i-mode Getting Beaten at Its Own Game
By Carlo Longino, Thu Sep 11 14:45:00 GMT 2003

Vodafone Live! is seeing more success than i-mode in Western Europe, using many of the tenets the original DoCoMo service was built upon. Will this have lingering effects for the Japanese carrier?

Undoubtedly NTT DoCoMo’s i-mode has been the most popular mobile content offering in the world. But the debate has always been over whether it foreshadowed the success of mobile content in other countries, or was a purely Japanese phenomenon. DoCoMo looked to answer that question by taking the i-mode concept and brand to Europe, first to Germany, the Netherlands, and Belgium, and more recently to Spain and Italy. But their European i-mode efforts are paling in comparison to the success rival Vodafone is seeing with their competing Live! service – success built on the same principles which made i-mode a hit in Japan.

While some of the services i-mode offered in Japan certainly wouldn’t be popular elsewhere, the service had a number of touchstones that made it more attractive than European carriers’ first WAP offerings: cool, advanced, carrier-branded handsets; well-designed, easy-to-use services; a distinct lack of techno-speak in marketing and advertising; and most of all, rigid standards that content providers must follow in order that their services provide a consistent and reliable user experience.

But instead of finding the widespread success DoCoMo has hoped for in Europe, i-mode has been trumped by Live!. Recent figures show Live! with 1.5 million subscribers across the continent, compared to just 600,000 for i-mode. Live! also requires expensive, high-end handsets, although with MMS as fundamental to their offering, their devices also feature cameras, something i-mode handsets lack.

But what makes Live’s success so interesting is that Vodafone has done it by stealing i-mode’s playbook, and in some cases, improving on it. The first Live! handset was a Vodafone-branded device from Japanese manufacturer Sharp, whose experience making i-mode handsets was certainly a factor. But they soon followed with handsets from not only other Japanese makers like Panasonic, but also familiar and popular brands like Nokia and Sony Ericsson. KPN, on the other hand, put some blame on their early handset models for their disappointing early i-mode numbers.

Vodafone has pasted most of Western Europe with billboards featuring soccer star David Beckham, following i-mode’s mantra of selling services, fun, and entertainment, not technology. They show the photogenic Beckham using picture messaging or another service, with no mention of the underlying technology or the everpopular TLA – three-letter acronym. Though one of those TLAs gave Live! another jumpstart on i-mode: MMS, or as it’s referred to by Live!, picture messaging. The availability of MMS on Live! was a key differentiator over i-mode that took several months to close, as did the availability of Live! services to pre-paid users.

But Live! is not without its critics or shortcomings; the most popular knock on the service is that it’s built to generate per-transaction revenues, whereas i-mode is designed to maximize traffic revenues. Research firm Analysys says that in Japan, more than 75% of the ARPU of an i-mode user comes from e-mail and Web packet costs, while third-party content generates only 10%. DoCoMo was able to boost revenues by introducing color browsing and Java downloads, which rack up packet charges quickly, but Vodafone’s data pricing is so low that some analysts worry that it might cannibalize other existing streams of revenue.

For instance, the same Analysys research says that instant-messaging generates only USD11 per megabyte in the Live! service, while person-to-person SMS generates nearly USD 2000. What’s the incentive for a user to send a 15-cent SMS when they can say just as much, if not more, in a 1-cent IM? So, instead of being geared to generate traffic in volume like i-mode, Live! is dependent on encouraging individual transactions – but while this model may work in Japan, Vodafone’s low rates may be the only way forward with price-savvy European users.

i-mode’s Western foray hasn’t come cheap – DoCoMo pumped about USD 3.5 billion into KPN and its German and Belgian units in August 2000, while it also spent USD 10 billion at the beginning of 2001 for a 16 percent stake in US carrier AT&T Wireless, with whom it’s also launched an i-mode-derived product. It has, of course, written off about USD 6 billion of that since. The company is under pressure to deliver solid profits, but could its reputation as an industry vanguard also be in jeopardy?

Certainly part of DoCoMo’s interest in spreading i-mode was to smooth a path for its 3G services, when the company decides to expand them outside Japan. But with the carrier being “out-i-moded” by Vodafone, its well-known struggles with its 3G launch, and its ongoing battle against KDDI’s CDMA2000 1x 3G network and services, will foreign carriers be interested in DoCoMo’s experience and brand without investment money to sweeten the deal?