Japanese group expects its mobile internet service, to be launched here this autumn in partnership with O2, will sizzle rather than fizzle, writes Karlin Lillington in Tokyo.
As the automated doors glide shut and the Tokyo subway train rolls out of the station,half-a-dozen passengers squeezed in to the packed car immediately flip open their mobile handsets, joining a similar number already staring intently at their screens.
Thumbs jabbing at their phone controls, these Japanese commuters are doing what 70 per cent, or 44.5 million of them, do regularly - use i-mode. I-mode is the subscription-based mobile internet service from major Japanese telecommunications operator NTT DoCoMo that almost single-handedly brought Japan into the internet age after its launch in February 1999.
At that time, despite being an electronics-focused country, Japan had a low 21 per cent level of internet penetration. I-mode, with its simple one-button access to the i-mode network, made online access cheap and easy and gave many Japanese people their first introduction to e-mail, says Takeshi Natsuno, managing director, multimedia services, NTT DoCoMo.
Five years later, i-mode is as central to Japanese culture and life as sushi, sake and cartoon character Hello Kitty. Some 55 per cent of i-mode users under 35 use it daily - more than read a newspaper - and 80 per cent use it at least three times a week, with most checking in before bedtime (over half of users) or just after work or school (28.5 per cent of users).
With i-mode, the Japanese do everything from trade shares (10 per cent of all securities in Japan, worth five billion yen (€38 million) monthly, are traded via i-mode) to book restaurants, check train and subway schedules, send animated e-mails, hunt for apartments or hot dates, and buy games, ringtones, CDs, books and tickets.
Last year, the service brought in US$10 billion (€8.3 billion) in revenue for DoCoMo, approaching 25 per cent of total revenue for the company, making DoCoMo one of the few operators that has successfully done what all operators desperately want to do - move users away from low-margin voice and towards receiving and sending high-margin data.
DoCoMo has been so successful in doing this that though the company serves one of the smaller telecoms markets in the world, DoCoMo rakes in 16 per cent of the global data revenue total, says Natsuno.
Now, the company in partnership with O2 is hoping the Irish and British will embrace i-mode when it launches in the two countries this autumn.
The UK and Ireland are "the last major market for us to introduce the i-mode service into Europe", notes Keiichi Enoki, DoCoMo director of i-mode services and self-described "father of i-mode" (with two others he came up with the idea within DoCoMo in the late 1990s; he says i-mode has made millionaires of many of i-mode's content providers but adds wryly that he has made no millions himself as he is a DoCoMo employee).
The way in which DoCoMo offers content to users is what many analysts believe is the key to i-mode's success in Japan. DoCoMo does not develop or buy content, nor does it take the 50 to 60 per cent revenue share cut from content makers typical from other carriers that provide content to subscribers. Instead, DoCoMo takes only a 9 per cent charge on revenue from official sites - to which it provides billing services and some promotional help - and no charge at all from unofficial sites, which keep 100 per cent of their revenue.
This model clearly has proven very attractive to content developers and resulted in a boom in site development. In Japan, i-mode offers content from some 4,000 official sites and an extraordinary 80,000 plus unofficial sites.
Users subscribe to sites that interest them, which usually offer some free content and bill in small amounts for premium content, the latter generating 15 billion yen monthly for the official content providers, says Enoki.
"Good content brings in more users, and when there are many users the content providers are inspired to make more, and innovative, content," he explains. "It is like a snowball on a hill; if it starts to run it gets bigger and bigger naturally."
If DoCoMo isn't taking much of a revenue cut, what's in all this for them? A motivation to be a DoCoMo subscriber in order to get i-mode, and traffic revenue from using the service, say DoCoMo executives. The vast majority of i-mode revenue to DoCoMo comes from the increase in data traffic when users connect to the service and download material, send e-mails, and so on, a total of one trillion yen annually in revenue for the carrier.
While i-mode has made DoCoMo an internationally known brand, DoCoMo's initial push to spread i-mode into Europe and other locations has fizzled rather than sizzled. The company made huge investments in overseas operators that it hoped might then bring in i-mode, but this didn't happen and the investments in companies such as 3 in the UK had to be written down.
However, its new chief executive, Masao Nakamura, has taken the approach of licensing i-mode to other carriers, with O2 UK and Ireland the latest. Licensees become members of the "i-mode alliance", which discusses relevant issues such as platforms, handsets, content, marketing and strategy. DoCoMo remains a guiding parent and partner.
After additional teething problems with some poor quality i-mode handsets in Europe, this approach is slowly but steadily ratcheting up the global i-mode user base, which stands at about four million outside Japan, primarily in Europe and Asia (North America, India and China remain i-mode-less but are in DoCoMo's eventual sights, says Enoki).
DoCoMo likes to instead stress the potential market represented by subscribers belonging to carriers that offer i-mode - some 170 million customers.
The European i-mode business model has tended to be different than DoCoMo's, with carriers taking 15-20 per cent from official sites (mainly to cover the risk of non-payment of bills by users, says Michiel van Eldik, O2 UK's director of i-mode, global content and applications, though Enoki says he disagrees with any carrier charging more than nine per cent).
In Tokyo, O2 would not reveal its plans for working with content creators or for setting up its i-mode service, but says it is well into discussions with many in the UK and Irish markets.
It will launch the service this autumn, most likely with several handsets.
Some European carriers say they are already seeing the hoped-for uplift in data traffic from their i-mode implementations. Bouygues, the third operator in France,with 18 per cent of the market, now has 1.2 million i-mode users after a late-2002 launch of the service - more than 27 per cent of all postpaid subscribers -and in the fourth quarter they contributed €3.6 billion in revenue to Bouygues.
The company says that the difference in revenue monthly between i-mode and non-i-mode users is up to €10-€15, a figure that includes the increase in voice and SMS use that typically applies to i-mode users.
O2 says it too expects good data traffic growth once it launches its i-mode service. "It's fast, simple, and it works right out of the box," says Colm Codd, head of consumer services, O2 Ireland. It is also especially fast over 3G handsets.
But only time will reveal if i-mode will become as much an obsession on the Dart and Luas as it is on Japan's bullet trains and Tokyo subway lines.
