Across Borders”, International Marketing Review, vol. 22, no. 6, pp. 641–657.
  28. 28. 12 IMMUTABLE LAW NO. 1: VALUE OVER CULTURE Figure 1.5 Mind maps. director Seamus McAteer gave the BBC, the idea that the success of mobile data services in Japan can be attributed to cultural factors is a “handy cop-out”.5 While a country’s culture will surely influence the design and capabilities of handsets and the popularity of specific content, services and service plans, mobile-related businesses must focus on developing a compelling value proposition for consumers. To emphasize this point, we would like to repeat part of Takeshi Natsuno’s quote: “It’s not about being Japanese. It’s about knowing what people want and how to sell it the right way.” To understand just how well the Japanese mobile industry has grasped what people want, and how to sell it, we need to examine how the content and services are used. We chose to divide them into four broad categories according to what users are trying to do. These four categories (Inform, Transact, Entertain, and Express) are shown in Figure 1.6. Offerings in the “Inform” category, for example, include services that allow consumers to learn, either through targeted information gathering like accessing today’s weather or news, or more general mobile data information services, such as search from companies like Yahoo! and Google. 5 Available at http://news.bbc.co.uk/1/hi/business/945051.stm.
  29. 29. META-MYTH NO. 4: THE JAPANESE ARE NATURALLY POLITE AND QUIET Figure 1.6 13 The four broad categories of mobile content and services. The “Transact” category covers services in which consumers initiate actions related to the transfer of money. Such transactions can involve mobile banking or investment services, online e-commerce, or point-of-sale purchases using a contactless RFID service, such as mobile Felica. Entertainment-specific content and services, such as games, e-books, music, and movies fall into the “Entertain” category. The “Express” category includes activities that enable users to better express themselves through telephone calls, e-mail, or SMS messages, blogs or social networking services, or downloading ringtones and background screensavers. To understand the value Japanese consumers place on these four categories, we can check overall usage or the revenues they generate. The numbers will undoubtedly have changed by the time you read this; these are snapshots of what Japanese mobile consumers have embraced as valuable, and provide evidence that compelling mobile content and services are being created in Japan, and that they are not unique to the Japanese culture. Japan’s Mobile Marketing Data Labo surveyed over 3000 mobile subscribers in November 2008 about how they use 35 different types of mobile content and services. For consistency, we further categorized them into our four distinct usage categories. As shown in Figure 1.7, the services Japanese consumers use most often are in the “Inform” category, such as weather forecasts, news sites, and search services. The next level comes from content and services in the “Express” and “Entertain” categories, including downloads, such as ringtones and songs, as well as mobile games. Last come transaction-based services, such as shopping, auctions, and sweepstakes sites. While some may argue that usage is an acceptable measure of value, others might insist that revenue rules, so let us shift our focus to the financial as shown in Figure 1.8. According to the Ministry of Internal Affairs and Communications figures for 2007, total revenues generated from mobile content services in Japan exceeded ¥11.5 trillion,
  30. 30. 14 IMMUTABLE LAW NO. 1: VALUE OVER CULTURE Figure 1.7 Content and service usage in Japan (copyright © Mobile Marketing Data Labo, 2008). or $107 billion. Of that, 63%, or ¥7.23 trillion, came from mobile commerce (we will call this all “Transact”); the remaining 37%, or ¥4.23 trillion, was from mobile content subscriptions and services. Those services match our “Entertain” category, and include music downloads (¥1074 billion), games (¥848 billion), e-books (¥221 billion), and fortunetelling sites (¥182 billion). Those matching our “Express” category included ringtones (¥559 billion) and screensavers (¥229 billion). Most of the “Other” category of ¥1,122 billion we can assign to our “Inform” category. To get the complete revenue picture, we need to add the nearly ¥6 trillion generated from voice calls through Japan’s top three mobile operators to our “Express”
