i-opener

On the streets of Tokyo, three things are never more than a few steps away: a vending machine, a convenience store and someone using an i-mode phone. All three do a thriving business for the same reason: They give their customers what they want when they want it.

In the case of i-mode, thriving seems like an understatement. In just 18 months, NTT DoCoMo's wireless-data service has attracted 10 million subscribers - about one-third of its total base - and become almost as hip and ubiquitous in Japanese culture as platform shoes and Pokemon. At last check, there were nearly 20,000 i-mode-ready Web sites, providing everything from banking to streaming audio to Hello Kitty cartoons.

Can i-mode's success be duplicated in North America? That depends partly on how well the importer understands the role that the Japanese market played in setting the stage for i-mode. One key example: When i-mode debuted, few Japanese had Internet access, so unlike Americans and Canadians, they hadn't been spoiled by the Internet on PCs with 17-inch monitors and 28.8kb/s-or-better connections. For them, text with few graphics on a postage-stamp-size screen via a 9.6kb/s connection wasn't an annoying hardship that required a hard sell.

Content providers also jumped at i-mode because it offered a way to reach a far wider audience than PC users.

"We're very lucky because the PC Internet market wasn't as mature as in the United States," said Keiichi Enoki, NTT DoCoMo senior vice president in charge of i-mode. "Content providers thought that they weren't having enough users. The market was small, and most of them were PC users. When I went to talk with them, (they) could easily tell that this was a new tool to open new access."

As an added incentive, DoCoMo chose compact HTML (CHTML) as i-mode's lingua franca. That strategy also freed DoCoMo from the cost and risk of developing content in-house.

"It's like TV: Without attractive content, you can't sell TV sets," Enoki said. "We considered i-mode a new style of media, so we think content is very important. That's why we decided to use an HTML browser: For them to provide content, it was important for us to use the de facto standard of the Internet."

Although CHTML is DoCoMo's proprietary standard, its basis in HTML made developing for i-mode relatively straightforward.

"We took a strategy that (lets) us reutilize the existing content as much as possible," said Keiji Tachikawa, NTT DoCoMo president. "That is why we decided to use CHTML instead of WAP. This was very much welcomed by the content providers. This decision allowed us to achieve a win-win relationship (with) the providers of the information."

Making Wireless Data Pay It's a win-win relationship in more ways than one. The holy grail of wireless providers is grab a slice of the e-commerce transactions that increasingly will occur on their networks, and DoCoMo seems to have found a business model that eventually could do just that: For content providers that charge for their services, DoCoMo already handles the billing and takes a roughly 9% cut. That approach lets content providers charge for their services without worrying about the hassle and overhead of billing.

"Content providers face the problem that it's quite difficult to collect fees from the end users," Enoki said. "In i-mode, the maximum monthly fee is 300; it's petty cash, so you can't use a credit card. It would take a fortune to collect such a small amount of money from each subscriber, so for them, it was much more convenient to use DoCoMo to collect that fee together with our tariff.

"For example, it's very difficult for content providers to sell news on the Internet. We told them that they could charge 100 to 300 on i-mode, and they were interested in it. Each of these news agencies now has about 100,000 subscribers. DoCoMo, (with) its own fee-collection system, is very attractive to these content providers because they can depend on it."

Time will tell whether that approach is equally attractive to North American content providers.

"We believe once mobile-data services are more mainstream in the United States, this type of `royalty' business model will develop," said Stephen Carter, SBC Wireless president & CEO and head of the new BellSouth-SBC wireless venture. "This model would be similar to companies that today pay for advertising space on well-known Web sites (even) though the services the Web sites provide are free to users."

Like most wireless providers, DoCoMo still is grappling with the more complicated question of if and how it also might get a cut from, say, a book purchased from an i-mode content provider.

"We haven't met with a situation of brokering an e-commerce service like Amazon.com," Tachikawa said. "That is an issue to be solved. I'm not sure if operators can earn some profits in all cases just (by) brokering service because there is a possibility that when customers purchase books from the Internet, they might use a different settlement mechanism than the telecom network."

One possible alternative: NTT DoCoMo could get a fee from goods and services that are available on i-mode devices as opposed to just through them. E-books are a good example of the difference. Instead of just ordering a book from a content provider via i-mode, a subscriber could have that book delivered piecemeal to his i-mode device.

"If the customer reads 10 pages in a day, he might have to pay 10› for that amount of the book," Tachikawa said. "We can receive some commission from the information provider if we provide this function. I think operators should come up with such kinds of ideas."

Payment is another issue. One difference between Japan and North America is the use of credit cards in e-commerce. Most Japanese are uncomfortable giving their credit-card information over the Internet. Instead, they're more likely to place the order online and then go to a convenience store to pay for the item and perhaps pick it up. A DoCoMo partnership with, say, 7-11, which has more than 8,000 stores in Japan, could offer e-tailers an attractive package. And rather than contenting itself with a few-yen royalty here and there, DoCoMo stands to make much more by facilitating the purchase of bigger ticket items, including impulse buys prompted by ads pushed to i-mode phones.

"That's what we are targeting: clicks and bricks," Enoki said. "I think that's the thing that we have to reach sometime in the future. In the future, the real businesses and virtual things, such as the Internet, will be together in the consumer market: B2C. If you have a specific idea of the thing that you want to purchase, and you have plenty of time, you'll sit in front of your PC. Sometimes, when you're walking around on the street, you think about something and get a rough idea of what you want to buy. But as you're walking, you'll forget it. If you have i-mode, at the moment you feel like buying something, you can place an order for it."

