Ntt Docomo

NTT DoCoMo i- musical mode time value innovation at DoCoMo. (2003). Recuperado de la rear de datos de UESAN (031397) 16088 INSEADBlue naval St browsegy lnstitute The Business School for the World18 BOS005 NTT DoCoMo i-mode TM Value lnnovation at DoCoMo 08/2009-5079 This is a modified chance vari subject of the original case NTI DoCoMo i-modelM Creating a Solution for the Masses ( figure of speech 05/2002-5036), writ decennium by Yasushi Shiina, INSEAD MBA 2000. Jason Hunter preparad this costlessly adapted version, chthonian the supervision of Professors W. Chan Kim, Renee Mauborgne and Ben M. Bensaou.It is intended to be utilize as a basis for class discussion instead than to illust yard either effective or ineffective handling of an administrativa situation. procure 2003 INSEAD-EAC i-modeTM is a registered trademark of NT1 DoCoMo, Inc. in Japan. TO ORDER COPIES OF INSEAD CASES, 5EE DETA Ul ON HE BACK COVER. COPIES MAY NOT BE MADE WITHOUT PERMISSION. Every ten years, Japane se companies come up with a unfermented mobile device that shakes the world. Sonys Walkman was dunked in 1979 and Nintendo constituteed Gameboy in 1989. And in 1999, we invented i-mode.I Mari Matsunaga Kouji Ohboshi is a worried man. Its early 1999, and NTT DoCoMos Chairman is anxiously waiting to hear how the press conference for i-mode- bis lodges naked as a jaybird mobile Inter terminate system has fargond. He has every reason to be nervous. Although DoCoMo is a leader in the Japanese mobile industry, the marketplace is showing signs of saturation and Ohboshi has gambled a large stake of bis bon tons future on the wearment of the impertinent system. The report arrives and bis worst fears atomic number 18 realized the press conference was a debacle.The launch of i-mode couldnt have g iodine worse. With scarcely seven reporters attending, i modes extravagant de plainly had f altogetheren on deafen ears. Those journalists pre displace were among Japans least charitable . With the lucre boom waning, reporters were to a greater extent skeptical than ever. bustling internet redevelopments had failed elsewhere so why should they work in Japan? Why not wait, like everyone else, for the third genesis (30) global radio earnings protocol? Ohboshi k brisk that unfavorable or- worse weak press coerage in Japans trend-driven mobile band market could spell disaster.Had he make the wrong decision to shift the troupes strategical focus? Were bis skeptical colleagues at DoCoMo right? What Ohboshi didnt know at the meter was that in the weeks to come, i-mode would become an explosive achiever. Like the Walkman and Gameboy that preceded it, i-mode was to be much than simply a commercial success it became a phenomenon. What explains this amazing success in Japan? How did DoCoMo turn a toweringly competitory industry with declining emersion potential difference into an somebodyable patronage opportunity? NTT DoCoMos Trouhled have gotNTT DoCoMo was formed in 1992 as part of a partial govemment break-up of the powerful Nippon call off and Telegraph (NTT) telecommunication monopoly. Formerly NTTs mobile phone unit, it was cast from the nest to take oer receiving set communications sales and operations as an independent enterprise. Kouji Ohboshi, an energetic 60-year-old, was the number 1 CEO of a company whose name DoCoMo is both a play on the Japanese word for anywhere and an abbreviation of Do Communications over the officious ne dickensrk. interrogate Ms. Mari Matsunaga, formerly Manager, door Business Dept. NTT DoCoMo (20 Aug. 2001). procure 2003 INSEAD-EAC 08/2009-5079 Blue naval dodging Institute From the start, Ohboshi realized that DoCoMo had a tough road ahead. The mobile phone market was over-regulated, transmittance quality was poor, subscription fees were costly and mobiles were heavy. 2 Moreover, there was a palpable sense that the market had reached a tableland (Exhibit 1). 3 Japans economic bub ble had burst and feares had cut back mobile phone purchases.To agree insult to injury, tough untried govemment rules forbade the fledgling DoCoMo to ask NTT for financial assistance. By the end of its frrst year DoCoMo was saddled with a 1O blossomion pine away privation and bankruptcy was a serious threat. 4 Paced with a looming crisis, Ohboshi went for broke, setting by to expand the market by bringing cadreular phones to the masses. And he did so with a vengeance. During the next two years, Ohboshi invested 50 billion a large sum for a company making a loss to bring DoCoMos mobile profit renovations to everyday users. 5 His first move was to improve DoCoMos network.In 1993 the company 1aunched its revolutionary revo1utionary PDC (Personal digital cellular) standard, bringing crystal clear calls, fewer interruptions and less background noise. Moreover, PDC helped DoCoMo use its particular(a) allocation of radio spectrum more efficiently. Within a few months DoCoMo s PDC standard was adopted by competitor carriers across Japan. By December 1998, it would account for 98. 7% of the Japanese market. (Exhibit 4)6 Next DoCoMo slashed prices. lts high sting was abolished in October 1993 and subscription fees were cut in 1996.By evidence 1999 periodic staple fibre bear downs had dropped 73%, the total charge for a three- indorsement call on DoCoMo falling 57. 6% in the homogeneous arrest. Once over again, the rest ofthe industry cursorily followed suit by cutting fees (Exhibit 3). The lust for market voice in the mid-90s drove carriers to continue slash prices to rock bottom trains, even as periodical average revenue per user (ARPU) go on to hand ( duration monthly average minutes use remained relatively stable). (Exhibit 5) Ohboshi overly attracted hot guests by reducing the sizing of the phones.NTT had one of the largest RD squads in the telecom industry and DoCoMo maintained close relationships with 2 Matsunaga (2000, i-mode jik en (i-mode The Birth of i-mode), Kadokawa Shoten. 