  31. 31. META-MYTH NO. 4: THE JAPANESE ARE NATURALLY POLITE AND QUIET 15 Figure 1.8 Revenues by category. Source: Japanese Ministry of Internal Affairs and Communications, 2008. category, and the ¥55.6 billion generated from mobile ads to the advertising-supported “Inform” category. Overall mobile revenues in 2007 surpassed ¥17.6 trillion. The average revenues generated monthly by each of the 100 million mobile phone subscribers exceeded ¥14,000 (or $128) across all four of our service categories. We can see from both sides of the value proposition that Japanese mobile content and service providers have succeeded in providing something of worth to consumers. Now that we have eliminated culture as the driver, Chapter 2 will explore the real reasons for such spectacular results. Expert Insight Dr. Sachio Semmoto Founder, Chairman & CEO, EMOBILE Ltd. Founder & Chairman, eAccess Ltd. Dr. Semmoto founded eAccess Ltd in 1999. eAccess is Japan’s first true entrepreneurial and global IP/telecom company that provides high-speed broadband telecommunication services using xDSL technology. eAccess has grown in to a leading broadband IP operator in Japan, and completed its Initial Public Offering at the Tokyo Stock Exchange Mothers in October 2003 and moved to the Tokyo Stock Exchange First Section (TSE1) in
  32. 32. 16 IMMUTABLE LAW NO. 1: VALUE OVER CULTURE November 2004. This is considered to be the fastest listing in the TSE1 whose market capitalization was $1.5 billion. Additionally, he founded EMOBILE Ltd., which was awarded a third-generation (3G) spectrum license in 2005 and entered into the mobile broadband market in 2007. EMOBILE completed its financing, total US$3.5 billion, which includes $1.2 billion for equity and $2.3 billion for debt financing, to roll out the nationwide mobile network. EMOBILE launched its data service in March 2007 and then the voice service in March 2008. Bundled with an Ultra-Mobile PC (UMPC), EMOBILE’s high-speed, flat rate, and reasonable pricing mobile data communications service dramatically changed the existing mobile scene, creating a “broadband revolution” in the mobile industry. Prior to eAccess, Dr. Semmoto spent 30 years in senior management positions including Nippon Telephone & Telegraph (NTT), Kyocera, and DDI Corporation (currently “KDDI”), which he cofounded as an Executive Vice President in 1984. At NTT, he developed the first optical fiber system in Japan and led the development of the Information Network System, the world’s first digital service, which embodied the ISDN concept. He was Japan’s official representative to the ITU on optical fiber and ISDN (1974–1980). He played a major role in bringing DDI up to $5 billion in sales and U.S. $630 million in profit after 7 years of operation. In 1990, he founded DDI cellular group (currently “au”) as an intrapreneur. Subsequently, in 1995 he founded DDI Pocket, a PHS company (currently “WILLCOM”), and became the first president. In 1996, Dr. Semmoto became a full professor at the Graduate School of Business Administration, Keio University to teach in the areas of entrepreneurial management and information technology, prior to the establishment of eAccess Ltd. Although he spent most of his career in the telecommunication industry, he has also had a background of academic involvement through extensive lecturing engagements at the world’s leading universities, including Harvard, Stanford, Northwestern, Cambridge in the United States and the United Kingdom. He was a visiting professor at the Carnegie Mellon University and at the Haas School of Business at University of California Berkeley during 1992–1993 and 2000–2001, respectively, and a visiting research fellow at Stanford University in 1997. At present, he is a visiting professor at University of Canterbury in New Zealand. He is a director and the board of Reuters Founders Share Company, Telecom New Zealand, International Christian University (ICU), Tokyo, and a member of the Network of Global Agenda Councils, World Economic Forum and the Trilateral Commission. He is a Fellow of the IEEE and a member of the Royal Swedish Academy of Engineering Sciences. Also, he serves as Vice President of the Fulbright Association in Japan. He published numerous academic papers and books on both telecommunication technologies and high-technology corporate management. He graduated from Kyoto University, Japan, and received his M.S. and Ph.D. of Electrical Engineering from the University of Florida. Six Laws Dr. Semmoto, if you could give the readers of this book insights into what you believe will be the most important issues going forward for the mobile industry, what would these be?
