TechCrunch Remix | Japan’s unique mobile ecosystem?

+8* Japan ThoughtsPublished August 11, 2008 at 10:07 am 8 Comments

TechCrunch recently took on the task to initiate its readers to non-Valley phenomenon, and takes a dive into Japan’s mobile ecosystem. Despite the pedagogical work, it feels like the year 2000 all over again.

[A] Yes, it’s different

1. The infrastructure

Yes, Japanese telcos did not pay license fees, have a dozen of manufacturers (NEC, Panasonic, Toshiba, Sanyo, Sharp, Kyocera, etc.) to serve their needs, have built a nice ecosystem to deliver and charge for content.

Yes, foreign telcos failed to do that. Sad.
For open standards, there might be a chance, but Apple at least seems not to be going that way in the US.

That many governments found great to tax telcos – who eventually have to make money from consumers – surely slowed down their growth, but let’s get over it!

Sure, manufacturers like Nokia, Samsung, LG, (Motorola?) who churn millions of phones per week have a strong grip on telcos, but also drive prices down, technology up, and will probably still be around when half of Japanese mobile makers will have folded their mobile biz (is it still sustainable to produce 5 millions mobile phones a year to serve 10% of a 50 million ultra-competitive handset market? Especially when operators are now shying away from subsidies in favor of payment in installments to increase profitability).

So things are different, nothing is perfect, let’s deal with it.

2. The people

Yes, Japanese commute by train and subway, have small fingers (?), like Hello Kitty (is that an English name?), are techies and so on. Oh, and they like manga too.

Yes, Americans drive their car, have big fingers, like Disney, are not techies (?).
Oh, and they like comic books. Or is it that manga are more popular now?

Now, Americans still have mobile phones, manage to type on tiny keyboards (even tinier than the ones on Japanese phones), and watch things relevant to their culture and interests – basically, consume content. When it comes to fundamental drivers, are we so different?

[B] But the point is not even to decide whether or not we are different!

Because if we conclude “yes”, this is the end of the learning, and we would miss a lot. The point it to learn what can be used to grow our mobile markets. Too unique? Can it be replicated? Those questions are intellectually pleasing, give lots of room for opinions, fun stereotypes, but give very little insight on what to do.

What is tough is to give enough cross-market and cross-cultural perspective to highlight best practices and learn from them. It’s tough because it takes years and a lot of questioning to build such expertise. Let’s try and prove this point with some examples:

[C] What to learn from Japan’s mobile market

1. First in Japan

Let’s dig out some techno-history:

• Camera phones? First in Japan – Nov 2000
• TFT color screens? First in Japan – Dec 2000
• Commercial 3G? Oct 2001
• QR code reader? Guess – Aug 2002 (the world is gaining interest now about them as cross-media technology…)

There is more:

• Ringtones a big market? Probably first in Japan (“Because they love karaoke!” – sure)
• Ring songs a big market? Mmm (“Who would pay for short music clips? We have iTunes!”)
• Full songs download? Bis repetita (“It’s more expensive than on Internet and we already have PCs!”)
• Blackberry-like push email? It replaced SMS back in 1999.

So what is the future? Entertainment again? Games? Mobile TV? Videophones?? If we look at what has been popular since yesterday, and what is becoming popular today, we’ll probably have at least some insight about the future of mobile.

• Yesterday: mobile advertising (we’re catching up!), mobile search (“we have Google!”), mobile blogs (Facebook is on mobile too!)
• Today: mobile comics (on this tiny screen!?), mobile novels (and writing them!?), mobile commerce (why buy on mobile when we have eBay?).
• Tomorrow: awaiting your contact.

Of course, there is a lot of work in adapting to our market conditions and respective cultures, but the concepts that worked so far are surprisingly similar, so why not to look?

2. Japanese techno geeks?

If there is one long-lasting stereotype, it must be this one. When you ask the average Office Lady or Salaryman about tech things, our street-level measure has been far from sticking to this image. But was Japan really lucky to achieve those successes? Maybe, maybe not. Maybe it’s because they tend to try first, and see later. Also, they bury failures quite quickly and move on.

As for the “techno-freaks” image: most Japanese today don’t know:
(1) What is 3G (which brings another question: do users need to know? Are marketers that desperate?)
(2) If their phone is 3G (answer: 90% Yes)
(3) That their phone can do video phone (over 50% yes though practically nobody uses this function, as telcos simply gave up on marketing it. We expect a comeback as people are now familiar with webcams. “video phone is the new mobile webcam”)

As was said by i-mode’s inventor Takeshi Natsuno: “It’s not about bandwidth, nor standards, nor unique Japanese culture. It is about fun and convenience. Japanese put great effort into designing new technologies that can be adopted by anyone, especially techno-phobics.”.

To make it short, think Wii.

3. Okay, there might be some truth. So give me the next big thing!

In addition to the various services mentioned above, here are some ideas on business models.

a. Walled garden and paid content

What is quite interesting is that the iPhone applications store is very similar to what the i-mode ecosystem was in the early years. Paid-for content, and some free content. Controlled delivery and rendering. Basically, omg, a walled garden!

b. Ad-sponsored

Now the other interesting thing is how the original walled garden model evolved. Because it did! As the ecosystem grew larger and bandwidth became a commodity with flat-fee offers from telcos, new business models emerged: advertising sponsored, from CPM to CPA.

Those familiar with MVNOs surely know about the ad-funded operator Blyk. Guess which market the boys @ Blyk benchmarked to study the viability of their model? Bingo: Japan! Last year there was over 500 million USD poured into the mobile advertising market in Japan. For 100 million mobile phones. That’s 5 USD per user. Say that half do not use mobile Internet, that’s 10 USD per head. And most is roughly targeted ads! Increasing the targeting increases the value of ads.

c. Mobile as sales channel

And even better news, as there was no scarcity of content – driving prices down to zero – other models appeared: no ads, but mobile as a CRM tool. Driving sales from mobiles, how about that? Mobile commerce represents more money than mobile advertising. Rakuten, Japan’s largest B2C e-commerce site, recorded 20% of its sales via mobile phones. Not bad. Another company specialized in fashion accessories recorded over 100 million USD last year in sales via mobiles. Now that’s interesting.

d. Mobile as media

Our good friend and fellow consultant Tomi Ahonen is working on it “Mobile: the 7th media”. When TV appeared some surely said “this is really dumbed down cinema” – but TV was not small cinema, nor was it “radio with images”. Despite obvious limitations, mobile encompasses all previous media (print, recording, radio, TV, cinema, Internet) and is always with its owner.

[D] Living a revolution?

Though mobile should be a dream come true for advertisers at least! But as Clay Shirky mentions in his “Here Comes Everybody“, social change is often decades late after technological changes.

Our opinion is that it is uber-hard to “train people”, and that generally what happens when a technological revolution starts to take off is that those who did not quite “get it” gradually phase out, giving way to a new generation to whom the value and usage are a no-brainer. Who among the commentators on the TechCrunch’s article can type a message without looking at the mobile screen? Cannot? You’re already out.

Now the problem is that opinion and decision makers on those services and technologies are generally not the ones who are going to use them. If an exec cannot see the value today for himself, it is hard for him to decide to promote it, and when he might see this tomorrow, it will already be too late (as in “outrun by competitors” like it happened with Nokia’s famous late start in flip phones – the so called “Asian design” vs. the “European candy bar”).

For more ideas on why West and East are so disconnected, we gave several presentations and speeches (here | 25 minutes on Asian innovation in Sydney). Some other can be found here and on Slideshare.