The mobile internet was born 16 years ago in Japan
Galapagos-Syndrome: NTT Docomo failed to capture global value
On February 22, 1999, the mobile internet was born when Mari Matsunaga, Takeshi Natsuno and Keiichi Enoki launched Docomo’s i-Mode to a handful of people who had made the effort to the Press Conference introducing Docomo’s new i-Mode service. KDDI soon followed with EZweb, and J-Phone with Jsky (J-Phone was acquired by Vodafone, which was unable to manage J-Phone, Vodafone then sold the company to SoftBank).
i-Mode’s popularity soon exceeded any expectation: Docomo for some periods had to limit new subscriptions.
With Steve Jobs’ love for Japan, and Apple’s intense supplier relationships with Japan, its not farfetched to see connections between i-Mode and iPhone, in particular the i-Mode ecosystem and Java-based i-Appli’s are forerunners of today’s apps and apps-ecosystems.
At that time there was no Wikipedia, and Docomo had no English-language website at all, so our company Eurotechnology Japan KK’s information was more or less the only English language information openly available about i-Mode. We were bombarded by requests from many major semiconductor firms, telecom operators, investment banks, students and world-famous business schools for our i-Mode report and related business development and strategic work.
Today 5 of the global top-10 top-grossing Apps are Japanese
While Docomo never managed to capture global value from inventing and first introducing the mobile internet, the No. 1 top-grossing company globally, and five of the top-10 globally top-grossing Apps for iOS and Google-Play combined are Japanese (source: App-Annie).
Japan’s app market is the world’s largest in terms of cash revenues
Its also no coincidence that in terms of cash value, Japan’s is the world’s largest app-market for iOS and Google-Play combined, bigger than the US market and the Chinese market in terms of cash value. (source: App-Annie).
App-Annie’s data to our knowledge only cover the iOS and Google-Play app-stores, not the i-Mode and other mobile internet businesses, so Japan’s actual mobile app economy is even larger than App-Annie data show.
i-Mode is still alive and kicking – and a big business for Docomo
i-Mode is still today the mobile internet system for Docomo’s traditional flip-phones which are still an important part of the market, and recently made headlines since sales for traditional flip-phones were rising, while smartphone sales were (temporarly?) dropping.
i-Mode (and EZweb for KDDI, and Yahoo-mobile for SoftBank) will still be important business for some time to come in Japan.
In business the first-comer does not always win the game
Japan’s NTT-Docomo tested two types of wallet phones, manufactured by Panasonic and SONY with 5000 customers between December 2003 and June 2004, and introduced mobile payments and wallet phones on July 10, 2004 – over 10 years ago.
ApplePay therefore could be developed based on over 10 years of experience with mobile payments in Japan. ApplePay is expected to be introduced for the USA market in October 2014, and we can expect Apple to introduce ApplePay to other markets including Japan in due course.
It will be particularly interesting to see how ApplePay and the already established mobile payment and NFC payment ecosystems in Japan will integrate.
Japan’s Osaifu keitai mobile payments started on July 10, 2004, after public testing during December 2003 – June 2004
Two different types of Docomo‘s “Osaifu-Keitai“, manufactured by Panasonic and by SONY, were publicly tested by 5000 customers between December 2003 – June 2004. Docomo’s Oseifu keitai mobile payment system builds on SUICA NFC stored fare cards, which JR-East brought to market in Tokyo on November 18, 2001, after long years of development and public testing, where the author of this newsletter was one of the testers.
Apple-Pay was developed building on almost 15 years of NFC payments in high volumes in Japan
Therefore, those who wish to make predictions about how the Apple-Pay market is likely to develop can use the experience gained during 15 years in Japan.
There are also some open questions, which will probably be answered after we can all check out Apple-Pay after September 19, 2014. One point which is very important is the speed of transactions – especially in transport applications such as the London or Tokyo Subways – read about this in the next section of this newsletter below.
Read more below, and in our reports on mobile payments and electronic money in Japan:
The speed of NFC mobile payments – and why does it take 10 years to reinvent the wheel? and: what is the speed of Apple-Pay transactions? faster than 100 milliSeconds? or 500+ milliSeconds?
On July 17, 2012 The Wallstreet Journal reported, that as far as Transport for London is concerned, there is no viable mobile payment solution available at this time, because to the knowledge of Transport for London at that time, mobile payment transactions take longer than 500 milli-seconds, which is too slow for Transport for London requirements (e.g at Picadilly station during the rush hour).
Interestingly, in Japan “mobile SUICA” payments have been used in Tokyo successfully since January 28, 2006 at the world’s busiest railway stations including Shinjuku and Shibuya – arguably more busy than Piccadilly Circus in rush hour, with transaction speeds faster than 100 milli-seconds – according to The Wallstreet Journal, London Transport did not even know about this.