  33. 33. META-MYTH NO. 4: THE JAPANESE ARE NATURALLY POLITE AND QUIET Dr. Semmoto Six Laws Semmoto 17 I would have to say that above all else, government officials together with industry executives must work to stimulate far more entrepreneurial activities in this industry. Especially because the mobile industry is strategically linked to all industries within a country or region, as well as for individual governments, it is essential that a healthy entrepreneurial spirit pervades this industry. But even if I look at Japan today, we are still lacking many things related to an open, entrepreneurial environment. For example, if you look at the spectrum allocation that the Japanese government has given to the operators, NTT DoCoMo has almost 50% spectrum, KDDI has 30%, Softbank has 15%, and new entrants only have a very small percentage. This is totally unfair. In America on the other hand, the U.S. government has implemented a cap on spectrum allocation to 30%. A model such as this is much more favorable to new entrants, as they are far more likely to have enough spectrum allocated for their use. But in Japan there really is no room for new entrants. We have arrived at this point from the accumulated results of the past. This issue alone can shape an entire mobile industry, and the companies that ultimately operate within it. If I can point out one critical weakness in Japan’s mobile industry, the one critical issue that the Japanese government must address is the development of a cap on spectrum allocation. Otherwise, there will always be one incumbent who dominates the market. This is one of the reasons why the Japanese government cannot find the adequate solution to turn around the Japanese economy in the wake of the global financial crisis. I think the best and only exit from our economic troubles is creative entrepreneurship. If we can spark the development of a new industry, create new businesses that can be adopted and used for the benefit of many people, the mobile arena is the key industry where such things can happen. And you believe that this is one of the most important roles for government authorities to play? Yes, I think that is the most important role that a government must play. And in this respect, the Japanese government has not been very successful with its management of Information Communications Technologies, except for the case of ADSL. The ADSL was one of the exceptional success stories for Japan back in early 2000. This initiative was led by both EACCESS and Softbank’s Yahoo BB!. Together with Masayoshi Son, the founder of Softbank, we initiated a strong and open argument to compete against NTTs monopoly in broadband Internet access. These discussions opened the door for the Japanese government to create a fair environment for competition within the broadband Internet access market. From this foundation, we entered into a number of open debates and forums, which invited a wide range of stakeholders including,
  34. 34. 18 IMMUTABLE LAW NO. 1: VALUE OVER CULTURE Six Laws Semmoto of course, existing operators, new entrants, the media, and representatives from consumer groups. We were able to bring all of these people together in the same place and hold a series of discussions together with NTT. The final results from these discussions were very favorable and very fair. This is why ADSL penetration rates in Japan in the early 2000s were so high and why costs remained so low versus nearly every other country in the world. This is also why I always encourage entrepreneurs to create new businesses and new industries. As entrepreneurs, we were able to reshape the discussions in the industry and within the government oversight bodies. Such entrepreneurial activities are a fundamental factor for a country to become increasingly successful. So I am also very happy that the new ambassador from the United States, John Roos, has a very strong background from Silicon Valley. He has been very influential in encouraging entrepreneurs in the Silicon Valley and, of course, this shows that the Obama administration strongly encourages entrepreneurship, as well as environmental responsibility.The Japanese government has to learn this approach so that our entrepreneurial efforts will keep pace with those in the rest of the world. But even with such a strong entrepreneurial spirit, the United States has been lagging far behind Japan in terms of mobile content and services. This is mostly the result of the actions taken by their former administration. Prior to the Bush Administration, when Reed Hundt— who is on the Board of Advisors for our company—was in charge of the FCC, he emphatically supported entrepreneurship within the US wireless industry. He encouraged incumbents, big corporations, and new entrepreneurs to actively discuss and develop new solutions in the US market. But as far as I know, for the past 8 years the US mobile industry, as well as the overall telecom industry, has been dead. Actually, during this period incumbents like Verizon and AT&T just barely recovered, and because attention was focused on these giants, little attention and support was given to smaller, entrepreneurially minded companies. But now I am very much looking forward to the Obama administration’s policies to encourage entrepreneurs within the US wireless industry. So to summarize, the role of governments should be to help and encourage new entrants, and not to protect the rights and positions of incumbent companies. From my perspective, the mobile industry is the key strategic industry within any country, and its health has far-reaching implications that must be carefully considered.
  35. 35. META-MYTH NO. 4: THE JAPANESE ARE NATURALLY POLITE AND QUIET Six Laws Semmoto Six Laws Semmoto Six Laws 19 Do you see any countries today whose internal efforts of managing their wireless industries may have a significant impact on the rest of the world? I see enormous potential in both China and India. In China, companies, such as Huawei, ZTE, and many of the small start-up companies, have a very fresh and exciting spirit for entrepreneurship and innovation. But the only risk is that these companies are operating within a society that is being actively controlled by the government, including the issue of intellectual property. I actually mentioned this in front of China’s top leaders who visited Tokyo recently for the trilateral commission meetings. During our talks, I frankly and flatly stated that China is a very, very promising market. But the only drawback is government control, especially as it related to the IP issue. As you can imagine, they were not very happy to hear me make these comments. And you also see significant potential in India? India is important because they are an English speaking country. Also, their mentality is more closely aligned with the West, and they have the longest history of democracy in all of Asia. So India is also a large market with significant growth potential, and they have far fewer issues related to the control and influence of the government. But I feel that the country with the greatest potential is China. They have a huge population and the quality of their scientific research is quickly bringing them to the forefront of global technical innovation. For example, we are the first Japanese telecom operator to decide to work with Chinese rather than Japanese technology for our base stations. We are working closely with Huawei, and when we first announced that we would be using their technology, everyone was shocked and surprised by our decision. They actually hated that we had chosen a Chinese high-tech product, and looked down on us for making this decision. They just could not believe that in the Japanese market a Chinese company could create a competitive technology in such a critical strategic sector, the mobile industry. But now, Huawei has established itself as the number two player in the world, second maybe only to Ericsson. And if China can continue to operate in a very fair, open, and transparent manner while continuing to invest so heavily in research and development, China has the potential to become the world’s technology leader in the years to come. If we focus on the fundamental issue of innovation either here in Japan, China, India, or any other market in the world, what do you believe is the most critical factor that will stand in the way of the success of these innovations going forward?
