Development of the Japanese Broadband Internet Market 2

I wrote the first blog about product strategy and especially a pricing strategy of SoftBank about its ADSL service and IP telephone service. Before going on to my company’s strategy against SoftBank at that time, I will tell you what was SoftBank’s other strategies such as its place (distribution) strategy and its promotion strategy.

What astonished other telecom companies and ISPs was its place strategy as well. That is, it began to hand out a modem with an IP telephone function for free by the roadside near stations nationwide and in mass retailers. Maybe the modem would cost about 7,000Yen (about £50). In addition, I guess SoftBank gave out more than 0.3million modems at that time. In fact some of my friends received it but they didn’t use it. It was natural that other companies couldn’t do such a foolish thing. I think many Japanese students can remember sales people dressed in a “red” jacket and with the modem in a “red” paper carrier. (The “red” was a signature colour of SoftBank at that time.)

SoftBank also drastically increased the commission for mass retailers which was one of my company’s most important sales channels. Therefore, we could not but increase commission given to mass retailers as well. That meant that our expense also increased dramatically.

Re SoftBank’s promotion strategy, it used a famous actress for its ad. In fact, NTT DoCoMo, one of the subsidiaries of NTT, used her before for its advertising campaign including a TV commercial for more than 3 years. I remember that she appeared from a big “red” paper carrier in SoftBank’s TV commercial and said “Yahoo! BB. The No.1 broadband provider.”, where it created a meaningful impact to consumers because they could see the “red” paper carrier everywhere.

Anyway, the situation for other companies was worst. Actually, my company cut the price of its ADSL service as much as that done by SoftBank. However, the cheap IP telephone was significantly powerful. In July 2002, the number of ADSL users of SoftBank was about 0.8 million, compared to about 0.3 million of my company.

The time had come to decide. That is, even if revenue of the traditional telephone had decreased, we would have to offer the same cheap IP telephone services.

However, we had to solve a big problem related to Metcalf’s law on Page 85 of the text. There is a similar concept called “a network effect (or, network externality)” in the telecom industry, where the more people who own telephones, the more valuable the telephone is to each other because this creates a positive externality. [Wikipedia: http://en.wikipedia.org/wiki/Network_effect ]

Applying the concept to the situation at that time, the more people used BB phones including “the 24/7 free of charge IP telephone service between its customers”, the more valuable it was to each other. That is, the service of SoftBank was more attractive than that of any other company.

Apparently if we had offered the same IP telephone service, we could not have gotten ahead of the competition.

So, guess what we did in order to compete against SoftBank at that time. [To be continued]