iPhone’s sales in Japan

One of my Japanese friends told me that the iPhone was unlikely to sell well in Japan. So, I researched whether this would be true or not on the Japanese site.

First of all, I couldn’t find the hard fact regarding bad sales performance of iPhones. On the other hand, I couldn’t find any relevant facts that SoftBank Mobile, the iPhone carrier in Japan, has enjoyed large sales.

Instead, there are many consumers’ complaints about it: no demountable battery, can’t use picture language in email* which almost all Japanese girls and young women(sometimes boys and young men) love to use, can’t take moving pictures, the battery runs out at an early date, bad usability especially in Japanese character entry and so on.
*In Japan they don’t usually use text messages.

One of my friends also said that in Japan when they get on a train (or a tube) and write email with their mobile handsets, they usually use one hand and hold on to a strap with another hand, so iPhone is tricky to write an email. Furthermore, young girls (or women) tend to use their nails when they write emails with their mobile phones. In that case it is difficult for them to write emails with iPhone.

I’m not sure about the fact but I guess if iPhone shows a good sales performance, SoftBank Mobile will announce the number officially, but unfortunately they haven’t done it so far.

Finally, some of you might know that on 27 February SoftBank Mobile has introduced a new pricing plan that gives iPhone (8GB) away for free with a new two-year contract. (It will be available until 31 May.)

I’m not sure either exactly what this plan means. (but it has a kind of bad sales air about it!)

Development of the Japanese Broadband Market 7

Last time I wrote why VOD services are not so popular in Japan despite a high penetration rate of optical fibres. This time I will write about opportunities for VOD services in Japan.

First, NHK, Japan’s public broadcaster, offered a new VOD service called NHK on demand last December. The service is available from the next day after NHK has broadcasted its programmes, people can watch them for one week through broadband services. They can also choose programmes from its archived programmes. It costs from 300 yen (£1.5) to 1470 yen (£12) per month.

In reaction to NHK’s movement to offer their programmes with VOD services, other commercial broadcasters have gradually started to offer VOD services. Therefore, the reluctance from broadcast stations to offer VOD services of their programmes is diminishing.

Second, as you know there are many free VOD service providers such as YouTube. However, it is said that from an advertisers’ point of view, they are worried about placing their ads on such kinds of VOD services because they are not sure about what kinds of VOD services their ads are placed on.

On the other hand, we also have another type of VOD services where VOD service providers offer particular films or other programmes for free. In that case, advertisers can get to know which films (or programmes) their ads are placed on. However, so far one of the problems about those kinds of VOD services has been that we don’t know how many people actually watch the VOD service. So, those VOD services haven’t succeeded as well. But, last year major VOD service providers decided to make criteria about audience rates and viewership and have been making systems for them. So, it is said that if they can offer such kinds of data to advertisers, they will be get more advertising revenue.

A survey shows that people want to watch VOD services with ads rather than pay ones. (65% of them prefer VOD services with ads. N=2,087) Therefore, I think the second generation of VOD services have a certain likelihood of success.

Development of the Japanese Broadband Market 6

Some of you have asked me before, about why in Japan we don’t have so many VOD (Video on Demand) service users via optical fibre services. I have found some of the reasons in a book published on December 2008 about the Japanese information communication market, issued by Nomura Research Institute, Ltd, the largest think tank in Japan.

I think the book proposes two intriguing analyses.

First, VOD services don’t have so many line ups. VOD services are comprised of both contents such as movies and animations, and contents by broadcast stations (TV). However, in fact VOD service providers offer very little TV contents which are very popular in Japan. Why? One of the reasons is that broadcast stations are reluctant to offer their contents to VOD service providers because they are afraid that consumers are not going to watch TV. (It means that they may lose advertising revenue.) The second reason is copyright application. The Japanese copyright law requires them to get approval from all copyright holders including performers, if they want to offer their contents to VOD services. They think this is quite a troublesome chore.