3The frrst Japanese cellular phone serve up was launched in December 1979. It was a disaster. The high redevelopment fees made the skirts unaffordable to all but the wealthiest of businessmen (sa/arimen). After putting down 200,000 deposit and a 72,000 subscription fee, users would hand over another 26,000 in monthly fees anda call charge of 280 for every three minutes.Moreover, the benefit area was limited, the move quality was inferior to pay phones, and you had to be physically fit first generation cellular phones weighed 3kg and were carried over the shoulder. With the stimulation of presidency deregulation and subsequent technological innovations it took a secure 1O years before cell phones became change magnitudely attractive to mass consumers. Carriers and telecom equipment manu detailurers worked about to improve both the usability of the phones and the quality of transrnission. Rightly, they believed that reducing the sizing of handsets and extending their battery purport were crucial improvements.By the end of 1998, the weight and the battery life of a standard phone reached 68g and 330 hours respectively (Exhibits 2 and 3). 4 Interview Mr. Kouji Ohboshi, Chairman, NTT DoCoMo 5 Ohboshi (2000) DoCoMo kyuseicho no keiei (DoCoMo Management ofrapid increase), Diamond Sha 6 Tadashi Aoyagi (2000) Daisansedai keitai business nichibeiou no nerai (The third generation cellular phone business Aims of Japan, US and europium, Ric telecommunication (exhibit 19) Copyright 2003 INSEAD-EAC 2 08/2009-5079 elecom equipment manufacturers. 7 Ohboshi leaned heavily on DoCoMos engineers and its suppliers to reduce the sizing of it of phones and extend their battery life. Although DoCoMo was feeling the personal effects of deregulation, it made the best of the gains offered by the sensitive competitive environment. Within ayear of Ohboshis drastic measures, DoCoMo was still Japans largest mobile telephone ca rrier, and its revenues and net income had soared. 8 By March 1999, DoCoMos sales revenue ballooned to v3,118 billion with a net income ofv205 billion, and market capitalization topping out at v11. trillion- about 60% of the size ofits parent company, NTT. (Exhibit 8) The Wud, Wbeless East NTT DoCoMos emergence, together with deregulation, technological innovation, price reduction and the launch of new function all contributed to the rapid expansion of the mobile phone market to mass users in Japan. In a 10-month effect during 1998, the market grew by an estimated 8 million users, bringing the sum total number of subscribers to 39. 8 million in January 1999- fulfilling 87. 2% of Japans total wireless market. (Exhibit 1)9 Competition for market share in the late 1990s was cut-throat.Deregulation continue apace and by 1998 a flood of large foreign carriers and equipment manufacturers had entered the fast-growing market as the government lifted the last remaining limitations on fore ign investment (Exhibit 4). 10 Competition was equally barbarous in the drive to offer new work. J shout out shrewdly targeted younger users, entree the first SMS (short message service) and information services via the J-Sky vane package. Using a similar approach, DoCoMo introduced the wildly successful sackful Board, a salutary-designed yet inexpensive mobile with e trip out and game functions. 1 By January 1999, the wireless market in Japan had experienced seven years of rapid expansion (Exhibit 1), with every third person owning a mobile phone. Although the size of the market was still small compared to that of fixed lines, its annua1 average growth rate of 7 DoCoMo inherited from NTI c1ose re1ationships with four 1arge Japanese suppliers (NEC, Fujitsu, Matsushita Communications Panasonic and Mitsubishi Electronics), who worked closely with NTI DoCoMo to break through technological barriers.This network soon became known as the DoCoMo Family, since its products were sold under the NIT DoCoMo brand, and the only way to identify the manufacturer of a cellular phone was to look at the first letter of the product number (e. g. , N for NEC). These relationships gave NTI DoCoMo considerable vantage especially once its PDC standard was accepted as the only one in Japan. 8 It rernained the nations star carrier however, at times DoCoMos market share dropped below 50% due to fierce contest. The growth in subscribers was attributed to the increase in personal users. However, rile rates (subscriber termination rates) were also increasing, showing that customer loyalty was vulnerable in the new environment. 10 Airtouch acquired a 10-15% stake in the J-Phone Group of companies and offered its adept expertise Motorola, a US electronic products manufacturer invested in the Tuka Group of companies. 11 For their part, DDI Cellular and IDO change the quality of contagious disease substantially by adopting the US-establish cdmaOne digital protocol.Although these services attracted new customers, these numbers were not noteworthy enough to advertize growth or change the structure of the market. Copyright 2003 INSEAD-EAC 3 08/2009-5079 y- Blue Ocean Strategy Institute 68% was astounding compared to the anemic growth (1. 5%) of the ftxed line market. Yet disdain general optimism in the market, Ohboshi was once again getting nervous. .A. fter Victory, Tighten your Helmet StrapHis marketing background had taught him that, fast growth means fast maturity, and faster speed for the market to move from maturity to saturation and then to pooh-pooh. 12 The market was once again moving to saturation both in the number of potential new users and in capacity as available radio bandwidth increasingly limited market expansion. lt was time for action. To survive, Ohboshi believed that DoCoMo needed to draw a new market, not by adapting to changes but by creating the changes through tyrannically transforming their incorporated strategy. 