Earlier this month, I wrapped up a 7-city seminar tour, "Mobile Kaizen in Japan." The one-day MKiJ seminars, co-produced with Jan Michael Hess from Berlin consultancy Mobile Economy, were an in-depth look at the success factors behind the wireless Internet in Japan. Here are some of my own findings ...
Our seminars employed recent video extracts provided by the
Wireless Watch Japan media project, where I am business manager, as well as slide presentations created by us; we also used a selection of sales, marketing, and promotional items from carriers, content providers, and mobile marketing firms that I had collected over the past year in Tokyo to help illustrate the "Mobile Marketing" session (Presentation School 101: props always help the audience stay awake!).
Attendees included mid- and senior-level people from carriers, content providers, consulting firms, and mobile application houses, as well as several academics, some students, and one or two journalists. All in all, it was a fun, eye-opening experience, and - as best I can tell from verbal and mail feedback - was well enjoyed by our audience.
When we conceived of the seminar series back in August, I initially thought the
presentations would be an excellent way to pass on some of what I had learned from studying the Japanese mobile market over the past 4 years. After all, not everyone has traveled to Japan, spent time with inside players like NTT DoCoMo, KDDI, or Vodafone, and studied that trend-leading market in-depth; I have, and it seemed natural to spread the wealth now that I'm based near Frankfurt, in the heart of the GSM world.
But while the attendees all seem satisfied, surprisingly, it was me who did a lot (most?) of the learning. Buried as I have been in the Tokyo mobile scene since 1999, I really had little first-hand knowledge of the GSM markets.
Yes, I had read about SMS, roaming, SIM cards, browsing the WAP web,
two-year contracts, and other aspects of Europe's GSM carriers, but I
didn't really understand how these elements fit together. SMS is just
like email, but sent via a different bearer circuit, right? And browsing
European carriers' WAP webs is just like i-mode now that there's GPRS,
right?
Was I ever wrong!
In fact, after speaking with attendees, answering questions, and
discussing at length the problems and issues faced by mobile economy
participants here, I've learned that Europe's wireless Internet situation is radically different from Japan's - and that the differences are unlikely to disappear until the lead players in the mobile Internet value chain - the carriers - make some radical changes.
(Pricing of) SMS vs. mobile email is one major differentiator between Europe and Japan
Case in point: SMS. While SMS is seemingly similar to mobile email used
in Japan (cross-carrier compatible, text-based, immediate send-and-deliver),
the simple SMTP-based mail used by DoCoMo, KDDI, and Vodafone.jp is still far superior.
The Japanese message lengths are longer (in some cases, 1,000
characters), address book functionality on handsets is definitely
superior (based on an admittedly none-too-scientific comparison of my
new T-Mobile Samsung and my old DoCoMo Panny - but MKiJ attendees
offered lots of supporting testimony about flaky address books and
composition software on other European handsets, too), and all three
offer proprietary extensions called "e-moji" - basically emoticons that
make email richer, more fun, and easier to send.
But the consumer cost difference is what really staggered me.
It costs 0.3 yen to send 1 packet on DoCoMo's 2.5G i-mode network in
Japan; 1 packet is 128 bytes, so a typical simple email might only cost
1 yen (and even cheaper on 3G, where the average packet price is around
0.06 yen/packet).
SMS messages, in contrast, cost 19 Euro cents to send 160 characters on
all four carriers in Germany (T-Mobile, Vodafone, E-Plus, and O2)!
Further it costs content providers a lot to simply send SMS into the carriers'
systems - "Mobile Terminated SMS" (MT SMS) can cost up to 6 Euro cents each!
In Japan, mobile email is key for mobile marketing and the unofficial webs
In contrast, in Japan, email has become a key tool of opt-in mobile
marketing, third-party access to consumers, and other services on
i-mode, EZweb, and Vodafone Live (ex-J-Sky) precisely because it is
cheap and senders from outside the system don't pay; sure, the receiver
does have to pay, but when the message contains coupons, discounts, new
product info, and other valuable data, the 1 yen fee is trivial and
acceptable.
(Granted, this open and cheap mail platform creates a ripe situation for
mobile spam - which Europe doesn't have yet - but Japanese carriers are offering
more or less effective measures and, when they fail, NTT DoCoMo, at least,
offers 400 free packets per month.)