  36. 36. 20 IMMUTABLE LAW NO. 1: VALUE OVER CULTURE Semmoto Six Laws Semmoto If we look at the mobile industry from the perspective of the consumer, clearly the most important issue will be price. As the price decreases, usage of wireless content and services increases. If I look at the EMOBILE pricing plans, even though we are offering a very competitive price versus the competition, I still believe that our price point is too high. Even though we are offering unlimited mobile data service plans, other companies are choosing to implement technical restrictions that cannot truly be classified as unlimited use. This is only addressing the issue of mobile data usage. If we focus on voice as well, then there is still a great deal to be done in terms of connection charges between carriers. It is very easy for us to introduce unlimited voice calls within our own network, but it is still impossible for us to even consider unlimited voice calls outside of our network because of the interconnection charges. This issue applies internationally as well. While each country has their own pricing models or policies, there is definitely room to further decrease mobile data and voice charges globally. As prices decrease, there will again be more opportunities for innovation as consumers will be willing to spend more time using wireless technologies and services. But even if prices decline significantly, one thing that we believe is vital for the mobile platform is a clean, simple and intuitive user interface. Yes, this is a very natural way of looking at the mobile industry. But from our standpoint, we are focusing our efforts on further expanding our network and infrastructure. For companies such as NTT DoCoMo and KDDI, they have already introduced easy-touse handsets that are optimized for the elderly. While these phones may have been developed with a focus on what you call Simplexity, we are purchasing our handsets from Taiwan. And since these are developed to a global specification, it is not possible for us to currently focus on developing phones that are unique for the Japanese market. Actually, we would like to have the time and energy to focus on this point, as customers do sometimes complain that the handsets are too complex. But something that may go against your argument for Simplexity is our experience with simplified pricing. Initially, when we launched our services, we introduced only one unlimited plan for our data service. We offered only one price, and in line with your theory, we felt that consumers would prefer this simplified approach to pricing. But at the same time as we were offering this simple pricing plan, our competitors had developed what is called Double Teigaku, or a two-tiered pricing scheme. They offered an extremely low Tier 1, or price floor, in order to lower the barriers that consumers might
  37. 37. META-MYTH NO. 4: THE JAPANESE ARE NATURALLY POLITE AND QUIET Six Laws Semmoto Six Laws Semmoto 21 feel in shifting to a flat-rate pricing plan. As customers use these network services more, their monthly prices increase until they reach the Tier 2 price ceiling for their unlimited usage plan. Consumers preferred this type of pricing model, and because of this, we also have begun offering these more complicated pricing plans. From a consumer behavior standpoint, I definitely can understand why consumers have reacted in this way. But as they adopt unlimited pricing plans, as you have already stated, their usage of wireless content and services will increase. Is EMOBILE focusing on developing an ecosystem similar to those that other operators in Japan have built? Fundamentally at this point in time, EMOBILE is an infrastructure company. We still consider ourselves to be a venture start-up business, and because we are still at the very early stages of our development, it is critical for us to remain focused. Our current focus is almost exclusively on infrastructure. Where we are seeing the greatest opportunity at this point is actually helping people to switch from their fixed-line telephones to our wireless phone services instead. As your research has shown, most mobile phone usage is from fixed locations, so it is very easy to use a mobile device as a fixed line phone. This is where we see a legitimate growth opportunity for our business. As we continue to focus on building our infrastructure, we are doing so with the idea of modularity in mind. By doing so, we have built the capability to integrate different modules for content or service solutions that other companies develop into our network. As we develop new partnerships, we must be able to take the broader view of how to best develop the entire ecosystem. Is this a business model that entrepreneurs in other markets around the world could also implement? I think it is possible and it is an interesting model, but in most cases entrepreneurs focus on new mobile businesses from the service side not the network side. It is actually much easier to enter the market from the service side, because from the infrastructure side you must have access to a great deal of money. An infrastructure business is a huge investment, and it is therefore very hard for a startup to enter from the infrastructure side of the equation. A more traditional model that I see is that the entrepreneur will develop a service business that appeals to a wide audience. At this point it is then possible for that business owner to invest in the infrastructure side of the business. It is actually a very rare case for a venture business to start from the infrastructure side.