3 Ohboshi to ld his employees that DoCoMo had to shift from simply increasing the size of the voice-based wireless market, to creating new value for customers. Shortly afterwards, in July 1996, the company formerly announced its new strategic focus from wad to value. flock to Value At the heart of Ohboshis Volume to Value focus was non-voice-based wireless entropy transmission system system. With the explosion of mesh use during the late 1990s (Exhibit 6), DoCoMo realized that the use of e turn on and the web was quickly becoming a cornerstone of everyday life.From new market and social psychology research, Ohboshi was convinced that, the daily need and wants of the volume in a mature society like Japan would shift from physical goods to communication, information, knowledge and cheer. 14 Not only did the meshing offer new opportunities for ftlling customer demand, it also solved one of Ohboshis greatest concerns an increasingly congested radio spectrum. In contrast to traditional vo ice conversations that are sent via dedicated spectrum airwaves, profits traffic is dispersed in small bundles across the network to be eassembled at their destination (e. g. , a users telephone). IfDoCoMo created an alternative mobile Internet network based on piece of ground teddy technologies, it would completely circumvent the burdened voice network. Within a year, DoCoMo was building one of Japans ftrst nationwide packet-switching networks. 15 The mobile computing team was strengthened and soon new products and 12 Ohboshi (2000) 13 lbid. 14 Interview Mr. Kouji Ohboshi, Chairman, NTT DoCoMo 15 This system wou1d not on1y ease the use of congested radio spectrum capacity, but a1so serve as the basis for 3G services.Despite the optimistic market expectation and technological developments, the prospects for the 3G technologies were not necessarily bright. Although similar new information communication services attracted customers (e. g. , WAP services in Europe), they had not p roved to be adequate enough to boost the market, and it was feared that the same might be true of 3G cellular services. The introduction of new 3G technologies would also create considerable additional costs for carriers, which had already incurred more than l trillion yen capital expenditure over the past few years (Exhibit 7).Furthermore, competition would increase as other intemational carriers competed in a case-by-case global market. Copyright 2003 INSEAD-EAC 4 08/2009-5079 services were introduced- albeit not very successfully- culminating in 1997 with the 10 e mail service (customers could send and come across 2 kilobytes of data for a mere 10). 16 Although these early Internet initiatives were not big profit-makers for NTT DoCoMo, they created a new market by attracting customers who had never used cellular phones or email before.As one of the team members involved in developing mobile computing services pointed out, Our intention was not to develop and introduce new p roducts into the market, but to create and introduce new ways ofusing our traditional wireless services. 17 The New Wireless World In January 1997, Ohboshi asked Keiichi Enoki, a former electrical engineer and DoCoMos new Director of Corporate Sales, to plan and launch a new mobile data communication service for the mass market embodying his volume to value strategy. 8 He later reflected About ayear after we started launching new mobile data communication services, revenues from such(prenominal) new services increased to constitute 5o/o-6% of our total revenues. With detailed marketing research and advice from externa/ consultants, 1 felt a need to further boost these new services and asked Enoki, whom 1trusted, to head a project speciflcally targeting the mass market. 1 assured him that he would have full discretion in choosing his staff and in using funds worth 5 billion yen, which is a lot of money. 9 Enoki would have his work cut out for him. DoCoMo had a new strategic focus, bu t after two long years Ohboshis team had yet to match vision with performance. Enoki had to create a winner. He was tasked to develop a mobile phone service that would advance the Internet in the same way the Sony Walkman had advanced the stereo. But how? I got the first hints from my family, recalls Enoki. At that time, the pager was at the peak ofits popularity. My lady friend used the number pad as a form of data communication.My son could play a new computer game without reading the instructions. Their ability to adapt to 16 In addition to these measures, Ohboshi and his renewal Keiji Tachikawa, (then Vice-President, set up a small project team deep down the Corporate Strategy supplying Department, and very soon the first proposal for NTT DoCoMos Vision 2010 was drafted. The year 2010 was deliberately chosen as it go out be the time when wireless telecom technologies will make nnovations from 30 to 40 and also the period of 10 years is the longest possible for reasonable pre dictions to be rnade in a fast-changing environment Vision 2010 guess huge opportunities for mobile telecom services in enriching personal lives and in supporting global corporate activities. In particular, it saw a greater role for mobile data services in fulfilling the needs of women, senior citizens and medica systems, important to a society characterized by a lower birth rate and an ageing population.In addition to these market projections, it also emphasized the need for DoCoMo to cooperate with other companies to expand the wireless telecom market, and summarized DoCoMos operations towards the year 2010 in five key concepts or MAGIC for short (Exhibit 9). 17 Interview Mr. lrukayama, smooth Multimedia Business Department, NTT DoCoMo. 18 Ohboshi (2000). 19 Interview Mr. Kouji Ohboshi, Chairman, NTT DoCoMo. Copyright 2003 INSEAD-EAC 5 08/2009-5079 ew information engineering science and its ease of use convinced me that young people would accept a new data service that would gi ve them the same kind of enjoyment. 