And on Japan i-mode, lots of people love to get those opt-in mail
marketing messages. According to one independent research company
(InfoPlant, March-April 2003 survey of i-mode users), 71.1% receive
email newsletters (68.5% male, 72.5% female), 50.1% receive at least 3
email newsletters per week, and 64.3% received newsletters featuring
info on new products and services; 19.4% received newsletters featuring
coupons. Mobile email marketing is now a firmly accepted part of the
mobile Internet in Japan.
I suspect that mobile Europeans would like to receive discounts,
coupons, product info, and promo messages as much as the Japanese (based
on traditional coupon usage that I've seen at retail shops in the
Frankfurt area); the culture of the end-user has nothing to do with
saving money and taking advantage of a bargain - that's universal.
This represents a huge third-party economy growth opportunity (many of
the email marketing services in Japan have nothing to do with the
carriers' official default menus) that simply won't happen in Europe
until carriers cut SMS costs. SMS is technically capable of providing
the same service (well, almost - you can embed a URL link in an email
message in Japan but not in an standard SMS in Germany) but is just too
expensive.
Note that in Germany, you're not paying by the packet (SMS is sent via a
circuit-switched GSM channel); but my colleague Jan Michael Hess offers
an interesting summary. At 0.3 yen per packet, it costs a subscriber in
Japan the equivalent of 21.80 Euros to send or receive 1 megabyte of
data on 2.5G i-mode in Japan (depending on exchange rates). If SMS were
priced per megabyte, based on 19 Euro cents per 160-character message
(that's 140 bytes due to 7-bit encoding; so multiply by 7,142 to get approximately
1 MB), consumers would be paying 1,356.98 Euros, or about 62 times what
Japanese i-moders pay!
Throughout our MKiJ sessions, questions and comments from the audience
consistently pointed out these and similar inconsistencies and price
differentials between what carriers in Germany are charging versus
Japan. And there are other significant differences between the mobile
economies of the two regions as well - related to handset features,
handset prices, content fees, handset configuration, and almost all
other aspects of the mobile Internet. Ironically, the culture of mobile
usage is probably not radically different between the two areas.
Most importantly, by not charging third-party providers to send mail
into the system, Japanese carriers allow their wireless webs to serve as
more or less fully open platforms for basic browsing and email; by doing
so, they foster an active third-party content economy, they allow other
businesses to provide services via mobile, and they earn tremendous
revenues on the packet fees.
Average packet usage on 2.5G i-mode is around 260 packets per user per
day according to NTT DoCoMo - that's about 30 million Euro per day
revenue for DoCoMo - and most of this is generated by unofficial site
accesses and mail. Wouldn't European carriers like to earn even a tenth
of this?
How long to feed the cash cow before really enabling mobile data?
In Germany, there is obviously a lot of momentum behind the status quo,
and the carriers are obligated to their shareholders to make profits
where they can, when they can - and that means SMS prices are unlikely
to fall anytime soon; I'm not hoping for quick change. But I think there
are signs that carriers and other lead players are starting to think
more like the Japanese.
The Open Mobile Alliance offers some hope of a standards-based open
mobile architecture. Also, newer Nokia handsets have significantly
better browsing and mail features - much more like Japanese models. And
more handsets in 2004 will start to feature Java, and this will put
pressure on carriers to allow providers to offer Java downloads from
sites both on their portals as well as off.
Ultimately, it may be market pressure itself that forces carriers to
open their systems and adopt Japanese-like ways. Last month, the Wall
Street Journal carried a report from Paris ("The cash cow of wireless messaging may have hit its peak in Europe," WSJ, Oct. 20) noting that analysts are predicting European SMS usage and revenues will peak this year and then fall in 2004 (the UK has already passed the usage peak according to that country's Mobile Data Association).
And carriers that hope for a fresh peak in new MMS (Multimedia Messaging Service - basically, picture mail) revenue to replace falling SMS revenues are
in for a surprise, I believe. In Japan, where camera phones are utterly
ubiquitous, the average i-mode camera phone user sent just 3 MMS-like
messages in the month of June 2003 according to analyst reports - hardly
a new cornucopia of profit for DoCoMo et al and boding ill for carriers
elsewhere (carriers in Japan view cameras on phones as a retail sale
issue - necessary to make the sale but not to be relied on for large
additional service revenue).
But what does remain strong (and growing) in Japan is basic packet
traffic revenue - fostered by open mail and mobile Web platforms and a
thriving third-party content community. If the companies that control
the mobile portals in Europe can see the value of letting their data
platforms evolve into truly open, easy-to-access data pipes, they'll
profit beyond all expectation - just like the Japanese have.
