Having a huge customer database doesn't guarantee extra sales, and interacting with customers on the go using wireless is an even tougher bet. But Tsutaya, a chain of Japanese video stores, is doing bothand is showing how, against tough odds, mobile Internet commerce can boost the bottom line of the company. Tokyo-based writer Alexandra Harney chatted recently with Japan's top mobile commerce expert and pioneer Takeshi Natsuno, 36, managing director of i-Mode strategy for Tokyo-based NTT DoCoMo Inc., the global leader in the fusion of mobile phones with the Internet.
CIO INSIGHT: Gartner Research says Japan's large population of train commuters and a less-competitive business climate has helped the mobile Internet succeed in Japan. Why do you think Japan is the only place so far where m-commerce has really taken root?
Natsuno: I have a theory. It's the value chain. For i-Mode, it's not a thing of a simple handset. You have to have a whole lot morea good handset, good network, good portal servers, good business model on top of the systems and good marketing to let consumers know this is a good product. And you have to have good content. Then, you have to coordinate all the layers. That's how we formed i-Mode. The big difference between telecom theory and i-Mode theory is that each layer comes from a third party. We don't develop content by ourselves. We depend on a third party for each layer. Sun Microsystems is making servers for us, and Oracle is managing a database for us, and handset vendors are providing their products to us. So what we're doing is not producing everything, but coordinating each layer to form a good value chain for customers. In Japan, so far, there has been this kind of power of coordination that hasn't been in play very widely elsewhere.
Why is that?
We're competing with telecom operators to provide a better value chain for customers, not just competing with marketing power or on business model intelligence, but the whole value chain. In Europe, for example, operators are only competing on the marketing part of things. They all have the same handsets, they all have the same kind of servers provided by the same small set of powerful telecom vendors. So the competition field is really, really limited. In Japan, though, we compete on the whole value chain. Value chain competition is a much bigger concept, and it's an important concept for Internet services like i-Mode. AOL is doing the same thing. The AOL value chain includes their portal, but also client software, servers and content. With all of that, they form the AOL service. They are not a simple ISP. That's why AOL is so strong. They can differentiate themselves from the normal ISP. So can i-Mode, pretty much along the same lines.
Why does WAP fall short?
With i-Mode, we set out three basic strategies. One is for the technology, the second was for the business model, and the third was for the marketing. In all three, the WAP world is totally different from the i-Mode world. First, with i-Mode, we chose the most appropriate technology for third-party content providersnot for wireless operators. Unlike other wireless technologies, such as WAP, which requires specialized language protocols, i-Mode is based on the de facto language of the Web, which is HTML. That's why we selected HTML, HTTP, GIF as a graphic format, MIDI as a ring-tone format and Java for downloading softwareall de facto standard technology from the Internet world.
WAP was developed to optimize technology for a wireless network by neglecting the power of the Internet's content community. Third-party content people in the WAP world have a tougher world to enter. Nobody knows WML (Wireless Markup Language). It's a newly developed thing. I-Mode is based on an Internet way of thinking rather than a telecom way of thinking, so we decided from the start not to develop a new technology, but to select among existing technologies to go forward. We knew the power of content is very important in the value chain. Also, we don't have any power in the content arena, so we had to make i-Mode attractive to content people, so they'd join us. The only thing we could do was to provide the best platform for content people to act and play on. That's really different from WAP.
In Europe, for example, operators say they own their users, so if they buy air tickets over the mobile phone, they think they have a right to take a commission from airline companies. I see it all quite differently. People can buy airline tickets over a PC. Why should wireless operators take a 3 percent commission on that when nobody else does? If wireless operators get a 2 percent to 3 percent commission from airline companies, then airlines would rather use a PC-based Internet to sell tickets than a mobile network. That's why our business model prohibits us from taking commissions from e-commerce happening on i-Mode, because that would hurt the usage rates of i-Mode itself.
Third, our marketing strategy is different, too. We simply target ordinary people, because the power of mobile is the number of people using it compared with those using PCs. If we miss the mass market, then content players can't find any reason to provide content to smaller and "poor" devices like the cell phone. But with a massive number of i-Mode subscribers, there's more of an incentive to provide attractive content. That's why in our marketing strategy we never mention techie words. The WAP world loves to advertise that, finally, the Internet is coming to your hand, for example. But what does that mean to ordinary people? We never mention words like Web browser, Internet or other types of techie words because they don't register with most people. People much prefer to know that they can get a service over a mobile phone. We tell them, for example, that they can do their banking on the train. It's all about providing very, very obvious applications to subscribers. The technology itself is not so important; how to use it is. Consumers need to see this as a new way to do the things they need to do, not a new gadget or technology that they might easily live without. WAP is totally based on a telecom way of thinking. I-Mode is an Internet way of thinking.
DoCoMo would like to introduce i-Mode services worldwide. How quickly do you think the mobile Internet will take off in the U.S.?
Not too many telecom and wireless operators in the U.S. understand how to set up Internet businesses over the telecom infrastructure. How to set up the value chain is more important than discussing what kind of technology would be necessary to make m-commerce take off.
In the U.S., all the content already exists. In the U.S., there is a lot of Internet banking and a lot of e-commerce already. The mobile Internet is complementary to the fixed-line Internet world; it's not a replacement. That's why we need to migrate mobile Internet technology to fixed-line Internet technology, because United Airlines, for example, doesn't care if it gets a reservation from a cell phone or a PC. So I think the U.S. is much better than Japan in terms of having content out there and available.
But who's going to set up the value chain of the mobile Internet in the U.S.? That's the missing link. That's why we're now sharing all the i-Mode experience and technology and know-how with our partners like AT&T Wireless. But it's going to take time. Still, in the U.S., voice subscriber numbers are going up. The first question we need to ask is whether telecom operators are willing to take a whole new approach when it comes to the mobile Internet. Once they do, then I think the basic climate for it in the U.S. would be much better than it was in Japan when I started i-Mode three years ago.
What's your advice for U.S. executives who'd like to get into mobile commerce?
From the content side, don't separate the e-business part or the m-commerce part from the normal e-commerce or the real business. Second, do what you are very strong at. Some people still think that because it's e-commerce, that it somehow has to be totally different. Maybe you produce steel, for example, but you also think you can do online shopping or an online mall? That's silly because you know the Internet is only a tool. How you select products is very important in a shopping mall. Third, change your thinking from a telecom way of thinking to an Internet way of thinking. That is the missing point all around the world.