The Mobile Industry’s ‘Galapagos’ & Murdoch’s Big Bet

Japan can be a kind of a glimpse into the future to see what we’ll will be doing in about five years time.  And this is certainly the case with regards to the mobile industry.  Some go as far as calling Japan, ‘the Galapagos Islands of the cell phone world.'  A reference to the Pacific islands where many unique species have developed in the benign isolated conditions.  Take for instance i-mode, the open mobile service that was launched, complete with developers’ platform, in 1999 whilst we were all scratching our heads at WAP – and a full nine years before Apple’s App Store.  Today, the service has about fifty million users who pay for a whole range of different content including games, fortune telling, ringtones, wallpapers and other virtual goods.  Initially, NTT Docomo, i-mode’s parent, didn’t believe that anyone would pay for such mobile trinkets, and that voice was their only purpose.  However, data now provides more than one third of the industry’s vast revenues.  As a result, when the iPhone arrived in Japan people didn’t quite know what to make of it.  It seemed to lack so many features that Japanese consumers were used to, including mobile TV.  However, sales have since taken off with i-mode’s creator himself, Takeshi Natsuno, summing up the product’s popularity from a Japanese perspective: 'The iPhone is not a good phone. It’s terrible, but it’s a great internet computer'.  He also believes that Steve Jobs’ baby and other smart phones will take over from his own creation due to their use of the TCP/IP global web standard.  One key aspect of i-mode, and the copycat platforms that followed, was the baked-in, easy-to-use micropayment systems that allowed people to snack on virtual goods and gifts.  All without the bother of subscription services, whilst also letting content producers easily pick up a fee for their work.  And it is this habit of paying for mobile content that has created the...

...major financial shift between Japan’s mobile platforms and traditional media. 

This year in her heavyweight presentation at the Web 2.0 Summit Mary Meeker, Morgan Stanley’s influential uber-analyst, described this shift.  She noted that forty per cent of the revenue mix for the top fifty global desktop internet companies is advertising.  However, on Japan’s mature mobile platforms, that Meeker calls a ‘proxy’ for the future development of mobile elsewhere in the world, advertising only accounts for five per cent of revenues.  The majority of cash coming from e-commerce that includes people paying for digital content and other downloadable goodies. 

And so in Japan's mobile world, media is turned on its head from a place where the bills are paid by brands splashing advertising cash, to a realm paid for by consumers' micropayments.  This has plenty of repercussions for the marketing and media world, not least the way in which commercial messages are displayed.  Historically, the cover price of a magazine has been a tiny part of its overall funds, while display advertising has provided the real cash.  However, when the readers become the paymasters, brands need to tread much more carefully. 

Meeker calls the rise of the iPhone and other smart phones the, ‘next major computing cycle,’ and suggests that each such revolution is ten times bigger than the previous one.  So her guess is that the mobile internet will have ten times as many users as the desktop internet – a trend being driven by a powerful pact with social networks. 

All of which begs the question, as the mobile internet and related services grow in the US and Europe, will people also pick up the micropayment habit?  That has at least become a possibility as the number of online payment systems begins to grow, offering Japanese-style ease-of-use. 

Presumably, Rupert Murdoch, widely lambasted for his decision to put his newspapers behind paywalls, is betting that we all will follow Japan’s payment path.  Furthermore, his rumored plan to untangle his valuable media from Google and do a deal with Microsoft/Facebook, where people will pay-to-play, suggests he believes the industry will be joining him. 

So in light of Japan’s experience and Meeker’s news about the coming mobile tsunami, are you betting against the old Digger?

Comments

[Mike]

I guess one question would be - did the Japanese market start off with things free and suppported by advertising, only to mature into this micro-payment economy? If not, then it rather begs the question of whether the genie has already been let out of the bottle? Now that so much of the western market is used to getting stuff for free, there's going to need to be some compelling reasons for consumers to have to start paying for stuff. Murdoch's newspaper content is going to struggle to differentiate itself sufficiently for people to want to pay. News is news after all, and they aren't that much better at it than the rest of commercial newspapers.

Distribution of sports content however, might be a good revenue source. But I don't think Murdoch has got the rights to them, has he?

[James Cherkoff]

Thanks Mike, I think that's the key point isn't it. Will we ever lose the free habit? Paying for content to date has been a right royal pain. However, the long awaited mobile revolution, combined with social net schemes like FB Credits, looks set to change that. Maybe we will be happy to pay - so long as it's convenient.

[Alex]

'The iPhone isn't a good phone, its a terrible phone but a good computer'...well with regards to battery life he is certainly correct, it is terrible!

[James Cherkoff]

Thanks Alex...I'm an Android myself... ;-)