20 Now a believer, Enoki set out to tackle the new initiative by doing the unthinkable recruiting new blood from the right(prenominal) to lead the project. He first called Mari Matsunaga, a senior executive at Recruit Co. , a job placement fmn. Matsunaga was known for her marketing art and dramatic turnaround of Recruits job placement magazine for women into one of Japans hottest titles. She would head the electrical capacity development team for DoCoMos new service.Enoki then sought out a manager to devise a business pose for the new mobile data communication service. He chose Takeshi Natsuno, a Wharton MBA and former head of Hypernet, one of Japans frrst (and most hyped) net startups. 21 Developing the Electronic Concierge service Mastunaga set out to understand how the Internet works. What were the killer applications that provided web users with superior value? In studying the winners such as AOL (America Online)- she found a positive cor relation betwixt the number oflnternet users and the volume of content. As content increased, so did the number of users and vice versa. 2 Hence her conclusion Content would have to be king on the new DoCoMo system. She also accepted that simply putting information on the network would not differentiate the new service from the real PC-based Internet, nor would it add value to users who were often lost in the sea of information on the web. Matsunaga thus envisioned a service that would function like a hotel concierge, where users would be serviced by content providers. If DoCoMo could make it possible for users to rag pre-selected websites on the screen of their handset, then they would capture Mastunagas concept of an E/ectronic Concierge.The team set out to create such a user-friendly entrance (Exhibit 10) to serve both asan accreditation of quality for those pre-selected prescribed sites, as well as an wanton way to navigate the whole wireless web similar to the service AOL provides its customers (Exhibit 11). Users could introduction other non-official sites simply by typing in the URL address. Meanwhile, Natsuno devised a business model for the new mobile data communication service based on what he saw as the Internet worldview rather than the telecom worldview. 3 The telecom worldview, according to Natsuno, is a zero-sum approach carriers determine the standards and the services that go off ride on their network, and are not interested in adapting to others technology or in share-out profits with other players in the value chain. Users must accept the infrastructure and services carriers offer them. Conversely, the Internet worldview is a positive-sum approach. As the Internet is an open network that can be openinged with various devices (e. g. , computers, PDAs) whose 0 A discussion with Keiichi Enoki, Senior Vice President, General Manager of Gateway Business Department, Mobile Multimedia Division in NTT DoCoMo Annua1 Report 2000. 21 By th e time he joined DoCoMo, Natsuno had already left Hypemet before the free ISP fell from glory in a multi-billion yen crash in 1997. 22 Interview Mr. Kazuhiro Takagi, Director, Gateway Business Department, NTT DoCoMo. 23 Takeshi Natsuno (2000), i-mode strategy (i-mode strategy), Nikkei BP. Copyright 2003 INSEAD-EAC 6 08/2009-5079 pecifications are not necessarily determined by either content providers or carriers all parties are obliged to accept one anothers technologies and services. In the Internet world, consumers choose the infrastructure they prefer. Specifications are thereby de jacto standards determined not by their technological superiority but by the fact that they are so frequently used. In the Internet worldview, Natsuno believed, carriers have to work closely with other players, including information providers, to increase the number ofusers.This win-win relationship arnong players within the network becarne the foundation of Natsunos business model. Accordingly, DoCo Mo would not purchase content from providers or equipment from manufacturers but would rather accredit official websites and mobile phones to be used with the new service. Interested partners would share both the risks and the rewards. Although this model restricted DoCoMos role to simply that of a ingress to the Internet, as the service attracted more users, the idea went, the network would attract more content.More content would beget more users more users would beget more content, and so on,24 thereby creating a virtuous circle where all parties benefit. Natsunos win-win business model would also be applied to the new services billing system. A number of the official sites would be subscription-only sites requiring customers to pay fees ranging from y? oo to y300 per month. Under Natsunos plan, DoCoMo would collect all these fees as part ofits monthly phone bill, take a 9% commission, and then pass on the rest to the content providers.This service would be attractive not only to content providers who could reduce their interna cost structure, but also to users who would respect not having to pay several separate bills. And by giving content providers a means to charge users, i-mode would ensure that there was plenty of high quality content available. Lastly, Natsuno recommended that the new service adopt exist wide-used technologies. For exarnple, although there were better texts languages such as WML (Wireless Markup Language), DoCoMo adopted c-HTML for its new service.With this compact version of HTML, the language widely used to create websites for the PC environment, content providers could quickly, easily and at low cost modify their PC-based websites into a new version to be displayed on the new DoCoMo service. New handsets were also developed that closely resembled existing cellular phones used exclusively for voice communication. Manufacturers