*********************************************************** Japan Internet Report No. 54 - January 2001 A monthly publication by Web Connection, Ltd. *********************************************************** In this issue: - Japan's telecom revolution - T-commerce poised for huge belly flop - Internet-enabled mobile phone user numbers overstated - eBay: big on Asia - Let's meet at Lucent wingding in Florida - They are not us... *********************************************************** Japan's telecom revolution The full-page ad in Japan's top daily newspapers read "Do the telephone companies of this country really 'compete'?" Immediately below appeared a chart comparing domestic long distance voice rates between the advertiser, Fusion Communications, and its competitors. Fusion was announcing its new nationwide flat 20-yen-for-three-minutes-regardless-of-distance domestic voice rate slated to go into effect April 1 of this year. This kind of in-your-face, comparative advertising coming from a Japanese company was a pleasant jolt. When did Japan's communications revolution get underway in earnest? Was it when mobile telephone penetration exceeded the 50% mark earlier this month, with more than 40% of these users paying for online services available through their handsets? Was it when local call rates recently broke the 9 yen per minute mark, after being fixed at 10 yen per minute for 25 years? Maybe it was when data traffic overtook voice traffic in October of last year. Or when Yusen announced that its subsidiary will start offering 100Mbit per second Internet access to consumer homes in Tokyo via fiber-optic cable from April. Whenever it was, it feels as though the last couple of months have been a breakthrough of sorts, and that Japan's telecommunications revolution is finally underway. *********************************************************** T-commerce poised for huge belly flop "T-commerce" (interactive television commerce) is one of the newer buzzwords adorning magazine pages these days, along with "m-commerce" (mobile commerce), "c-commerce" (convenience store commerce), and of course the old standby "e-commerce." With the startup of digital broadcast television in Japan, there's been quite a bit of excitement about the possibilities for t-commerce once there's a substantial base of users who can go online via ordinary television sets. The hitch is that the Big Four (Matsushita, Toshiba, Sony, and Hitachi), who together account for more than half of all color television shipments in Japan, have not included a browser in the technical specifications proposal for the set-top boxes to be used in next-generation digital broadcast services. The reason? The broadcasters who make television possible in the first place. Remember that the television set is fundamentally a device for watching television programs. Putting a browser in would reduce the amount of time consumers spend watching broadcaster programs, and thus directly cut into broadcaster advertising revenues. Japan's t-commerce model is built around the notion that broadcasters will be intermediaries linking corporations with the viewing public through a proprietary gateway service, offering online shopping services to companies for a small slice of the action. Making a browser available would cut into broadcasters' earnings by enabling viewers to take a detour around the broadcaster toll booth and do commerce directly over the Web with whomever they choose. Interactive cable television shopping experiments have been going on in the U.S. for more than ten years, with spectacularly poor results. In my view, Japan's t-commerce initiative is headed in exactly the same direction as its electronic money experiments - nowhere. If you want to use television to sell stuff in Japan, there's a very effective way to do so: infomercials. These programs rack up millions of dollars in sales. This prompts an interesting thought: Rather than fiddling around with fancy online transaction schemes, t-commerce proponents would do better to build in functionality whereby viewers can telephone a call center with a single click of the remote... *********************************************************** Internet-enabled mobile phone user numbers overstated For some time now I've suspected that the spectacular numbers published about the number of Internet-enabled mobile telephone users in Japan are substantially overstated. By this I mean that the subscriber numbers that carriers report are substantially higher than the number of subscribers who actually use the online services. Over the last week I've reviewed results of three studies that support this view. First, the anecdotal evidence: When you go into a cellular handset/service retailer in Tokyo these days and order cellular service from NTT DoCoMo, unless you strenuously and specifically object to it, you will automatically be subscribed to the i-mode online service - which requires an extra 300 yen monthly service fee, whether the service is used or not. This happens because retailers have a powerful incentive to sell the monthly online service bundled with the telephone handset: they earn a kickback of as much as 2,000 yen per i-mode subscription sold. A substantial number of customers apparently are not aware that they are being sold this service. Salespeople often simply say something like "we'll just go ahead and fill out the paperwork for you so you'll have the answering service option and i-mode." So most subscribers end up paying for the online portion of the service, whether they use it or not. In Japan, 300 yen (about U.S. $2.59 today) is almost a trifling