Japan's mobile Internet revolution: Rebirth after the New Black Ship Incident

More than 100 years ago, a fleet led by American Admiral Perry knocked on the door of Japan for the first time. Prior to that, the country had been closed for centuries under the rule of the shogunate. People stubbornly believed that their own things were the best. After that, Japan began the painful but far-reaching Meiji Restoration, which enabled it to work hard and establish its position as a world power.

This is the famous "Black Ship Incident" in Japanese history. Strangely, the Japanese did not regard General Perry, who appeared as an invader, as an enemy, but regarded him as a hero.

To commemorate Perry, the Japanese not only built a Perry Park in Yokosuka City, but also erected a monument at the place where the American black ships landed. On it is written the "Monument to the Landing of Admiral Perry of the United States Navy" in the handwriting of former Japanese Prime Minister Hirobumi Ito.

The Japanese believed that the reason why the Japanese nation became powerful later on was largely due to Perry's visit, so Perry was the benefactor who prompted Japan to open up, reform, enrich the country and strengthen the military.

This special plot of the game between closure and openness has accompanied the Japanese for more than a century and is reflected in many industries in Japan today.

In the eyes of many other countries in the world, Japan is a country suffering from "Galapagos Syndrome". The Galapagos Islands are an archipelago in the Pacific Ocean where species are isolated and self-contained. When animals here are taken to other places, they will die soon. This situation is described as Galapagos Syndrome. Many industries in Japan are self-contained, and they have created their own system outside the mainstream development trend of the world.

Among them, Japan's mobile Internet industry is the most typical.

In 2001, NTT DoCoMo, Japan's largest operator, officially began operating the world's first 3G network. Remember, at that time Apple was still producing the iPod music player, Google had just received financing from Sequoia and KPCB, and mobile phones were not yet popular in most parts of China.

NTT DoCoMo established a closed system in Japan called i-mode. Today, this system is highly consistent with Apple's iOS+iPhone+App Store model, that is, the leader of the industry chain - the operator is responsible for operating the network, selling its customized mobile phone terminals, distributing content platforms, and charging fees. This system was extremely advanced in the world around 2000.

For a long time at the beginning of this century, Japan's mobile Internet industry was far ahead of other countries. In many sub-sectors such as mobile advertising and mobile games, Japan was once several years ahead of other countries including the United States.

"For years, countless American technology experts have traveled to Japan. When they were amazed at the functions (and speeds) that NTT DoCoMo and Nintendo's wireless devices could provide, they all shyly put their relatively shabby mobile phones back into their pockets..." This is the beginning of a mobile Internet report by Morgan Stanley.

But in 2008, a new American "Black Ship Fleet" arrived, and its impact on Japan's mobile Internet was no less than that of Perry's fleet.

In 2008, SoftBank founder Masayoshi Son officially introduced Apple's iPhone to Japan. This revolutionary smartphone with a large screen and touch screen was once unpopular among Japanese people. But later, the iPhone swept Japan, and Apple's App Store model greatly subverted the mobile Internet ecosystem controlled by Japanese operators.

Before that, few Japanese used foreign mobile phones. Nokia, Samsung, and Motorola all failed miserably in the Japanese market. Nokia even closed its branch in Japan.

People described the arrival of the iPhone as a new landing of the black ship. Japan's mobile Internet industry has undergone in-depth reflection and reform.

It is under such drastic changes that the fate of Japan's three major operators, NTT DoCoMo, KDDI and Softbank, has undergone tremendous changes.

At the same time, a number of powerful mobile Internet companies such as GREE and DeNA emerged in Japan. After the transformation of feature phones into smartphones, Japan's mobile Internet has exploded with new power and vitality due to its solid foundation.

As Japan's mobile Internet as a whole is still ahead of other countries in the world, its years of experience and lessons have become a valuable asset for the world's mobile Internet. Many issues still being discussed in China have already become part of ordinary people's homes in Japan many years ago.

How did the iPhone go from slow-selling to popular?

