Why I Love To See Carriers As Bit-Pipes? (http://mobile.inspions.net/2006/12/03/why-i-love-to-see-carriers-as-bit-pipes /)

BTW, the point of my post this week is that none of this should surprise us. That’s not because the MNOs are ‘slow’ or ‘dumb’. It’s because the direct revenue from mobile content will never be enough to matter to them, unless voice revenue collapses completely. The primary value of mobile content to the MNOs is that it allows them to sell more voice minutes, by winning consumers away from other MNOs. Creating the best possible environment for CPs is actually bad for them, because it would quickly lower the bar for CPs to executing across all operators at the same time.

Having read the Wireless Watch article you point at (a great historical overview, by the way), I ‘m wondering if there is a third (c) conclusion in addition to the list of your earlier two. I.e.
(c) DoCoMo restricted the market for CPs and when they had to open up to flat-rate pricing due to KDDI competition, they left all their CPs stranded in a restrictive business model, unable to compete with the off-portal ringtone providers.

In which case I think I agree with you that DoCoMo was too heavy handed and not offering enough ‘openness’ and a broad-enough variety of revenue models (e.g. premium SMS, advertising, etc) that would let CPs innovate and survive against the ‘flat’ competitive landscape. BTW, in Europe operators opened premium SMS up to third parties mostly as an afterthought, and not as a premeditated strategy IMO.

In conclusion, my view would be that DoCoMo probably is a practical role model for service-pipes in opening up the network and handsets to CPs, but NOT in they way that strategy was executed.

Andreas

best,
Chetan

There is nothing healthy about an arbitrary revenue cap; it is just market-distorting. Do you think that the market for new cars would be healthier if the government capped the price of a car?

Here’s a one-line summary of the Japanese mobile content market:
All of the money came from ringtones; now polys are widely available for free and there’s not enough margin in real music tones for CPs to compete.
(Source). Or look at the stock charts for the market leaders Index (ticker 4835), Cybird (4823), and For-Side (2330). (Bloomberg.com offers Japanese stock quotes and charts for free.)

There are two conclusions: (a) we’re all kidding ourselves, there is no future in mobile content or (b) DoCoMo has not created enough value for CPs.

I vote (b).

The restricted billing model means that the mobile games market in Japan is a fraction of the size of the market in Europe and the US, even though mobile internet penetration is far, far higher.
Nobody makes money in off-deck content because DoCoMo offers no off-deck billing model akin to premium SMS.
No premium SMS means no money in interactive TV, SMS marketing, or SMS communities.
There is no money for CPs in full-track song downloads because DoCoMo insists on controlling that.
The mobile advertising market is stunted because a joint venture of DoCoMo and Dentsu has a virtual monopoly.
Yes there are horoscopes and weather forecasts and news and sports content and even sales of perfume, but once you let people go off-deck, which you must, all of that is available for free.

At this point in 2006 most US and European MNOs offer CPs far more ways to make money than DoCoMo does. They just charge too high a revenue share. (Technology fragmentation also holds the market back, but in this respect Japan is no different than the US or Europe since DoCoMo, KDDI, and Softbank use different technologies.)

Finally, let me repeat that your article is excellent and that I agree completely. I just don’t agree that DoCoMo is the poster child.

Jason

very interesting article! I’ve been thinking along similar lines on the current trend of MNOs getting into the DSL business. To me this combination could be worth a lot to them if they figure out their place as a service pipe and integrator for fixed/mobile services other companies can’t offer. I’ve discussed this in a somewhat shorter and less detailed aritcle on my blog: http://mobilesociety.typepad.com/mobile_life/2006/11/opportunities_f.html

Best regards,
Martin

OK, so DoCoMo’s 300 yen per month (per user?) revenue cap was new to me. This does create a ceiling for CPs, but at the same time it allows for a healthy, competitive market place where new entrant CPs have a good chance of success.

DoCoMo’s service-pipe strategy is also evident in the use of the DoJa platform to enable Standby (idle screen) plugins, that turn out to be a very powerful way for CPs to customise the phone (in what I consider to be a model for operator handset customisation).

DoCoMo has also practiced a relatively open strategy to CPs, which rewards the several thousand CPs which make it into the portal, with access to special network and device APIs, again a model in building CP relationships and trust IMO.

All in all, I accept that DoCoMo has practiced heavy-handed tactics in CP revenue models and revenue cap, but it otherwise is a service-pipe role model for Western MNOs (or as close as you can get to a model under open market conditions). Wouldn’t you agree ?

Andreas

From day one DoCoMo has insisted that i-mode itself is the portal and blocked content providers (CPs) from aggregating content themselves. CPs are also limited to one billing model, subscription, and their revenue from each service is capped at 300 yen per month.

Some consequences of this:
1. Once they have built a large audience CPs have no incentive to add new content and features to existing services, because they cannot raise prices. (Competition forces them to do so, but that becomes a race to stand still.) Companies like For-Side, Index, and Yahoo must launch new standalone services and market them independently, without linking to them. This is clearly much less efficient.
2. The market for mobile games is much less mature than in the US or Europe because you can’t sell one game one time, and you can’t profitably provide a selection of high-end games (as opposed to say Shockwave Minis) for just 300 yen per month.
3. DoCoMo keeps opportunities like full-track downloads to itself.

DoCoMo deserves a lot of praise, but this is not the fully open platform that you are describing. Mobile data revenues have begun to flatten out and I believe this half-open garden approach is to blame.

BTW my information may be a year out of date; I was running a subsidiary of Japanese CP For-Side up to that time. But even if DoCoMo has adopted an open platform, it did so in 2005 or 2006, not in 1997.

Walter,
It’s true that DoCoMo has been practicing a ‘service-pipe’ or platform strategy from the very beginning (and it’s flattering to know that my thesis is close to what was DoCoMo’s strategy in 1997!). I think European/US operator should adopt a somewhat different platform strategy, given the importance of voice and media (rather than information) to consumers in these markets today. Great pointer about the book – it’s going into my Amazon wishlist

Andreas

As for advising MNOs to think of themselves as 2-sided platforms/markets the book Invisible Engines by Evans, Hagiu and Schmalensee devotes an entire chapter to this analysis. They also devote an entire chapter to explain 2-sided markets which is the most boring chapter in the book. And as you say perhaps three-sided is more apt, which is just to say that 2-sided markets are just an academic fad replacing the perfectly adequate channel and value chain analyses which sensible people applied well in the past.

Walter Adamson
Melbourne, Australia.