In Japan, the search for the perfect wave is not easy. Surfers in crowded cites like Tokyo wake up before dawn and drive hours to reach the beach. When Kazutomo Robert Hori, President and CEO of Cybird, Co. Ltd., was looking for a killer mobile Internet app, he turned to the Japanese surfer community for ideas.
“Imagine if you drive two hours and you arrive at beach where there are no good waves. How do you feel? You want to find a beach where you can surf,” Hori explains. Through user research, Hori learned that existing options like dial-numbers and weather map fax services were expensive and not very helpful.
In February 1999 Cybird introduced “Nami Densetsu (WaveLegend)”, a mobile site with real-time, location-specific surfing reports. “Nami Densetsu” was one of the first smash hits for NTT DoCoMo’s i-mode service and quickly gained a larger active user base than Japan’s top surf magazines.
“Nami Densetsu” is an example of the user-focused approach that enables Cybird and other mobile content entrepreneurs to ride the crest of one of Japan’s only booming new industries: mobile Internet content and applications. Popular services include map sites, java games and storage for digital images.
Then of course there is standard fare such as ring tones, horoscopes, screen savers. M-commerce isn’t widely adopted yet. But Cybird offers innovative entrants here as well, with sites such as the imaginatively titled “TV Panic Game Store”. TV Panic Game Store is a mobile storefront for a nation-wide chain of video game stores of the same name. Japan's die-hard gamers are also among the most active mobile Internet user segments.
Thriving in a tough business climate
Cybird and other Japanese mobile Internet start-ups are enjoying strong growth and profitability, despite a decade of economic stagnation and a conservative culture that frowns on entrepreneurs. Cybird reported revenue of 3 billion yen (US$22,838,000) for the six month period ended last September, a 315% percent jump from the previous fiscal year. In the same period, the company gross profit margin rose to 51 percent, up from 14 percent a year ago.
For mobile data entrepreneurs like Cybird, the lion’s share of sales comes from content, which is provided to end users through revenue sharing arrangements by Japan’s main mobile phone operators (NTT DoCoMo, J-Phone and KDDI). However, a growing number of mainstream companies are adding web-enabled devices to their marketing mix – the set of tools used to reach customers such as TV, print and billboards. This creates an opportunity for content/application companies to provide services to corporate clients that need to market to end-users.
Cybird, for example provides planning, deployment and operation for services for corporate clients. One recent example is a convenience chain store that is running a promotional giveaway contest for rock concert tickets. Customers receive access codes with each store purchase and then connect to i-mode to see if their code is the winning number.
And one popular application called “sugu mail” (“sugu” means quickly) is provided to clients whose sites are on official network operator menus. By supplying short access code and an email link, the technology gives users easy access to mobile sites on the Internet and bypasses the pain-staking process of typing in a URL on a cell phone.
Understanding the user
What has enabled Japanese to develop this industry while the mobile Internet initiatives in Europe and the United States continue to lose money and disappoint customers?
“The problem in Europe was the ignorance of end user benefit. A WAP phone is very difficult to use. And telecom operators tried to become content providers. It is very hard to create quality content if you have no experience. And of course if there is no good content, nobody is going to buy an Internet-enabled phones,” says Hori.
In this perspective, Japanese network operators such as DoCoMo, J-Phone and KDDI deserve huge credit for establishing partnerships with content providers and creating incentives through revenue sharing.
In order to develop compelling content and applications, Cybird conducts its own market research. “Generally, when we create a new service we look for subject material that is already widely accepted by Japanese people. It could come from pop culture, media, lifestyle trends or anywhere. But there has to be some proof that it is interesting to Japanese,” Hori confirms.
And of course, it is essential to remember that mobile services are used in a different context that the PC-based web.
“Even if we use the same term, “Internet,” for PC and mobile phone. They are devices with very different advantages and types of use. The mobile phone is always with you. It is quick and accessible.”
Seeking opportunities overseas
One big question is whether Cybird and other content entrepreneurs will be able to succeed in mobile markets outside of Japan. Japanese companies have traditionally struggled to build international business in content and software, all though there are notable exceptions such as the game software industry.
“Content business requires strong understanding of local culture. Replicating a content business overseas is generally impossible. We have seen every bit of the mobile Internet in Japan. We have seen what sells and what doesn’t,” says Hori.
Although Cybird’s core business remains in Japan, the company also works with overseas operators such as KPN Mobile in the Netherlands and New World PCS Ltd. in Hong Kong. Cybird provides consulting and workshops for these operators to help them develop popular services for their own local markets.
“We have confidence that we have found a few promising service categories that are international.”
Helping to shape the future
Moving forward, Hori hopes Cybrid can make the transition from being one of the legions of content/application pioneers in Japan to a position as an industry shaper. “We want to always position ourselves in the center of the mobile Internet. To be someone who decides. We want to be one of the mothers and fathers of this industry, not just in Japan but the whole world.”
The notion of an industry shaper may conjure images of an omnipotent juggernaut such as Microsoft or Intel. Quite to the contrary, although Hori wants Cybird to be in a position to influence, he also supports a value chain of strong players with different roles and competencies.
"There must be a cycle of positive feedback between all the players, including manufacturers, operators and content providers," Hori claims. "In Japan each player in the value chain knows its own territory and doesn't try to interfere or compete with others. All the players have an incentive to do a better job than yesterday."
This is certainly a different experience than that of Europe and United States, where a handful of major players such as operators and handset manufacturers rushed out the gate with attempts to dominate the mobile Internet value chain. The resulting debacle was like a massive car collision, which disappointed customers and slows down the entire industry. In Japan, however, players focused less on controlling the value chain and more on ensuring the value chain was valuable to users.
This approach resembles the old Japanese "keiretsu" economic system, where a group of partners develop an industry by working in long-term, structured relationships based on knowledge sharing, consensus building and mutual benefit. The keiretsu concept attracted international attention during the heyday of Japan's economic during the 1980s. But after a decade of stagnation, many foreigners have discredited "keiretsu" system in favor of the competive and free-for-all capitalism. If the mobile Internet industry in Japan is any indicator, perhaps the “keiretsu” concept still has some life left.
If Hori and other Japanese entrepreneurs can export this lesson to the rest of the world, perhaps they can become mothers and fathers of the industry.
Illustrations by courtesy of Cybird Co. Ltd.
Dmitri Ragano is a consultant for Intervision-Razorfish in Tokyo.