Secondly, the service level of VOD is still inferior to that of competitors. For example, TSUTAYA, the biggest video rental chain in Japan, provides a DVD home delivery service called TSUTAYA DISCAS. That is, when consumers can order DVDs including the latest ones online, TSUTAYA sends these DVDs to them by mail. After watching them, consumers only drop them into mail boxes. TSUTAYA offers this service for a fixed monthly charge including postage charges, e.g., about £10 for 4 DVDs per month, about £15 for 8 DVDs per month and so on. The book says that many people usually watch DVDs on the weekend, they don't need VOD servises where they can watch movies anytime. Rather, TSUTAYA DISCAS is useful for them because it has more titles including the latest ones than VOD service providers.

As I mentioned above, it is the fact that VOD service providers still have many problems to solve which means their appeal is still quite limited for customers.

Development of the Japanese Broadband Market 5

This time, I will write about the turning around in fortunes of the 050 VoIP which might be useful for telecom careers in other countries. In fact, this new service was offered with the intent to create completely new demands.

As I wrote last time, there are two kinds of VoIP service (0AJ VoIP and 050 VoIP) in Japan because of regulation. However, they had almost the same features in terms of cheap telephone services, so there was cannibalisation between them. (0AJ VoIP had a better position than 050 VoIP.)

In 2007, my company offered a new service called “050 Security Number”, using a platform of 050 VoIP. Before explaining the service, I will clarify the background situation.

In 2003, the Private Information Protection Law came into force in Japan. So, firms came to be conscious of their customers’ information such as names, addresses and telephone numbers. Each individual, also, came to think his/her private information was protected by him/herself as well.

In addition, many people, especially young women, are enjoying online shopping and Internet auctions. On the other hand, there were many problems with online activities where customers’ personal data fell into the wrong hands.

Furthermore, according to our survey, more than 80% of people who used online shopping or Internet auction felt awkward in disclosing their landline or mobile phone numbers to online retailers. We were made aware of a growing demand to conceal “true” telephone numbers when shopping online.

Our new service is that we offer “a virtual 050 VoIP number” to customers and when they are shopping online, they do not use their landline number and mobile phone number, but use this new virtual number, as a contact phone number.

When online retailers (or delivery companies) want to contact their customers for some reasons and dial this virtual number, this service can forward calls to his/her real number, or to a message centre on our network and send an email (a text) to customers when someone leaves messages on the message centre. (This is a receive-only service and has some features which are useful to customers such as blocking unwanted calls.)

In fact, this service was offered with our broadband service, Internet connecting service because we expected an effect of loyalty bundling on page 423 of the text. By the end of last year, we could succeed in getting more than 300 thousand new customers and the subscribers are currently still increasing.

Finally, interestingly, we found that we achieved a very low churn rate of the service’s customers. Our subsequent survey showed the reason; because customers passed on their “virtual number” to many online stores (or delivery companies), they thought that they might receive calls from online stores (or delivery companies). Therefore, they didn’t want to change their service providers.

Development of the Japanese Broadband Market 4

Before getting into the main issue about why optical fibre services have expanded so quickly in Japan, I have to write about the differences between two IP telephone services in order to clearly explain the issue.

The IP telephone service which I have written about to date is commonly called “050 VoIP (Voice over Internet Protocol)”. On the other hand, we have another　IP telephone service called “0AJ VoIP”.

These jargons are derived from telephone numbers which are used in each VoIP. For example, 050VoIP’s number is like 050-1234-5678 for mainly ADSL users. On the other hand, 0AJVoIP is like 03-1234-5678 for optical fibre users.

Actually, traditional telephone numbers are 0AJ as well. So, if you use ADSL and an 050VoIP, you will have 2 telephone numbers such as 0AJ (say, 03-1234-5678 for a traditional telephone) and 050 (say, 050-1234-5678 for 050VoIP) and you can use these numbers on the same telephone handset. (It may be difficult to understand, so I want to stop for a second to explain about telephone numbers.)

Anyway, what is important is that when you use 050VoIP on your ADSL, you have to use your traditional telephone line as well. (You don’t have to use an expensive traditional telephone when you call.)

