NTT DoCoMo's success with i-mode has become the envy of mobile operators in Europe and North America. The strategy that enabled this success includes a few key ingredients:
- a strong investment and focus on technical leadership in mobile data
- effective collaboration with device manufacturers, content providers and other members of the value chain
- attentiveness to customer groups and behavior
Now, the world - and DoCoMo - is wondering whether this same strategic approach can spur growth for multimedia services enabled by 3rd Generation networks. After a delay last spring, DoCoMo launched its 3G network on October 1 in a service area limited to the Tokyo metropolis. DoCoMo is marketing new 3G offering, under the acronym FOMA ("Freedom of Mobile Access"), as an extension of i-mode.
These new services have potential appeal in Japan. After all this a market where millions of teens and young adults have already shown the proclivity to spend as much as 10,000 yen per month on mobile data, including frivolous, entertainment applications such as downloads of comic book screen savers. One of the best-selling services this year offered by DoCoMo's rival J-Phone, for instance, enables users to take and send photos with a mobile handset.
A slow start
Introduction of FOMA comes at a critical time with the telecom industry both in Japan and around the world reeling from the economic downturn and saturation in the mobile communications industry after a decade of tremendous growth.
Multimedia services for FOMA will be introduced gradually with limited content in the initial phase. First, DoCoMo will introduce a service called I-motion, which enables FOMA users to send 10 second video clips using the i-mode service. Next spring, DoCoMo is planning a system for commercial distribution of video and music called M-Stage service.
DoCoMo anticipates a slow and careful rollout of 3G services and most industry watchers don't expect FOMA to have a big impact on the market for at least 6 months, when service coverage is extended beyond Tokyo.
Handsets are still prohibitively expensive for many customers, particularly young adults that are most likely to be interested in entertainment-based applications.
But beyond these difficulties, many skeptics now believe that the greatest threat for 3G will be the need for compelling applications. Who, many critics ask, will want to watch video clips and other data-intensive services on a cell phone? The company itself has said it does not expect FOMA to grow as rapidly or explosively as i-mode did in the past two years.
DoCoMo recognizes the problems they face in introducing and delivering 3G. Regarding financial expectations of the new services, DoCoMo has set a target for its 3G FOMA business to achieve profitability for the fiscal year four years after launching the service and to cover accumulated losses by the fifth year.
However, the company remains bullish on 3G's long-term prospects and importance to the company's core business and vision.
Tomoko Homma, of the NTT DoCoMo Public Relations Department, cites the major advantages that DoCoMo will have by moving forward with 3G:
- acquiring an additional revenue source from multimedia sources
- understanding the initial market reaction to mobile multimedia
- establishing an operational track record
Partnering to grow the market
One area where DoCoMo will apply the i-mode model is in its close collaboration with partners in the value chain, namely handset manufacturers and content providers, to ensure the success of 3G.
In developing the product specifications and brand for i-mode, DoCoMo worked actively with electronics manufacturers such as NEC, Panasonic, Sony and Mitsubishi to ensure that handsets would help meet the business objectives for i-mode.
Unlike many markets, mobile handsets in Japan carry the branding of the network operator instead of the manufacturer. DoCoMo is in an especially good position to mandate product and branding to manufacturers due to the size of its customer base - 28 million customers for its i-mode service. At the moment, DoCoMo is offering 3G-compatible handsets designed by NEC and Panasonic for the FOMA services.
Another type of collaboration that has been critical to i-mode success is the relationship that DoCoMo has with mobile content providers. DoCoMo determined early on that its core competency was not as a media company. So it establish a system of partnerships design to motivate content creation and distribute sufficient rewards to the providers.
Currently, DoCoMo performs hosting, maintenance and billing for content, passing 91 percent of content revenue directly to the provider.
Strategic initiatives for content and technology for FOMA focus on video and music streaming, which will be enabled with the increased in data transmission for 3G networks. DoCoMo has already formed a group called 'Live Streaming Delivery Trial Consortium', which includes several dozen content and technology companies.
The consortium is dedicated to testing and developing a system for the operator and content companies to provide multimedia. DoCoMo said this initiative will lead to commercial music and video streaming, which is called M-Stage services, to be released in the spring of next year.
Focusing on technical innovation
Since streaming services will require the development of new guidelines for creating, archiving, distributing and selling, the relationship between technology and content partnerships is more intimate and critical than it was for the introduction i-mode.