  38. 38. CHAPTER 2 IMMUTABLE LAW NO. 2: THE LAW OF THE ECOSYSTEM While we hope you agree that specific cultural factors have not led to Japan’s mobile success, some very strange results remain on the table for us to consider. Example: At the end of 2007, Japan’s 100 million mobile phone subscribers represented less than 3% of the world’s mobile phone subscriber population, yet 33% (or 82.3 million) of the world’s approximately 250 million third-generation (3G) mobile phone subscribers were in Japan (see Fig. 2.1). The Japanese market is far more advanced in terms of the network capabilities and types of content and services its mobile subscribers enjoy. Figure 2.1 Japan accounts for a third of the broadband market. The Six Immutable Laws of Mobile Business, by Philip Sugai, Marco Koeder, and Ludovico Ciferri Copyright © 2010 John Wiley & Sons, Inc. 22
  39. 39. IMMUTABLE LAW NO. 2: THE LAW OF THE ECOSYSTEM 23 The differences do not stop there. Examining the revenues generated from advanced data services, such as text messaging and mobile Internet content use, we find that while total global revenues from mobile data stood at $120 billion in 2007, Japanese mobile subscribers contributed $23.2 billion (~19%, Fig. 2.2). Maybe you think short message services (SMS) messaging is too “2.5G” to be considered for advanced mobile data use. Remove the revenues derived from sending SMS or text messages, however, and you will still find that Japanese mobile consumers contributed approximately $3.6 billion, or 36% of the world’s $10 billion in nontext-related mobile data revenues, as shown in Fig. 2.3. These numbers tell us that something is amiss when we compare the Japanese mobile market with other markets. How can <3% of the world’s mobile subscribers account for 33% of all broadband wireless users, 19% of all data revenues, and 36% of all advanced data revenues? If these differences cannot be attributed to Japanese consumers, they must be the result of something unique to Japan. Figure 2.2 Japanese mobile subscribers supply a disproportionate slice of revenues. Figure 2.3 Revenue from advanced mobile data use shows an even greater disparity.
  40. 40. 24 IMMUTABLE LAW NO. 2: THE LAW OF THE ECOSYSTEM As we have shown in Chapter 1, the culture of Japan itself is not responsible for such differences. Perhaps the reasons exist in the underlying technologies applied to the Japanese market. The next step is to investigate the differences between mobile technologies in Japan and the rest of the world. We decided to look at the three most important wireless communications technologies launched commercially after the first 1G (first generation) Nordic Mobile Telephony mobile service introductions in 1981 in Saudi Arabia, Sweden and Norway (Groupe Speciale Mobile, GSM, CDMA, and PDC). A BRIEF HISTORY OF GSM The GSM story starts in 1982, when the Confederation of European Posts and Telecommunications (CEPT) formed the GSM to design a Pan-European mobile technology. The European Commission endorsed the GSM Project in 1984. One year later, France, Italy, the United Kingdom, and West Germany signed a joint agreement to develop GSM. Early 1987 brought an agreement on the basic parameters of the GSM standard, and the GSM Memorandum of Understanding (MoU) was promoted. A total of 15 members from 13 countries committed to deploying GSM through the Pan-European Digital Conference. Validation trials in 1988 proved that GSM technology was viable, and in 1989 the GSM became a technical committee within the European Technical Standards Institute (ETSI), which helped to define GSM as an internationally accepted digital cellular telephony standard. Network operator Radiolinja in Finland placed the first GSM call in 1991. The following year, Telstra Australia became the first non-European operator to sign the GSM MoU, and Telecom Finland and Vodafone (UK) signed the first international roaming agreement. During the same year, the first SMS using GSM was sent. By 1993, 32 networks were using GSM in 18 different countries or territories, and the first true hand terminals meeting the standard were launched commercially. By 1994, there were more than 100 GSM operators and 1 million subscribers around the world. Within a year those figures rose to 117 networks and 10 million unique users. By 1996, the first GSM networks were deployed in Russia and China, while prepaid GSM SIM cards appeared in Italy. During this same year, 167 networks were officially using GSM in 94 countries and GSM had 50 million subscribers. In 1997, the United States alone had 15 GSM networks, and by 1998 there were over 100 million GSM subscribers globally. In 1999, GSM gained another layer, called the Wireless Application Protocol (WAP). This protocol was viewed as the advanced data companion to GSM and other wireless technologies. Wireless Application Protocol trials began in France and Italy the same year, and next-generation (2.5G) GPRS systems were deployed for the first time. In February 1999, Nippon Telegraph and Telephone Corporation DoCoMo (DoCoMo stands for “Do Communications Over the Mobile Network”, and the word dokomo also means “everywhere” in Japanese.) (NTT DoCoMo launched its i-mode mobile Internet service in Japan.