Pittinance for Packets Less obvious but equally important to i-mode's success is its use of a packet network, whose inherent efficiency translates into cost savings that can be passed on to subscribers. It allows pricing by the packet rather than by the minute. In a circuit-switched network, subscribers pay not just for the time spent downloading data but also for setting up the connection and waiting for the server to respond. So even though it might take just a few seconds to retrieve a stock quote or headline, most circuit-switched-data subscribers would pay for a full minute.

"It is possible for us to reduce the tariff of the circuit-switched network to be equivalent to the i-mode tariff in packet," Enoki said. "But customers still feel that they are losing money because they have to pay even when they're just reading the content on the screen. In a packet network, they know that they don't."

But conventional wisdom forbids "packet" in marketing because it's an abstract, technical and therefore confusing concept. And charging by the packet, the argument goes, creates even more confusion - How many packets is this e-mail? How many packets to check my stocks? - that causes subscribers to limit their usage.

Again, culture played a role. Case in point: Trendy magazine, which keeps Japanese yuppies abreast of the latest high-tech gadgets. As i-mode notched its 10 millionth subscriber, the September issue spent a good 70 pages comparing wireless phones and services with a level of detail and enthusiasm usually reserved for Car & Driver and Stereo Review. The irony is that although DoCoMo did its best to explain packet's benefits without actually using the word, it still wound up in the public lexicon.

"We did not mention `packet network,' but we mentioned that customers are charged only for transmission of data and how many yens they have to pay for each e-mail," Enoki said. "DoCoMo did not use the word `packet' because we thought it was too technical, but the Japanese media, as well as the Japanese public, like very technical things and to talk about them. So in the magazines as well as the shops, they used the word packet to explain how good i-mode can be."

Could per-packet pricing work here, too? Some think so.

"We believe there will be a learning curve regarding the concept of obtaining wireless-data information by the packet (because) wireless data is relatively new in the U.S. consumer market," said SBC Wireless' Carter. "Once subscribers begin to use wireless-data services on a frequent basis, they will begin to expect to be charged for only the data they access as opposed to the per-minute platform consumers are used to today. Over time, we believe, consumers will become accustomed to the concept."

Eight Months to 3G Although i-mode already supports colors and graphics rarely seen on North American or European wireless-data services, subscribers are asking for richer content, including video. That should come in May 2001, when NTT DoCoMo begins a 3-year roll-out of its 2Mb/s 3G network that will support a more sophisticated version of i-mode. The current 2G i-mode service will remain on the market until 2010 as part of a 2-prong strategy that should let DoCoMo cater to both the high-end and low-end wireless-data markets.

One likely difference between the 2G and 3G versions of i-mode is that the latter will see more business applications. Expanding i-mode outside the consumer market should help DoCoMo tap the business sector's enormous potential. Although the Japanese public is smitten with the Internet, analysts say that the business community lags far behind. A 1999 McKinsey & Company study estimated that the Internet could save Japanese business about $600 billion annually from 2003 through 2008. With 3G, i-mode could see more business applications.

"What's unique about 3G is that it supports high-speed computer communications," Tachikawa said. "I hope that it's more suited to support business needs rather than individual needs."

Even so, DoCoMo hasn't forgotten two vital lessons: First, throughput alone doesn't necessarily make or break a wireless-data service. Second, forget about trying to match the wired Internet and let the service play to its strengths. Boil it down, and i-mode really is just following the lead of the convenience stores that line Tokyo's streets.

"Think about department stores," Enoki said. "You don't go there very often. But when you go, you spend a lot of money. Just the opposite is the convenience store. You don't buy lots of things. The variety is limited. But you go there every day. I thought that same concept could be applied to information. Mobile content is inferior to other media in terms of speed and screen size. But in terms of ease of use and convenience, it's far superior."

Although that logic keeps graphics to a minimum, it still leaves plenty that consumers and content providers are willing to pay for. One example is banking.

"What you're interested in is numbers: your balance," Enoki said. "On i-mode, you can't sell, for example, neckties because you require good pictures. But on the other hand, i-mode offers access to the Internet anytime and anywhere, and we emphasize that benefit."

But even with 3G, Enoki is avoiding the temptation to expand i-mode beyond a convenience store.

"I have no intention to make it a department store even with 3G," he said. "If you want to do that, you have to offer a large screen, maybe as large as a palmtop computer. There is a concept to connect a Palm Pilot to a wireless network and offer a new product, but it doesn't sell very well. For i-mode to sell well, it's indispensable that people carry it around anytime and anywhere and use it conveniently. I don't want to do anything to damage these benefits."

I-mode 's use of packet network should make it an attractive vehicle for wireless ads because the low cost and continuous connection encourages subscribers to leave their phones on and carry them everywhere. NTT DoCoMo already has teamed with Dentsu, Japan's largest ad agency, on wireless-ad trials. One initial finding: wireless' small screens make banner ads effective.

"We know that more people click those ads in comparison to the PC Internet because the screen is so small, you can't skip it," said Keiichi Enoki, NTT DoCoMo senior vice president in charge of i-mode. "On a large PC screen, you can just ignore them. We have more hits, and that makes us convinced that we can make a business out of banner ads."

Enoki is optimistic about pushed ads - if they're handled carefully.

"I think that you have to get the subscriber's permission in advance," he said. "Otherwise, it's going to be like spam. You have to pay very close attention to it because i-mode is so close to the subscriber. Because it's much closer to the subscriber than the PC, you have to make sure that the privacy of the person is secure and yet do some advertising and marketing."

One possibility: Subscribers would indicate their interests and then receive only those ads that cater to interests. That's the approach that one CD- and video-rental chain has used with success.

"If you register on their Web (site) that, for example, you're interested in CDs and books, they'll send you information related to your preference," Enoki said. "Suppose that sales level is just here with one particular book or CD. After the e-mail is transmitted, the sales boost up like this."