OK. Let’s focus on the main subject.

In Dec. 2004, the number of ADSL users numbered 10 million compared to 0.9million for FTTH (Optical fibre service). SoftBank’s share of ADSL was about 47% (4.7million).

In contrast, in June 2008, the number of optical fibre users was 131million compared to that of 123million for ADSL. Why and how?

In the first quarter of 2005, NTT offered a new 0AJVoIP to its optical fibre subscribers. The point was that when customers use the service, they can cancel their traditional telephone lines. Therefore, it really meant that NTT decided to renounce the old telephone services and turn its resources to new IP networks.

The price of the 0AJVoIP was strategic. That is, customers had to pay for only 500yen (about £4) as a monthly fixed charge compared to about 2,000yen (about £16) for a traditional telephone.

That meant that 0AJVoIP was so cheap that a total cost of an optical fibre service and 0AJVoIP was almost the same as that of ADSL and a traditional telephone service. (Furthermore, customers could enjoy a high speed broadband service which was at most 100MB.)

It was certain that many customers got to use an optical fibre service and 0AJVoIP. SoftBank also offered its optical fibre services. However, this time NTT could defeat its competition. It could have succeeded in depriving SoftBank of its ADSL customers.

You may already have understood the answer to the question in my first blog which was “Why and how have so many people used optical fibre services in Japan?”.

The answer is “an inexpensive telephone (0AJVoIP)”. Of course, it is the case that customers’ needs for bandwidth have existed due to video streaming services such as YouTube, and so on. However, if there had not been 0AJVoIP, optical fibres wouldn’t have become used so widely. (NTT's share of optical fibres is more than 60%.)

Next time, I will write about the situation of 050VoIP after NTT offered 0AJVoIP where there was cannibalization between these two VoIP services. [to be continued]

Development of the Japanese Broadband Internet Market 3

My company’s strategy was to form alliances with other ISPs, in order to compete against SoftBank which had such a strong network effect. [Wikipedia:http://en.wikipedia.org/wiki/Network_effect ]
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While my company had about 0.3 million broadband (mainly ADSL) users, as I mentioned in my second blog, Softbank had about 0.8 million users in July 2002. Because SoftBank had a strong position at the ADSL market, it took a vertical integration strategy where we thought had a good chance of succeeding. That is to say, we found that if we could ally ourselves with other ISPs except for SoftBank, the number of broadband users would be nearly the same.

It was the fact that many people in my company opposed the alliance strategy because it meant that we had to offer IP telephone services as a wholesale product to these ISPs. This meant that the strategy would also not only reduce the traditional telephone revenue as a sacred cow, but also generate less revenue from an IP telephone operation because we had to discount its price.

However, we had no choice but to do so at that time. The president of my company decided to make an alliance strategy in the summer of 2002 and powerful sales force was organised quickly. By the end of 2002, we did succeed to gather more than 170 ISPs nationwide.

In December 2002, my company’s IP telephone called “OCN dot Phone” was successfully launched with other ISPs which also offered their own brand IP telephone services.

The news that NTT offered IP telephones was top news in one of the most famous Japanese newspapers called “Asahi-Shinbun” because it meant that NTT, the largest telecom carrier in Japan, had decided to move away from the ‘traditional’ telephone.

OCN dot Phone could contribute to increasing not only the number of my company’s ADSL users but also that of other allied ISPs’. We also offered IP telephone service to business customers which SoftBank didn’t provide at that time. Although we could narrow the gap with SoftBank, we still couldn’t catch up to reach parity with our competitor. This was because it had offered its IP telephone services more than one year in advance of our launch.

At that time, the competition in the broadband market was mainly to acquire ADSL users. In Dec. 2004, the number of ADSL users numbered 10million compared to 0.9million for FTTH (Optical fibre service). SoftBank’s share of ADSL was about 47% (4.7million).

However, the situation was dramatically changed when NTT offered a new IP telephone service called “HIkari (means optical fibres)-Denwa (means telephones) “ to its optical fibre users.
[to be continued]

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]