  41. 41. A BRIEF HISTORY OF PDC 25 A BRIEF HISTORY OF CDMA The second technology standard to consider is CDMA, which stands for Code Division Multiplex Access. When the world’s first cellular networks were introduced using analog radio transmission technologies, such as Advanced Mobile Phone System (AMPS) in the early 1980s, it became clear that a higher level of network capacity required accommodating more user traffic within a tighter radio spectrum. To accomplish that, the industry developed a new set of digital wireless technologies—Time Division Multiple Access (TDMA) and Global System for Mobile—that used a time-sharing protocol. In essence, these technologies allocated milliseconds of time to all users accessing the wireless network. The move to digital network access, though, made segmenting network usage by code rather than time feasible. Under CDMA, all mobile network users received a unique code that allowed them to access the network continuously rather than intermittent, timed access. But CDMAs road was not a simple one. In fact, a panel of the world’s leading engineers reportedly met in Japan in the early 1990s to discuss the development of wireless CDMA technology as a standard. They concluded, however, that it was impossible. To the founders of Qualcomm, however, “impossible” simply meant that several thorny technical issues needed to be overcome. With unstoppable entrepreneurial spirit, Qualcomm’s team solved them all, establishing CDMA as a legitimate wireless communications standard (and patenting it to ensure their ownership). Launched commercially in 1995, the first CDMA networks provided roughly 10 times more capacity than analog networks, and far more than TDMA or GSM. Besides supporting more traffic, CDMA brought mobile carriers and consumers better voice quality, broader coverage and stronger security, among other benefits. Now, CDMA has over 100 million subscribers worldwide. A BRIEF HISTORY OF PDC While GSM and CDMA gained massive popularity, Japan bypassed them for a homegrown technology developed by NTT DoCoMo. The NTT corporation created NTT DoCoMo in August 1991 to take over the company’s mobile cellular operations. In July 1992, NTT DoCoMo became an independent company and was listed on the Tokyo Stock Exchange. To some extent, NTT DoCoMos history is the history of mobile communications in Japan. The company launched Japan’s first analog cellular phone service in 1992 and its first digital cellular phone service in March 1993. The latter was based on a 2G mobile phone standard NTT DoCoMo developed called Personal Digital Cellular (PDC), which was used exclusively in Japan. The PDC (like its main rival, GSM) used TDMA. Personal Digital Cellular became an official telecommunications standard in April 1991. The relatively weak broadcast strength of PDC fostered the development of small, portable phones with light batteries, although this came at the expense of voice quality and problems maintaining call connections.