were asked to reduce the size and weight of the new handsets while increasing screen size, data capacity and battery power. The Launch of i-modeAlmost a year had passed since Ohboshi had taken the decision to develop the new mobile data communication service, and pressure was mounting on him to perform. Although NTT DoCoMo had managed to maintain its position as the largest mobile telecom carrier in Japan, the cost of developing the new data service was taking its toll on Ohboshis credibility and threatening the financia stability of the company. Colleagues peering in from outside Enokis group were confounded by the project. Why were we wasting our time and resources on unproven Internet phones, instead of concentrating on the still-growing, regular voice- 4Similarly, content providers were inspired to continuously update their sites in order to keep their official status. And as content providers meliorate their websites, users were able to receive more useful information from entreing the network and thus, al three players on the network benefited. Copyright 2003 INSEAD-EAC 7 08 /2009-5079 based communication services? they wondered.By late 1998, opposition to Volume to Value was growing and Ohboshi was once again under frre. Enoki and his team finally launched the new service as i-mode on 22 February 1999- the i representing interactive, Internet and the pronoun I. 25 looking at at the phones, a user would notice little difference from the latest models, except for a close to larger liquid crystal display and the central feature the i-mode button (Exhibit 12). This connected users to the Internet, where they could send and receive e-mail, access sport scores and weather, read the news, and download pages from the web.The new i-mode handsets were priced from v35,900 to Y42,800, about 25% more than regular phones (see Exhibit 15 for comparison with other goods/services). Users were charged v300 per month to access the i-mode network, and another ,y? oo to ,y300 to access any of the subscription-only sites. Unlike regular mobile services, users were charge d by the volume of data transmitted to their mobile phones rather than the length of time on the network. For instance, it would cost ,yQ. 3 per packet transmitted, and . 2 to send (,y2. 1 to receive) an e mail of up to 250 characters. Exhibit 13) Data transmission over mobile phones would become increasingly important for DoCoMos bottom line as revenue from voice calls continued to fall from an average of $100/subscriber per month in 1997 to $65 in 2001 -data revenue amounting toan average of $17 per subscriber/month would increasingly fill the gap. 26 Initially 67 content providers participated in the new service, with sites ranging from banking to Karaoke. 27 In the days that followed, dozens of unofficial sites sprang up, even though they were excluded from DoCoMos official portal.Aventure company developed a search engine for unofficial sites just 11 days after the launch of the new service as their number reached 190 (twice as many as i-mode official sites) within two months. (Exhibit 14)28 i-mode was aggressively promoted through DoCoMos nationwide network of shops. A how to book on i-mode was also published, followed by over 100 books and magazines within a year. 29 The number of subscribers exploded reaching Natsunos critica mass of 1 million users by August 1999 (Exhibit 16). 0 By March 2001, i-mode subscribers reached 21. 7 million (Exhibit 17), and revenues from packet transmission services increased from ,y295 million to v38. 5 billion within ayear after launch (Exhibit 18). 31 i-mode also contributed to an increase in revenue from regular voice services, even as price competition drove down 25 Natsuno (2000). 26 Peering around the comer, The Economist, 11 October 2001. 27 Mobile intemet saizensen (Frontiers of mobile intemet) in Shukan Diamond, 18 March 2000. 28 Natsuno (2000). 29 lbid. 30 lbid. 1 According to one senior official at NTI DoCoMo, i-mode surprisingly attracted not only young customers who were generally fond of new technologies, bu t also old customers who used it as a tool to communicate more often with their grandchildren. In March 2001, 27% ofthe total i-mode users were above the age of 40, compared to 20. 3% for PC-based Internet (Exhibit 21). Copyright 2003 INSEAD-EAC 8 08/2009-5079 average monthly revenue per subscriber to V ,770 in March 2001. 32 In addition, the important customer churn rate began to drop from 1. 97 in FY1998 to 1. 39 in FY2001, while DoCoMos market share in the cellular market climbed to 59. 1% in March 200l. (Exhibits 5 and 18) Playing Catch-up Two months after i-modes unique launch, two competitors, DDI Cellular and IDO, announced their own mobile data communication services, called EZ meshwork and EZ Access respectively. Similar to i-mode, customers could subscribe to their services to access the Internet via their mobile phones. 3 However, with an eye towards future markets abroad, DDI and IDO asked their content providers to code their pages in HDML (Handheld winding Markup L anguage) used for the Wireless Access Protocol (WAP)34. Unsurprisingly, due to the costs and difficulties in transforming existing HTML-based Internet websites to EZ Web sites based on HDML, only a handful of content providers were willing to participate in the new service, driving DDI Cellular and IDO to purchase content until the number of subscribers was high enough for content providers to bear such costs voluntarily.In 2000, the two carriers merged to create AU (access to you). Although the number of DDI and IDO subscribers was much smaller than DoCoMos i-mode subscribers, they still remained competitive with 6. 7 million subscribers in 2001. (Exhibit 17) DoCoMos other main rival, J-Phone responded to i-modes success by concentrating on improving transmission quality and adding content to its existing service (J-Sky Web), and upgrading its J-Sky service so that users could send and receive large e-mail messages (3,000 characters each) and view Internet content. 