The giant white Hokkaido dog model stands prominently in the bustling area of ​​Ginza, Tokyo, and tourists from all over the world can't help but stop and watch. This Hokkaido dog is a household name in Japan. It frequently appears in many SoftBank TV commercials with various celebrities, greatly boosting SoftBank's popularity in Japan.

This is SoftBank's flagship store in Ginza, Tokyo, Japan. In the past few years, whenever a new generation of iPhone is launched, SoftBank's founder Masayoshi Son will appear here to "stand up" for the new phone with his well-known face in Japan. Whenever a new iPhone is launched, there are always lines of young people from all over the world outside. Like people in other parts of the world, they are crazy about this American phone.

In 2008, when SoftBank, Japan's third largest operator owned by Masayoshi Son, first introduced the iPhone 3G version to Japan, this American phone with a large touch screen seemed very different in Japan, but no one was optimistic about it.

People took out large flip phones of Japanese brands with complete functions from their pockets. These phones were customized by operators such as NTT DoCoMo and KDDI, and could be used to surf the Internet, send emails, play games, listen to music, tell fortunes, make friends, watch TV, swipe cards to enter subway stations, etc. These phones usually had a button that could enter the operator's homepage with a single click, which provided a variety of mobile Internet services. At that time, no country in the world had mobile phones as rich in functions as Japan.

Before the iPhone was born, Japan had the best-functioning mobile Internet system in the world.

However, the long-term closed system of operators has weakened the competitiveness of Japanese mobile phone manufacturers such as Sharp and NEC. In Japan, the best mobile phone design talents are often concentrated in operators, and mobile phone manufacturers have become OEM departments of operators to some extent.

The CEO of a Chinese manufacturer who once designed mobile phones for Japanese operators recalled to reporters that Japanese mobile phone designs were too complicated. Operators required the addition of many features they wanted, such as NFC and mobile TV. The phones also had many operator-customized software built in. Japanese operators had very high requirements for mobile phone quality, and due to low production volumes, mobile phone prices remained high.

"There is a unique culture of craftsmanship among Japanese manufacturers," said the China CEO of a Japanese IT company. Japanese IT companies are proud of their identity as engineers and pay great attention to product quality. They strive to achieve the highest quality of products, but often ignore how many consumers actually need such products. "One of our company's products has very powerful performance, but its annual sales are less than that of a Lamborghini sports car."

At first, SoftBank's iPhone did not sell well in Japan. This was because the Japanese had not yet fully accepted this new mobile phone. Moreover, the price of the iPhone was higher than other mobile phones. It cost a lot of money at the beginning, and a lot of money had to be spent on the package every month. In addition, the iPhone did not include the mobile wallet and mobile TV functions that are common in Japanese mobile phones, which also made the Japanese uncomfortable. Six months after its launch, iPhone sales in Japan basically stagnated.

Later, SoftBank adjusted its iPhone sales strategy, such as drastically reducing prices, strengthening marketing and publicity, and strengthening iPhone usage guidance in stores. In addition, SoftBank has deployed a large number of Wifi hotspots in Japan, the most among Japanese operators. SoftBank provides free hotspots for many businesses such as McDonald's and convenience stores, and puts signs at the entrance of McDonald's saying that SoftBank Wifi is free to use, which attracts a large number of consumers.

Min Hailan, who was studying in Japan at the time and is now an employee of Nomura Research Institute, recalled that the popularity of social networks such as Facebook and Twitter also played an important role in the sales of iPhones in Japan, because the experience of these social networking sites on smartphones was much better.

"Japanese people are actually very sensitive to international Internet services such as Facebook and Twitter. The iPhone can directly connect to these social networks through the App, which is very convenient. Moreover, Apple is an international brand. Japanese young people actually admire this unique international brand. They also think it is cool to go out with an iPhone." Min Hailan said.

Communications Market Earthquake

At first, the speed of smartphone penetration in Japan lagged far behind that of Europe and the United States, and was even lower than that of China at one point.

NTT DoCoMo and KDDI were too successful in the feature phone era and were slow to move to smartphones. KDDI did not even start promoting smartphones on a large scale until 2011.

When I went to Japan for an interview two years ago, many feature phones were still on sale in the operator's business hall. But when I went to the operator's business hall again recently, I found that the most prominent positions had all been given to smartphones.