  42. 42. 26 IMMUTABLE LAW NO. 2: THE LAW OF THE ECOSYSTEM In March 1997, NTT DoCoMo launched Japan’s first packet data communications service. In February 1999, the company introduced its 2.5G i-mode, the first such service with national coverage. Similar to GSM, the adoption of PDC (and more specifically i-mode services) were a spectacular success. By August 1999, i-mode had already attracted 1 million subscribers, tripling that number by December of the same year, and more than 15 million by December 2000. At the end of 2000, there were 50 million PDC subscribers in Japan. Approximately 24 million of them were advanced data subscribers using mobile data services, such as i-mode or its competitors EZ Web from KDD and J-Sky from J-Phone. By May 2001, i-mode alone had more than 23 million subscribers. But DoCoMo, looking to integrate more robust data content into its network, knew PDC could not evolve into a wireless broadband service. In May 2001, with i-mode subscriptions still climbing, DoCoMo launched the world’s first commercial 3G wireless broadband service in Japan, called FOMA, which stood for “Freedom of Mobility Access”. This broad band service was a clear departure, not a next-generation PDC technology, but a homegrown breed of CDMA technology called W-CDMA (for wideband CDMA), its launch was a clear sign that the future of wireless technology was code division based. In September 2003, after achieving a peak of more than 62 million subscribers for PDC services in Japan, the Japanese mobile market embraced next-generation technologies based on CDMA technology. IS TECHNOLOGY THE REASON? Despite launching a completely different underlying technology (PDC) for mobile network connectivity, Japan was adopting mobile phones in 1999 at a rate similar to other countries. Hong Kong, Taiwan, Iceland, Austria, Italy, The United Kingdom, Finland, Sweden, and Norway achieved penetration rates of over 70%, in fact, while Japan only reached 50%. It would be hard to conclude that PDC technology was responsible for Japan’s differences in mobile Internet use. However, the differences between the Japanese market and the others outlined above were based on advanced data usage, not general mobile adoption trends. Since we are lucky enough to have a technical standard (WAP) that was developed purely for mobile data usage and applied both in Japan and globally, perhaps it will supply our answer. A WAP PRIMER A global consortium of companies that included Motorola, Nokia, Ericsson, and Phone.com created WAP. The consortium morphed into a formal membership organization that at its high point boasted over 100 members, including virtually all the major names in the industry. The organization configured the WAP protocol to allow any operator to integrate advanced mobile data content into their network of service offerings. The protocol gave manufacturers, content developers, and other players in the mobile industry
  43. 43. A WAP PRIMER 27 the ability to create a platform for advanced mobile data use. According to the WAP Forum (renamed the Open Mobile Alliance in 2002): WAP is a worldwide standard that empowers mobile phone users to easily access Internet portals rich with information and services—in effect creating a ‘mobile adapted Internet’. A press release from CNN and Nokia at the time of the launch (Fig. 2.4) shows how much hope and hype surrounded WAP. CNN Interactive and Nokia Join Forces to Develop CNN Mobile, 24-Hour News Service for Digital Mobile Phones HELSINKI, Finland — (BUSINESS WIRE)--February 23, 1999-CNN Interactive today launched CNN Mobile, the first mobile telephone news and information service to be available globally with pan-regional content. CNN Interactive worked closely with Nokia to develop the platform for CNN Mobile. The service, which is initially targeted at GSM mobile phone customers in Europe and Asia/Pacific, is the latest way that consumers can access CNN while they are on the go and at any time they choose. CNN Mobile is the world's first global value-added service to be built on the Wireless Application Protocol. CNN Interactive commercially licenses and markets CNN Mobile. "We are living in an active world, and now through CNN Mobile, CNN will offer mobile phone customers the news they want, whenever they want it, from the company they trust," said Mark Bernstein, general manager of CNN Interactive and senior vice president, CNN. "Our close cooperation with Nokia, the market leader in the wireless world, has allowed CNN to develop a comprehensive news service that not only takes advantage of the existing technologies, but also will have an evolutionary path due to the latest developments in mobile phone technology." …. Figure 2.4 Selling WAP.
  44. 44. 28 IMMUTABLE LAW NO. 2: THE LAW OF THE ECOSYSTEM …. CNN Mobile's content is optimized for SMS delivery and supports the Smart Messaging concept developed by Nokia, which today is used by several GSM operators. CNN Mobile also is Wireless Application Protocol (WAP) compliant, and the use of WAP technology will allow CNN interactive to develop multimedia content to be delivered to the screens of WAP mobile phone devices. WAP is an open and global standard, which is optimized to deliver value-added services to digital mobile phones via wireless networks. The CNN Mobile service is independent of mobile phone manufacturer, gateway server manufacturer or network provider.” Figure 2.4 (Continued) The consumer and media response to WAP was anything but positive, however, as two subsequent articles from ZDNet and The Register show (see Fig. 2.5 and 2.6): The feedback was clear, but the frustrations expressed were misplaced. Many Japanese companies were WAP Forum members, and while the Western media was proclaiming it a horrible failure, WAP became the backbone for some breakaway successes in Japan’s advanced mobile data space. In fact, WAP worked in Japan right from the start. The two main competitors of DoCoMo integrated WAP directly into the fabric of their offerings. The KDDIs EZ Web data content service, which competed directly with DoCoMos i-mode, was built on WAP, and Japan Telecom’s “J-Sky” service had integrated WAP into its most popular photo-sharing mail service, called “Sha-Mail”. Sha-Mail was considered one of the most innovative, advanced mobile data services yet launched, with millions of Japanese youth scurrying to snap postage stamp-sized photos of themselves to send over the mobile network to friends. As of June 2000, when the ZD Net article quoted above appeared, EZ Web had over 2 million subscribers, and J-Phone had 3 million. By May of 2001, when WAP was still “crap” according to the United Kingdom’s Register, their combined total was close to 14 million subscribers, many using WAP. The newly formed KDDI deemed PDC inferior to CDMA and quickly adopted the latter. The PDC was slated for extinction anyway as Japan switched from 2.5G to 3G services. If PDC were behind Japan’s advanced mobile data successes, surely it would have received more favorable treatment inside Japan and more respect globally. However, this was not the case.