5 As with i-mode and EZ Web, all official J Phone sites were accessible via the J-Phone portal and classified into nine categories. 36 By 32 This increase in revenue was due to the fact that subscribers were using i-mode and voice-based communication services together, as they made phone calls after they searched restaurants and hotels on i mode (lnterview Keiji Tachikawa in Shukan Diamond, 18 March 2000). 33 In addition to Internet access, the new EZ Web service offered subscribers e-mail services. They cou1d now send e-mails ofup to 250 characters and receive e-mails ofup to 2,000 characters on their cellu1ar phones.Furthermore, DDI Cellular and IDO offered PIM (Personal Information Management) services that were not offered by their competitors. By paying a 100 premium for address, schedule and task list functions, EZ Web subscribers were able to use their cellular phones more like PDAs (Personal Digital Assistants). DDI Cellu1ar and IDO initially offered these new EZ Web services by using circu it 1ine switching technology that was also used for their voice-based telecom services. None of them had yet a packet switching network.Thus, unlike i-mode, they charged EZ Web subscribers for the connecting time rather than for the volume of data transrnitted to cellular phones (Exhibit 19). 34 DDI and IDO also asked a number oftheir content providers to connect directly to DDI Cellular and IDOs EZ Web servers, in order to secure confidentia1ity and stable transrnissions. 35 The amount of viewable content was also increased by allowing access not only to its own official sites, but also to HTML-based Internet sites and even to c-HTML-based i-mode sites by introducing MML (Mobile Markup Language) as the 1anguage for content.MML was another simplified version of HTML developed for simple mobile computing devices by J-Phone and Keio University in Tokyo. Although it was not accepted intemationally like c-HTML or HDML, it was very similar to HTML and made it easy for content providers t o adapt their existing Internet websites, or even their i-mode sites, into MML-based J Sky websites. 36 In a strategy to attract younger customers, J-Phones content focuses on entertainment. Keitai Denwa, PHS Kanzen Test (Cellular phones, PHS Perfect test), Nikkei Trendy, September 2000.Copyright 2003 INSEAD-EAC 9 08/2009-5079 INSEAD Blue Ocean Strategy Institute 2001, the new J-Sky service continued to attract many new particularly adolescent customers, totaling 6. 2 million subscribers in March 2001. Exhibit 17) Without a Net As its competitors played catch-up, DoCoMo continued to power ahead in its quest for i mode dominance in Japan. In March 1999, a month after the launch of i-mode, it formed a strategic coalition with Sun Microsystems.Through the partnership, Sun and DoCoMo developed i-appli, a new i-mode application platform that allowed users to run a wider sort of programs, from video games to online fmancial services on their mobile phones. 37 A similar strategic part nership with Symbian, a UK-based wireless operating system company, led to the development of a new operating system variable to both PCs and mobile phones. On the content side, in the two years after launching i-mode, DoCoMo strike a number of partnerships with new content providers, ranging from Japan Net Bank (the frrst Internet bank in Japan) and Playstation. om, to AOL and Walt Disney. Furthermore, i-mode pioneered so called machine-to-machine or M2M communications that allow i-mode users to purchase soft drinks and other sundries from Japans huge network of hawking machines. A joint venture with Dentsu, the largest advertising agency in Japan, led to the introduction of advertisements on i-mode, thereby providing a new source of revenue and attracting new content providers to the network. Through these and other partnerships the i-mode network self-aggrandising to 42,720 sites (1,620 official and 41,100 unofficial) by March 2001.Looking into the near future, DoCoMo had gre at hopes for entering the European and American markets and establishing i-mode as a global standard. In recent years, the Japanese mobile giant had been building its equity stakes in various foreign carriers (Exhibit 20), as well as applying for 3G licenses in markets inside and outside of Japan. In January 2001, while NTT DoCoMo was announcing plans to introduce i-mode in Europe38 a number of crucial questions needed answers. Were i-mode and its success easily transferable outside of Japan? Could DoCoMo make it work outside of Japan and should it use the same strategy?Despite i-modes fugitive from justice success, DoCoMo faced a number ofkey domestic challenges. Its capital expenditures continued to soar as it built its new 3G services. Network congestion and interoperability between newer mobiles and the i-mode system continued to plague the company. In March 2001, under animated political pressure, DoCoMo was forced to reduce interconnection fees to other mobile phone operator s. And with Vodafones acquisition of a controlling stake in J-Phone, DoCoMos guaranteed preeminence in the Japanese market carne under an increasingly dark cloud.How sustainable was NTT DoCoMos advantage and what should its future moves be? Keiji Tachikawa, Ohboshis successor, believed that NTT DoCoMos future was bright. In the three years since the launch of i-mode, DoCoMo had become the only company to make money out of the mobile Internet. Its net income continued to rise to an all-time high of Y365. 5 billion in March 2001, and its market capitalization far exceeded its parent company, 37i-appli is based on Suns popular, highly compatible Java prograrnming language. Java allows application sharing across operating systems (e. . , between Microsoft Windows and Macintosh). 