NTT DoCoMo and KDDI have stepped up their efforts to sell customized Android smartphones, which are far more customized than any other operator in the world. For example, NTT DoCoMo's smartphones generally include hardware features such as mobile wallets and mobile TV, which are lacking in the iPhone. KDDI has added unique features such as SmartPass package services to its customized Android smartphones.

Affected by SoftBank, the performance of Japan's largest operator NTT DoCoMo and second largest operator KDDI was once greatly affected, and their market share of new users was snatched away by SoftBank.

The hot sales of the iPhone in Japan are a fatal blow to Japanese mobile phone manufacturers - their last market, which they rely on for survival, has now become a powerful foreign invader.

Take NEC, for example. The company was once one of the world's largest IT and telecommunications companies. After two years of losses and a market value decline of more than 90% in a decade, NEC is selling its mobile phone sales division and cutting 10,000 mobile-related jobs. Analysts point out that NEC is no longer able to compete with Apple and Samsung.

In the era of feature phones, Japan gave birth to a large number of SP companies such as Index, CAmobile, CIBIRD, and Klab. After the advent of the smartphone wave, life began to become difficult for most companies.

In the past, these SP companies were dependent on operators and had very stable incomes. Now, many Japanese SP companies have begun to suffer huge losses, and more companies have begun to transform into making games on smartphones. For example, D2C, Japan's largest mobile advertising company, is now beginning to significantly transform into making games.

The market structure of Japanese operators has also changed dramatically. SoftBank has greatly increased its market share thanks to the hot sales of iPhone, while NTT DoCoMo and KDDI have begun to transform.

The popularity of smartphones has put operators at risk of becoming “pipeline-ized.” Japanese operators are still very enthusiastic about selling smartphones. As a mature market for mobile communications, Japan’s voice market has long been saturated, so operators believe that smartphones can effectively drive users to use mobile data, thereby boosting operator revenue.

Keiichi Enoki, the founder of Japan's i-mode business, pointed out that the way for operators to avoid pipelining is to develop peripheral businesses.

Since 2010, NTT DoCoMo has begun to expand into eight major areas outside of telecommunications, including financial and settlement services, multimedia services, business services, medical and health services, the Internet of Things, integration and platform services, environmental protection services, and safety and security services. In the future, operators will become less and less like a simple mobile communications company.

Over the past few years, the revenue of these eight new businesses has exceeded 10% of NTT DoCoMo's total revenue. NTT DoCoMo hopes that the revenue of these new businesses will reach 1 trillion yen by 2015, and will continue to drive NTT DoCoMo's revenue growth when its main business is becoming increasingly saturated.

NTT DoCoMo's business expansion is very similar to the "de-telecom" approach recently proposed by China Telecom, which is to expand to surrounding industries through the advantages of the main telecommunications business to reduce the threat brought by pipelineization.

Mobile Internet is reborn

After the pain of transition, Japan's mobile Internet has recently shown amazing explosive power due to its good foundation. In many aspects such as mobile games and mobile social networking, Japan's development is much faster than other countries.

Among the top 15 mobile game companies in the world in 2012, 4 are from Japan. Since the end of 2012, Japan has surpassed the United States to become the country with the highest Google Play revenue. 88% of Google Play's revenue in Japan comes from games.

The best performer was Japan's GungHo, which became the largest operator in Google Play. With mobile games such as Puzzle & Dragons, Gungho's market value exceeded $10 billion, making it one of the most profitable mobile game companies in the world.

In addition, Line, known as the "Japanese version of WeChat", has also developed rapidly in Japan, with more than 150 million users, and started commercialization earlier than WeChat. In the first quarter of 2013, Line's revenue reached 5.82 billion yen (about 58.9 million US dollars), an increase of 92% over the fourth quarter of last year, of which 80% came from the Japanese market. Line's main income now comes from games and paid emoticons in the app.

Japan's achievements in mobile Internet prove that a good industrial foundation is crucial. In particular, Japan's operators have laid a very solid foundation for the development of Japan's mobile Internet and shouldered their responsibilities in the industry.