  45. 45. THE VALUE SYSTEM VERSUS THE ECOSYSTEM 29 One wireless viewpoint: “WAP is crap” By Nicole Manktelow Source: ZDNet Too-high prices, a lack of applications and carrier-imposed content restrictions will prevent WAP -- touted as the mobile market's next big thing -- from being more than a "toy" in Australia. Most WAP (wireless application protocol) users can only view the content prescribed by their carrier. And at an average cost of 20 cents per minute, there's little reason to keep them interested, according to telecommunications industry analyst Paul Budde. "WAP is crap -- there are a lot of problems in the area. It is a toy for companies to learn about. So far, none of the applications are compelling," Budde told ZDNet Australia. Budde said his prognosis is not surprising, because “in Germany and the UK, WAP has flopped. It is seen as a dead duck”. Figure 2.5 This posting on ZDNet detailed several WAP shortcomings. So if cultural differences and the underlying technology do not explain why Japan has embraced mobile data so rapidly and widely, what does? Moreover, what law can be derived from the answer to apply to the rest of the world’s mobile initiatives? Our answer is encompassed in one word: ecosystem. THE VALUE SYSTEM VERSUS THE ECOSYSTEM To understand why we believe Japan’s mobile ecosystem is the answer, we must look at the organizational structure of the nation’s mobile industry.
  46. 46. 30 IMMUTABLE LAW NO. 2: THE LAW OF THE ECOSYSTEM WAP is still crap No one's using it, and can you blame them? By Kieren McCarthy Source:The Register, May 24, 2001 Even the foolish people who have bought WAP phones hardly ever use the WAP features, according a Meta Group survey. Apparently, 80 to 90 per cent of WAP phone owners only ever use the phone for voice calls. Why? Because the few services which do exist for WAP phones are difficult to use, taken ages to work through and are generally more trouble than they're worth. The Meta Group says "limited content, slow networks, high latency times, and generally poor user ergonomics have not met the high user expectations and hype that accompanied WAP-enabled devices when they were first introduced". Basically: it doesn't live up to the hype. WAP will not get anywhere either until, well, until it's any good, Meta says. Figure 2.6 The media pulled no punches in its WAP evaluation. Let us start with Harvard Business School professor Michael Porter’s concept of competition. According to Porter, who originated the term “value chain”, firms compete within a value system linked to a specific product or service offering. Porter says the value chain applies only inside a company, whereas the value system applies to the overall industry. Porter adds: “The value chain disaggregates a firm into its strategically relevant activities in order to understand the behavior of costs and the existing and potential sources of differentiation”. This value chain is “embedded” within a larger stream of activities that Porter calls the industry’s overall “value system”.
  47. 47. PLAYER CATEGORY 1: NETWORK OPERATORS 31 The Value Chain Human Resources / Infrastructure rgi Ma Secondary Activities Technology Development n Procurement Service in Marketing & Sales Ma rg Inbound Operations Outbound Logistics Logistics Primary Activities The Value System Supplier Value Chains Firm Value Chain Channel & Buyer Value Chains Source: Porter (1995) Figure 2.7 Michael Porter’s value chain and value system. As Figure 2.7 shows, this value system includes all participants within the overall operating framework of an industry. This is typically the way industry structures and business models are outlined. Depending on how you view the mobile industry, there are basically eight categories of players in the value system: network operators, infrastructure providers, handset manufacturers, middleware providers, software providers, content providers, service providers, and the end-users or customers of mobile communications services (see Figure 2.8). PLAYER CATEGORY 1: NETWORK OPERATORS Network operators can be defined as companies that offer branded mobile services to the end consumer, including voice and data service packages. While there are many types of network operators, from mobile virtual network operators such as Virgin Mobile and Disney Mobile in Japan to more traditional operators such as SingTel, NTT DoCoMo and AT&T, network operator primarily provide network connectivity to subscribers.

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