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Wednesday, 11 October, 2000, 17:08 GMT 18:08 UK
Japan's m-commerce boom
By BBC News Online's Orla Ryan

When it comes to mobile commerce, Japan is streets ahead of the US and Europe.

Some analysts attribute the phenomenal success of the mobile internet, in particular the i-Mode service, to the Japanese love of gadgetry.

But others say this is just a cop-out answer by the European and US carriers who have thus far failed to realise the potential of the mobile internet.

By some estimates, recession-ridden Japan is two years ahead of the rest of the world. So what is the secret of its m-commerce success?

NTT in the driving seat

There are already $400m worth of m-commerce revenues generated in Japan annually.

As of 8 October, NTT DoCoMo's i-Mode service had over 13 million subscribers.

This service allows users to send and receive email and gives them access to more than 7,000 internet sites via their mobile phones.

NTT DoCoMo is the world's second largest mobile phone operator and a subsidiary of telecoms giant NTT. Such is the success of its mobile internet offering that US internet giant AOL struck a deal with DoCoMo and yielded control of its Japanese subsidiary to gain access to the i-Mode service.

"NTT DoCoMo realised the importance and potential of the [mobile internet] ... We had a leader to develop this market," said Akira Sato, analyst at Japanese internet consultancy e-research as he explained the m-commerce boom in his home country.

Gadget love

Allegra Strategies' managing director Jeffrey Young attributes the high take-up to a Japanese love of gadgetry.

"They [the carriers] took risks based on the assumption that particularly the Japanese would be able to embrace it. They created more powerful applications than we see here in Europe. Once you get critical mass, you get more content. It is a positive spiral," he added.

But others dismiss cultural factors and say, quite simply, that carriers made the right decisions.

"The notion that the success of mobile services in Japan is wholly attributable to cultural factors is a handy cop-out by carriers in other regions," said Jupiter Research director Seamus McAteer.

Crucial was that NTT and KDDI - another Japanese carrier - offered packet data networks, which makes sure that customers only pay when they send and receive data, he pointed out.

User freedom

Part of the problem is that carriers outside of Japan try to limit the users' experience to certain sites, argued Allegra Strategies' Jeffrey Young.

"They should think about this as growing the market first, not about keeping people contained in a small garden," he said.

Japanese carriers didn't try to hem their users in, as part of a strategy which encouraged content providers to do business with the carriers.

Ensuring that the most popular sites got space on the homepage encouraged these content providers to advertise offline, which in turn boosted the mobile internet growth.

Paying the bill

NTT DoCoMo upgraded its billing system so costs for premium services such as, for example, news in English from CNN, can be added to a user's phone bill.

Because it was easy to charge for services, content providers were further motivated to tailor their service to suit i-Mode.

Carriers can then make money in two ways: They can charge users for the volume of data transmitted over the packet data network, or they make revenues from services that use their billing systems.

NTT's clear position as leader of a slowly-opening market gave it a strong position in talks with manufacturers.

"It was able to stipulate the design of handsets to hardware vendors," Jupiter Communications Seamus McAteer added.

So while European and US carriers may offer voice handsets with a browser attached, NTT worked with vendors to design handsets optimised for data, he explained.

Quids in

For NTT at least, its m-commerce gamble has paid off.

Earlier this year, when NTT unveiled its results, its bumper profits were linked to the m-commerce boom, in the face of declining profits in a saturated voice telephony market.

In contrast, European carriers have paid hand over fist for third generation mobile phone licences, which few are convinced will provide a return on their investment.

Time is crucial if the rest of the world hopes to catch up with Japan.

"The next 24 months are crucial for carriers in Europe and the US to embrace the business models and technology that will make them profitable," Zia Daniell Widger, director of Broadband and Wireless at Jupiter Research said.

Mobile web worries
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