The good development of Japan's mobile Internet is inseparable from the "dual-plane package" widely adopted by Japanese operators. This billing method allows users to use mobile Internet traffic with peace of mind, which has greatly promoted the development of Japan's mobile Internet.

In the early days of 3G business development, Japanese operators charged users based on actual traffic usage, or adopted monthly packages with no cap on traffic usage. However, the price of packages with no cap on traffic usage was expensive (about 4,000 yen per month, or more than 200 yuan), which led many users to be afraid to use mobile traffic freely, which to some extent restricted the development of mobile Internet in Japan.

After that, KDDI took the lead in launching the "dual-plane billing package". The so-called "dual-plane" means setting a very low threshold for monthly traffic minimum consumption (about RMB 70) and a maximum consumption (about RMB 300). Users are charged according to their actual usage, and no matter how they use traffic, the charges will not exceed the maximum consumption.

This tariff setting has greatly promoted the enthusiasm of Japanese users to use mobile data, allowing people to use various mobile Internet services. Since then, other Japanese operators have also followed suit and adopted the dual-plane billing method.

In comparison, the data charges of Chinese operators are currently very expensive. The main monthly packages of Chinese operators usually limit the maximum data usage of the month (such as 1G), and the excess data is very expensive. Therefore, many mobile Internet companies have reported that user activity usually drops sharply at the end of the month because users dare not continue to use data.

The quality of Japan's mobile communication network is very good, which is also the reason for the explosion of Japan's mobile Internet. Since 2010, Japan's three major operators have begun the era of large-scale popularization of 4G networks.

NTT DoCoMo's 4G users exceeded 10 million by the beginning of 2012. As the price of 4G packages is close to that of 3G packages, a large number of Japanese people choose 4G networks when they replace their mobile phones. In addition, the number of 4G users of KDDI and SoftBank has also increased significantly.

The popularity of 4G is a major boon to Japanese mobile Internet startups. For example, the Internet phone function that Line relies on to get started is more stable under 4G conditions. In addition, Japan's most profitable mobile games - card games, also have high network requirements.

In the era of mobile Internet dominated by feature phones, Japanese users have developed good payment habits and are willing to pay for mobile Internet content, which has laid a good foundation for a new round of mobile Internet explosion in Japan.

In addition, the capital from Japan's mobile Internet industry also shocked the world. In October 2012, SoftBank announced that it would spend $20 billion to acquire Sprint, the third largest operator in the United States, which shocked the industry for a while.

In addition, Japan's mobile Internet industry has made many big investments in the world in recent years, such as SoftBank's investment of $200 million in mobile advertising company inMobi, DeNA's acquisition of US game company NGmoco at $400 million, and GREE's acquisition of social game platform OpenFeint at $100 million. Currently, mobile Internet industry capital from Japan is also seeking M&A opportunities in the Chinese market.

As the most mature mobile Internet market in the world, Japan's exploration over the past years has actually provided China with very important reference. For example, mobile wallets, mobile advertising, O2O, and mobile medical care, which are new mobile Internet products that are still being explored in China, have actually been operating in Japan for many years.

Take the O2O industry as an example. The further O2O develops, the more it needs the maturity of the whole society as a foundation. Japan's highly mature social and business environment has laid a good foundation for the development of its O2O. The income gap in Japan is very small. From Hokkaido in the north to Okinawa in the south, people's living standards are almost the same.

In addition, Japanese businesses have a high concentration. For example, Japan's 7-11, FamilyMart, Lawson and other chain convenience stores have firmly occupied the center of people's lives. Some Japanese venture capitalists pointed out that the further the mobile Internet develops, the more it needs the maturity of the social business environment to cooperate. Therefore, Japan is likely to become a new round of test field for the global mobile Internet, and is expected to be the first to give birth to some innovative business models.

Over the past few years, Japan has explored a variety of mobile Internet services that meet the needs of its citizens, such as earthquake alarms, mobile phones for the elderly, mobile phones for children, mobile smart traffic planning, and mobile medical care. Its practice in using mobile Internet to transform traditional industries is far ahead of other countries.

via: 21st Century Business Herald