********************************************************** Japan Internet Report No. 56 March 2001 A monthly publication by Ion Global ********************************************************** In this issue: - There is no killer content - Sony's Idei speaks truth - DoCoMo moves in on a new market - Tim's new company / JIR starts sixth year *********************************************************** There is no killer content Amid greatly reduced expectations for PC-based e-commerce, venture money is now gathering around broadband and wireless startups, apparently in search of success in the emerging areas of "t-commerce" and "m-commerce" (for our take on t-commerce in Japan, see the January 2001 JIR.) The quest seems to be for "killer content" - that content which will prove so compelling to consumers that they will actively open their wallets and pay for it. With respect to the Japan market, this idea is fundamentally misplaced, for two reasons. First, there is a critical distinction between "content" and "service." Many people outside Japan believe i-mode features "killer content." What i-mode really offers is a collection of service bundles rather than "content" per se. News is a good example. What people are paying for is not to read this particular story or that particular editorial, but rather the service of keeping informed in a convenient way (single-handed two-to-eight minute reading sessions on crowded train cars/platforms) at a very reasonable monthly cost (less than three days' worth of newspapers). Even the popular character and ring tone download services are exactly that - services that enable subscribers to re-personalize their handsets whenever they want - rather than got-to-have-it content per se. The second key point has to do with active payment. With few exceptions, people in Japan still do not actively pay for content. The failure of the pay-per-view television market and slow growth in the cable and satellite TV sectors testify to this. Fee-for-service offers via i-mode are successful precisely because the payment mechanism is essentially passive from the consumer perspective. What does this mean for the new broadband and wireless venture firms? For the Japan market, simply making a clear distinction between "content" and "services," carefully thinking through the implications, then making choices based on a clear understanding of what services consumers here are actually willing to pay for - and in what form they are willing to make those payments. In Japan, the name of the game is not killer content - it's killer services. *********************************************************** Sony's Idei speaks truth Earlier this month I had the good fortune to hear Sony CEO Nobuyuki Idei speak at a seminar on venture firms and entrepreneurship. It was like listening to a very smart buddy talk over drinks. Following an informal panel-type discussion with the moderator, Mr. Idei took questions from the audience, responding with refreshing speed and candor. For example, to the conscientious salaryman who asked how he could possibly help his slow-moving superiors get on with the desperately-needed transformation of their company, Mr. Idei simply said "you probably need to find another job." Harsh advice, but dead on in this society, where too many people sacrifice their personal and professional lives on behalf of incompetent management. Idei-san also had some choice words for the transient nature of most Internet-based entrepreneurial ventures, saying that "businesses cannot be based on (whimsical) ideas." I really liked what he was saying here. I've always believed that successful businesses are based on the founding group's skills, not "ideas" per se. In any event, most Internet-based businesses are not by nature capital-intensive. If a group has the right skills and drive, why would it need millions of dollars to build and launch a Web service? Mr. Idei's views go against the conventional "new economy" thinking in the West that the Internet is a highly "disruptive" technology. I tend to side with Mr. Idei. As Michael Porter says, "in our quest to see how the Internet is different, we have failed to see how the Internet is the same." What got "disrupted" was the capital markets more than business itself. I also liked Idei-san's take on studying and self-improvement. When asked how he possibly finds time to read, he said, in all seriousness, "you just have to buy the books (you don't actually have to read them)." That line provoked a belly laugh from the audience, but Mr. Idei pointed out that "most books take 200 pages to say what could easily be said in five -- including my own!" The act of buying the book and scanning enough of it to get the key points is what's critical, says Mr. Idei. I felt redeemed, considering the half-cracked tomes littering my house and the credit card bills I've racked up at Amazon.com over the years. In any event, Idei-san is an inspiration. There are so many people like him throughout Asia whose thinking and outlook on life and business Westerners would find extraordinary. Maybe when I retire I'll take on the task of translating a book or two from one of the greats here in Japan... *********************************************************** DoCoMo moves in on a new market Late last year, NTT DoCoMo president Keiji Tachikawa predicted that the next growth area for wireless services was not person-to-person communications (i.e., voice), but data, in the form of person-to-machine and machine-to-machine communications. Curiosity piqued, we took a look at DoCoMo's activities in this area, and found that subsidiary NTT DoCoMo Machine Communications has specialized in this sector since its founding in July of last year. The company offers wireless inventory management systems for vending machines, as well as backend support for those systems, and is able to draw on the expertise of minority investors such as Fuji, Sanyo, Panasonic, and Conlux, a firm that specializes in designing and producing coin, card, and bill acceptors for vending machines. Inventory management systems for vending machines have been around for years in Japan, but systems based on landlines have been the norm. DoCoMo Machine Communications' system, on the other hand, is based on PHS transmitters installed inside the vending machines. Installing these transmitters is far quicker and cheaper than bringing a phone line to each vending machine, as was previously necessary. Moreover, using DocoMo's "DoPa" packet-based service means that clients also save money on transmission fees. DoPa's fees are assessed based on number of data packets sent, and rarely climb as high as 8.9 yen, the current minimum fee for a fixed-line phone call. Executives of Coca-Cola Hokkaido, which is in the process of installing DoCoMo's system in all its vending machines, claim that transmission costs have dropped by 70%. With results like these and over five million vending machines in Japan, DoCoMo Machine Communications enjoys an abundance of potential customers. The company also has ambitious goals: Mr. Tachikawa predicts that by 2005, data traffic will account for half of all wireless traffic, up from 5% in late 2000, and that this kind of application will account for a major portion of the increase. Whether this level of growth can actually be attained remains to be seen, but no matter how this market evolves, there's no doubt that DoCoMo Machine Communications will play a key role. *********************************************************** Tim's new company / JIR starts sixth year As of April 1, I work for a new company (that's one reason this issue is late). The name of the company is Ion Global. Please take a look at the Web site: www.ion-global.com I really like this new company, because it's got its collective head on straight. Practical and realistic, just like yours truly. CNN did a good write-up on us that can be seen on their site. This issue also marks the start of the sixth year for Japan Internet Report (JIR). It's hard for me to believe that more than five full years have passed since issue number one came out in February of 1996. It's true that time passes more quickly as you get older, and these last five years of "Internet time" have been particularly speedy. Thanks for all the supportive comments in response to the last item in the February JIR. One of my goals for this year is to make life move a little slower and business a little faster... *********************************************************** Tim Clark Strategy Director, Japan tim@jir.net Please use the online forms to subscribe to or unsubscribe from JIR. 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