This leads to another foundation of the i-mode strategy, a focus on leading-edge technology to provide a superior user experience. In the case of i-mode, DoCoMo bypassed early wireless web standards such as WAP, which it believed were not compelling enough to attract widespread consumer adoption. Instead, DoCoMo opted for a proprietary technology solution for i-mode - a compact-version of HTML (cHTML) and data delivery across its packet-based network.
Now, a great deal of DoCoMo's 3G investment is focused on streaming technology. DoCoMo has announced that the streaming consortium is developing and testing new applications for video digest generation. These applications use MPEG-7, a compression technology that uses meta-data to describe multimedia information based on its content.
MPEG-7 has an advantage over other MPEG data compression technologies in that it uses meta-data to desscribe the attributes of multimedia content. This enables multimedia data to be "tagged" with descriptive attributes such as personalization or search tags.
Basically, MPEG-7 will enable more sophisticated deliver of streaming content according to user needs. It enables users to generate meta-data through simple operations without needing sophisticated skills. A baseball fan, for instance, would be able to receive new baseball-related video clips on his or her mobile handset by either setting a preference or entering a request in a search engine.
The technology promises to be compatible with streaming standards determined by the 3GPP. Currently, DoCoMo and its partners are developing and testing streaming applications in field trials.
Understanding the customers
Another key area of the i-mode strategy is the importance of segmenting customers and analyzing customer needs in the service development process.
DoCoMo targeted i-mode services toward Japan's consumer market, particularly teens and young adults, typically have large disposable incomes. I-mode has not been aggressively marketed towards the Japanese corporate market, which has been slow to invest in technology for workflow and business solutions in comparison to other markets such as the United States.
With the arrival of 3G, DoCoMo is developing M-Stage for the consumer market but also has its sights on the corporate market. DoCoMo expects that corporate customers will mainly use the FOMA service with a view to system solution creation, usage for high-speed data communications, such as access to the Internet and company LANs, as well as new video services.
DoCoMo also will offer a large-scale, high-capacity data communications service called X-wave, aimed at small, independent businesses. For corporate large-enterprise customers, DoCoMo intends to provide secure Intranet services, using Java and SSL that will focus on heavy-data communications, such as field reports using images transmitted videophone.
An example of this last service is a field trial currently being conducted with Takenaka Corporation, one of the largest construction companies in Japan. Takenaka is using FOMA handsets to create mobile workflow applications.
This includes video streaming for product promotions and equipment operating instructions transmitted to workers in the field. Construction workers are also using the services to send picture and video files with daily field reports to document work progress updates and provide real-time monitoring of work conditions.
Trials such as this reflect DoCoMo's belief the i-mode and FOMA services provide a strong value proposition for workflow solutions and will ultimately convert Japanese corporate customers to adopt mobile Internet applications for core business operations.
The biggest challenge (and opportunity)
Another outlying question is whether DoCoMo's 3G activities can and will have an impact on international markets through its partnerships and investments with overseas carriers such as KPN Mobile of the Netherlands and AT&T in the US.
DoCoMo has said that it hopes it can work through these strategic investments to influence the evolution of 3G services overseas. NTT DoCoMo's believes its advance into overseas markets is underpinned by its strength in engineering and the development of i-mode.
But it remains to be seen whether investments and partnerships will be enough for DoCoMo to extend its influence oversea. DoCoMo will also face considerable hurdles in any attempt to export its success. These include:
- a different environment for technology standards
- different relationships that overseas network operators have with device manufacturers
- cultural differences
- traditional challenges of exporting software and services
Even in Japan, a market that has shown a propensity for paid-content services, no one can be sure of the demand for the streaming services. However, DoCoMo finds the i-mode strategy still feasible in developing their 3G business cases.
The Living Streaming Trial consortium is a representative example of DoCoMo's approach: develop technology in a way that anticipates user needs (ease-of-use, personalized preference, etc.); evangelize and engage partners in the development of that technology; and then work collaboratively to build commercial services.
Dmitri Ragano has worked as a technology industry journalist and consultant in the United States and Japan for the past five years. He currently works for Razorfish, Inc. as Director of Client Services in the company's Tokyo-based joint-venture with Intervision, a subsidiary of Sony Corporation. He previously worked for a venture capital firm as an investment researcher for wireless and Internet-related technologies.