38 These initiatives are in partnership with KPN Mobile and telecom Italia Mobile (TIM). Copyright 2003 INSEAD-EAC 10 08/2009-5079 NTT. In the fall of 2001, DoCoMo launched FOMA (freedom of multimedia access) , the worlds first 3G mobile network capable of video-telephony and the use of data and voice services simultaneously) while other promised 3G initiatives around the world languished.As Tachikawa said, Anything mobile in society is a business opportunity for NTT DoCoMo. 39 Maybe Mr. Ohboshi can finally get a good nights sleep. 39 Interview Keiji Tachikawa in Shukan Diamond, 21 April2001. Copyright 2003 INSEAD-EAC 11 08/2009-5079 Exhihit 1 itemize of Regular Mobile Phone/PHS Subscribers in apan (in million) Mar- Mar- Mar- Mar-Mar-Mar- Mar-Mar-Mar-Jan-99 90 91 92 93 94 95 96 97 98 Mobile phones0. 49 0. 87 1. 38 1. 172. 13 4. 33 10. 20 20. 88 31. 53 39. 9 PHS 1. 51 6. 03 6. 73 5. 86 Total 0. 49 0. 87 1. 38 1. 712. 134. 33 11. 71 26. 9138. 25 45. 64 (Reference) Pagers4. 25 5. 08 5. 916. 69 8. 06 9. 35 10. 6110. 07 7. 12 4. 27 Fixed-line-54. 48 56. 2157. 60 58. 7859. 8861. 04 61. 46 60. 38 NIA kickoff Ministry ofPublic Management, Home Affairs, Post and Telecommunications (MPHPT), Te lecommunication Carriers Association (TCA), Statistics Bureau and Statistics Centre. Exhihit 2 Development of Regular Mobile Phones in apan Year Height Width Thickness Weight Battery Life 1979 140 50 210 2,400 NIA 1985 190 55 220 3,000 8 987 120 42 180 900 6 1989 175 42 77 640 9 1991 140 47 26 220 13 1994 143 49 29 185 20 1995 140 42 26 155 150 1996 130 41 23 94 170 1997 127 40 18 79 220 1979 140 50 210 2,400 NIA 1985 190 55 220 3,000 8 1987 120 42 180 900 6 1989 175 42 77 640 9 1991 140 47 26 220 13 1994 143 49 29 185 20 1995 140 42 26 155 150 1996 130 41 23 94 170 1997 127 40 18 79 220 mm mm mm g (hours 1998 123 39 17 68 330 SourceNTT DoCoMo, Panasonic. Copyright 2003 INSEAD-EAC12 08/2009-5079 Mobile Phone Rates en 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 .. .. . . _ . -Deposit Subscription fee periodic grassroots charge (analogue) periodical basic charge (digital) r -g, r -g, o. _.. O oN . Mo. Copyright 2003lNSEAD-EAC Digital MOVA N 503i HYPER (i-appli) (March 2001) Price Open Weight 98g Size N/A Battery life 460 hours -mode Packet transmittance Charges 18 Digital MOVA D503iS HYPER (i-appli) (September 2001) Price Open Weight 105g Size N/A Battery life 450 hours 08/2009-5079 Mymenu MenuList Mobile banking (balance information) Mobile banking (funds transfer) News Airline seat availability Restaurant guide TOWNPAGE (NTT telephone directory) component part prices (searching by issue code) Image download (downloading one still image the size ofthe display) i- line (downloading one 3-chord melody approx. 15 seconds in length) Char es 2-3 3-4 20-21 59-60 17-18 24-25 37-38 35-36 26-27 7-8 2-3 -anime (downloading one moving image the size ofthe display) 10-11 i-mode mail transrnission charges displace Receiving 20 large characters 0. 9 0. 9 50 Full-size characters 1. 5 0. 9 100 Full-size characters 2. 1 1. 2 150 Full-size characters 3. 0 1. 5 250 Full-size characters 4. 2 2. 1 SourceNTT DoCoMo. Exhihit 14 The Numb er of i-mode Compatible Sites 30000 cJNumber ofi-mode Wlofficial sites 60% 25 000 20000 15 000 10000 5 000 +-% oftotal access 50% 40% 30% 20% 10% mars-99sept-99mars-00 card Number of sites in March 1999 is the number on 5 April 1999.Source Natsuno (2000), p. 187. 0% sept-00 Copyright 2003 INSEAD-EAC19 08/2009-5079 -.. Blue Ocean Strategy Institute Exhihit 15 retail Price per Unit and securities industry Size for Various Goods/ attend tos (in FY 1999) ItemsAverage retail price (Yen) Weekly magazine300 Monthly magazine550-540 Newspapers (monthly)3,925-4,384 TV set97,130 Radio tape recorder19,680 Mobile computer games (Gameboy)8,900 Computer game software (Gameboy)3,000-4,900 Home PC207,000-227,000 reverberate (fixed-Jine)21,270 i-mode handsets35,900-42,800 Mobile phones (voice only)28,200-42,800 PHS handsets16,700-30,100Market size (thousands) 138,480 214,630 72,218 434,171 24,233 23,970 NIA 14,311 58,470 _R gJ 9_Q-_l ,? 9_Q _? ?_6_ . TV Jicense fees (month1y)1,345 Internet connect ion charges (month1y fixed)8,050 2. 7 Yen per 1 min. Telephone bill (fixed line monthly) Telephone bill (mobile monthly) Telephone bill (PHS monthly) 8,198 10 Yen per 3 min. 9,270 45-120 yen per 3 min. 5,550 30-130 Yen per 3 min. Pager bill (monthly) 2,697 Note Telephone bilis are estimated from ARPU or operational revenues. Market size ofTV, Radio tape recorder and Home PC are estimated from their penetration rates. Market size of Gameboy is estimated from its outstanding units sold. Source MPHPT, NTT DoCoMo, NTT, TCA, Dentsu Institute for Human Studies. Copyright 2003 INSEAD-EAC20 08/2009-5079 i-mode Monthly Subscriber Trend 25,000 70% Number of i-mode 20,000 15,000 10,000 5,000 subscribers (thousands) % of total subscribers 60% 50% 40% 30% 20% 10% oilDllilhUWWllil WWWUUhllllilUL0% 01 01 01 01 01 01 o o o o o o .. 1 1 1 1 1 1 1 1 1 1 1 1 1 1 01 01 01 01 01 01 o o o o o o o o o o o o o o o 13 .. ()... () 13Source NTT DoCoMo, TCA. ()Q) ()Q) . Exhihit 17 Number of Subscribers fo r Mobile Data Services on Cellular Phones thousands 35,000 30,000 25,000 20,000 i-mode EZWeb J-Sky 15,000 10,000 5,000 0++4++44+- 910, 910, 910, 910, 910, r,r. r,r. r,r. r,r. r,r. r,r. r,. r,. r,. r,. r,. Source TCA. Copyright 2003 INSEAD-EAC21 08/2009-5079 Blue Ocean Strategy lnstitute Exhihit 18 NTl DoCoMos Financia Performance since the Launch ofi-mode million yen Sales revenues Mar-99 Mar-00 Mar-01 Mar-02E 3,118,398 3,718,694 4,686,004 5,297,000 Revenues from packet data communication 295 38,500 NIA NIA Netincome 204,815 252,140 365,505 390,000 Operating margin 16. 3% 14. 7% 16. 6% 17. 4% Net income margin 6. 6% 6. 8% 7. 8% 7. 4% Market capitalization 11,203,920 40,314,960 20,977,333 NIA Capital expenditures 845,900 876,058 1,012,795 1,070,000 R&D Expenses 41,100 89,100 95,400 NIAAverage monthly churn rate 1. 