sum, especially when viewed in the context of a monthly telephone bill. But multiply that by 17 million subscribers, and you get revenues exceeding U.S. $44 million per month. I suspect that many subscribers who try out the online services but stop using them don't bother to cancel and save the 300 yen monthly service fee. Most keep the telephone handset itself and continue to use the voice services - giving NTT DoCoMo a nice annuity for doing essentially nothing. Three recent studies suggest that this is exactly what is happening. A June 2000 survey by the Yomiuri Shimbun (sample size 738) found that 40% of Internet-enabled mobile telephone users were not using their telephones to access the Internet. An NRI study (sample size 979) in September 2000 found that 23% of the respondents who owned Internet-enabled mobile telephones were not making use of the online function. Finally, our own study, completed yesterday (sample size 12,453), found that 26% of respondents who subscribe to the i-mode service are not using their handsets for either e-mail or other online content. My guess is that somewhere around 25% of all i-mode subscribers are paying for the online service but not actually using it. If this is true, NTT DoCoMo's actual active user (not subscriber) base is less than 13 million rather than more than 17 million, and the entire population of active Internet-enabled mobile telephone users is far closer to 20 million, not 30 million. The point of this is not to diminish DoCoMo's spectacular success, or the incredible strength of the mobile market in Japan today. Rather it is to see the market in more realistic terms, and to recognize that the mobile telephone market is less of an Internet phenomenon than commonly thought. Right now the lifestyle electronics side of the market is starting to show through. For example, this morning I tried out one of the new F503i Java-enabled handsets, which in fact went on sale today (January 26, 2001) for the first time. This device has ten built-in games, eliminating the need to download and/or play online, at least until the user gets tired of the built-in content. It's essentially a new type of hand-held game machine. Also previewed a portable color printer that connects to a cellular phone, and a couple of handsets with built-in digital cameras. The latest dilemma faced by Japan's cellular user: Does she want a built-in MP3 player, digital camera, game machine, or printer? Or all of the above? Japanese cell phones now offer a dizzying variety of capabilities, and new peripherals and add-ons are introduced seemingly every day. This market is out of control even by Japanese gadget-lover standards! *********************************************************** eBay: big on Asia eBay, the 800-pound gorilla of the online auction sector in the U.S. and Europe, is now expanding its operations here in Asia. The company recently purchased a South Korean auction site - apparently a preliminary to launching a site in that country (see this month's issue of our sister publication, the Asia Internet Report: ). Meanwhile, the eBay Japan site, which until this week only supported PC users, is now available to mobile phone users. Well, i-mode and J-Sky users anyway - apparently EZweb access is still in the works. It's a good move that should give eBay access to a demographic it couldn't reach through the existing PC-based site, as well as offering more convenience to existing users. Of course, eBay also needed mobile access to keep up with the Joneses - Yahoo! Japan users have been able to check on auctions from their phones since September 2000. Kudos to eBay for making a long-term commitment to building their presence in Asia. It's just like we've always said: if you want to succeed in Asia, your operations here can't be a postscript to your U.S. operations. eBay understands this and has made a point of adapting to local market conditions. Of course, eBay can afford to take the long view. It sure does help to be profitable... *********************************************************** Let's meet at Lucent wingding in Florida Lucent always puts on a good show, and it's a great time of year to catch some rays, as well as some of the leading thinking on the wireless Internet. So if you have the chance, come to Miami February 7-10 for the LINC 2001 conference on intelligent network, mobile Internet, and messaging solutions. I'll be presenting my thoughts on upcoming 3G wireless services in Japan. Details on the conference can be seen at: http://www.lucent-e-services.com/linc2001/speak.html *********************************************************** They are not us... We noticed that late last year the Impress Corporation of Japan, in cooperation with The Industry Standard, began selling research reports entitled "Japan Internet Report." Our attorneys have politely requested that both parties stop using this title, as we have been publishing similar content under the name "Japan Internet Report" for five years, and have trademark rights in the name. I'm surprised that Internet-savvy guys like these didn't do some simple checking first, such as seeing who owns the domain "www.japaninternetreport.com" or submitting "Japan Internet Report" into any search engine and seeing where all the links lead... *********************************************************** Tim Clark Strategy Director, Japan tim.clark@twc-jp.com Please use the online forms to subscribe to or unsubscribe from JIR. Copyright 2002 by Web Connection. All rights reserved. Tel: +81 3 5777-3810 Fax: +81 3 5777-3814 Web Connection http://www.twc-asia.com Winning Solutions in the Digital Economy