75% 1. 61% 1. 39% 1. 32% Average month1y revenue per user (ARPU yen) 9,270 8,740 8,650 8,580 ARPU from cellular phone service (yen) NIA 8,620 7,770 7,160 ARPU from i-mo de (yen) NIA 120 880 1,420 Average monthly minutes ofuse per subscriber 164 177 189 195 Number of subscribers (thousands) 23,897 29,356 36,026 40,300 Number ofi-mode subscribers (thousands) 140 5,603 21,695 29,800 Market share 57. 5% 57. 4% 59. 1% NIA SourceNTT DoCoMo. Copyright 2003 INSEAD-EAC2208/2009-5079Mobile Data Communication Services on Mobile Phones (as of Sept. 2000) NTT DoCoMo DDI Cellular(au) IDO (au) Tu-Ka J-Phone Service i-mode EZWeb EZAccess EZWeb J-Sky Functions Internet access- Internet mail transmission Internet access- Internet mail transmission- PIM services Internet access- Internet mail transmission- PIM services Internet access- Internet mail transmission- PIM services Internet access(J-Sky Web)- Internet mail transmission (J- Sky Walker) NetworkPlatforms PDC (800MHz) cdmaOne(800 MHz) cdmaOne(800MHz) PDC (1. GHz) PDC (1. 5 GHz) CommunicationMethod(Speed) Packet switching technology (9600 bps) Circuit switching technology (14. 4 kbps) Circuit switching te chnology (14. 4 kbps) Circuit switching technology (9600 bps) Circuit switching technology (9600 bps) Packet switching technology (14. 4 kbps) Packet switching technology (14. kbps) Content c-HTML HDML (WAPbased) HDML (WAPbased) HDML (WAP based) MML Content Providers ex officio 1,000Unofficial 24,032 Official 368Unofficial 1,600 Official 258Unofficial 2,700 E-mail size Sendlreceive 250 full characters Send 250 full charactersReceive 2,000 full characters Sendlreceive3,000 characters Fee CollectionServices February 1999 March2000 July 2000 June 2000 April2000 Monthly Basic Charge (yen) 300 Standard 300Premium 400 Standard 200Premium 400 Standard 200Premium 300 J-Sky Web No chargeJ-Sky Walker250 AccessFees 0. 3 yenper 1 packet (= 128 bytes) First 15 seconds free and 1O yen per 30 seconds thereafter 1O yen per minute First minute 3 yen and 10 yen per minute thereafter J-Sky Web 2 yen per single request1 replyJ-Sky Walker 8 yen per message transmission Packet comm. 0. 27 yen per 1 packet (= 128 bytes) Packet comm. 0. 7 yen per 1 packet (= 128 bytes) Handset (Nominal 1 Real retail prices yen) NECN502i(39,0001 18,800)Mitsubishi D209i(34,600 1 16,800) Panasonic C308P (44,300 1 1,800)Sony C305S (45,8001 1,800) Sharp J-SH03 (42,000 1 9,800)Toshiba J-T04 (42,000 1 7,800) Panasonic TPOl(Open 1 4,800)Toshiba TI02 (Open 1 4,800) Subscribers _% ofmarket) 12. 6 million(64. 2%) 3. 9 million(16. 5%) 0. 7 million(3. 3%) 3. 1 million(16. 0%) Service start February 1999 Aprill999 November 1999 December 1999 Source NTT DoCoMo, KDDI, MSDW, CSFB, TC. A, Nikkei TrendyCopyright 2003 INSEAD-EAC23 08/2009-5079 Blue Ocean Strategy Institute Exhibit 20 NTI DoCoMos major(ip) Overseas Operations since 1999 2 March 1999 Joint test of 30 mobile communications system with Telephone Organization of Thailand and NEC 17 March 1999 Establishment of local corporation in brazil 30 September 1999 Establishment ofUS subsidiaries 8 October 1999 Establishment of Joint Initiative toward Mobile Multimedia (JIMM) with 8 forei calliers 2 December 1999 Capital investment in Hutchison Whampoa (Hong Kong) 27 January 2000 W-CDMA field trials in South Korea with SK Telecom May2000Equity participation in KPN Mobile (the Netherlands) 27 June 2000 Establishment ofrepresentative office in Bemng, China 12 July 2000 annunciation of 30 mobile multimedia strategic cooperation with Hutchison Whampoa and KPN Mobile 2 August 2000 Launch of Japan-South Korea roaming service with SK Telecom 29 S tember 2000 Establishment ofUK subsidiary and research lab in Oermany 30 November 2000 Capital investment in KG Telecomj_Taiwall_ 30 November 2000 Capital investment in ATT Wireless (US) 7 December 2000 Establishment ofadvisory board in US 8 January 2001 Announcement ofPan-European mobile Internet fusion with KPN Mobile and TIM Jltalyl 22 January 2001 Launch ofinternational roaming service in Europe, Asia Africa and Oceania 7 Novernber 2001 Agreernent with KPN Mobile to transfer and license technolog ies for i-mode-like services in Europe 18 February 2002 Agreement with E-Plus (Oermany) to transfer and license technologies for i-mode- like services in Europe (service launched on 16 March 2002) 1 March2002Listing ofstocks on London and New York Stock ExchangesNote The dates shown above are the dates ofPress Releases from NTT DoCoMo (as ofMarch 2002). SourceNTT DoCoMo. (Other major partnerships to promote mobile multimedia servtces) 15 March 1999 Increased leve ofrelationshiPs, S mbian (UK) 16 March 1999 Technological partnership, Sun Microsystems (US) 17 March 1999 Fusion oftechnologies, increased leve ofcooperation, Microsoft (US) 14 June 2000 Increased level of relationships, 3Com US) 27 September 2000 Joint development of new Internet services, American Online (US)Note The dates shown above are the dates ofPress Releases from NTT DoCoMo (as ofSept. 2000). SourceNTT DoCoMo. Copyright 2003 INSEAD-EAC2408/2009-5079 Exhibit 21 Comparison between i-mode and the Internet i-mode Int ernet Sex ofusers(Male Female) 5743 5842 Age ofusers Under 197%20-2424%25-2920%30-34 12%35-398% Above 40 27% Unknown2% Under 19 2. 6%20-2938. 1%30-3938. 1%40-49 15. 6% Above 504. 7% Unknown 0. 9% Price Monthly basic charge of 300 yen+0. yen per 1 packet Monthly basic charge of 1,480 yen + 8 yen per 3 minutes Number ofusers(March 2001) 21. 70 million 17. 25 million Note Prices exclude monthly basic charges for cellular phone and fixed line telecom services. Price for the Internet is based on KDDIs IP service rates. Number of users for the Internet is the number of contracts with Internet providers excluding mobile telecom carriers. SourceMPT, NTT DoCoMo, KDDI. Copyright 2003 INSEAD-EAC2508/2009-5079