Therefore one obvious question we have about Apple-Pay is whether the speed of Apple-Pay transactions is in the 500+ milli-second range – unacceptable for Transport for London, or faster than 100 milli-seconds – as is Tokyo’s state of the art since January 28, 2006… I guess we will soon learn the answer to this question.
Why is it that Japan does not capture the global value which Apple and Apple-Developers will create and capture now?
Japan developed mobile payments, e-cash, credit cards in mobile phones and at least as much functionality as Apple-Pay and an open API and a mobile payment and e-cash developer ecosystem over the last 10-15 years.
Why does Japan leave all the global value on the table for Apple and Apple developers?
Actually, I personally had discussions over the last 15 years will all major players in Japan’s mobile payment and e-cash field, crowned by 1-1 discussions with Docomo’s CEO at that time – Dr. Tachikawa – I wrote about one of these meetings in The Wallstreet Journal, of course without mentioning the details: “Wallstreet Journal leadership question of the week – Japanese leadership“.
Essentially my conclusion at that time, and today is, that Japanese companies never showed any interest at all in developing global business to capture the global value of mobile payments, e-cash and the related businesses. Japanese companies did not even try, and were not even interested in discussing the globalization of mobile payment and e-cash technologies and business models.
All opportunities are not lost of course for Japanese companies in the mobile payments and e-cash fields, but most if not all of Japan’s early-mover advantage has evaporated with Apple-Pay.
In business, sometimes the second or third mover can be commercially more successful than the first mover, and it will be very very hard even for a united Japan Inc to stand up to Apple.
Ericsson held the Mobile Business Innovation Forum in the Roppongi Hills Tower in Tokyo on October 31 and November 1, 2013 delivering a great overview of the push and pull of the mobile communications industry: technology push, M2M and user pull, as well as how the mobile operators between technology and users can best make customers happy and at the same time monetize their investments, while “Over The Top” (OTT) new comers (Google, YouTube, Amazon.com, Facebook, Twitter and others) seek to disrupt the good old telecommunications world.
Here some key take-aways, read more below:
About 50% of global smartphone, mobile phone and mobile broadband subscriptions are in Asia-Pacific, making Asia-Pacific the most important region in the world, and Japan one of the most important LTE markets.
Switch from voice to data is a differentiator: forerunner telcos see rapid growth (10-12% CAGR) for both revenues and EBITDA over the period 2008-2013, while average telcos see stagnation. The key for telcos is to be a forerunner, rather than an average stagnating telco.
Many products such as XBOX or Apple’s SIRI are linked via networks to a data center. Networks and data centers are disruptive innovation for games and many other sectors. Maybe cars as well.
Open source is coming to software defined networks (SDN), the OpenDayLight community develops software for software defined networks.
Software defined networks create virtualized networks, SDN support “network slices” for different applications. API’s open SDNs to users.
Manufacturers and other industries have rationalized a long time ago, telcos have not yet rationalized, creating big opportunities.
LTE Markets – 5 out of 10 top LTE markets globally are in Asia-Pacific, and the top 3 are in Asia-Pacific (however this table shows the percentage penetration, does not reflect market size. In terms of market size, Japan is doubtlessly No.1:
Mobile communications will dwarf the PC-world. By 2018 we will expect to have:
PCS and tablets: 260 million in APAC (31%) vs 850 million globally
smartphone subscriptions: 2.2 billion in APAC (49%) vs 4.5 billion globally
mobile broadband subscriptions: 3.5 billion in APAC (50%) vs 7 billion globally
mobile phone subscriptions: 4.5 billion in APAC (50%) vs 9 billion globally
Katsuya Watanabe, Deputy Director General, Information and Communications Bureau, Japan’s Ministry for Internal Affairs and Communications (MIC)
Katsuya Watanabe (Charley K Watanabe): ICT Growth Strategy for Japan
Deputy Director-General, Information & Communications Bureau, Ministry of Internal Affairs and Communications (MIC), Japan
Government of Japan – IT Strategic Headquarters: The new internet world had a relatively slow start in Japan. In January 2001 the e-Japan Strategy was formed with the target for Japan to become the world’s most advanced IT nation by 2005, and the IT Strategic Headquarters where formed. In January 2006 the New IT Reform Strategy followed, and in July 2009, the i-Japan Strategy 2015.
The Ministry of Internal Affairs and Communications (MIC) formulated the u-Japan Policy in December 2004, followed by the x-ICT Vision in July 2008.
With the change of Government in September 2009, the New Strategy in Information and Communications Technology formulated.
With the advent of Prime Minister Abe’s Government in December 2012, in June 2013, the new IT Strategy was formulated: “The world’s most advanced IT nation creation”, by the Council on ICT Strategy and Policy for Growth, which was set up in February 2013.
The Ministry focuses on the following trends: Big Data, Sensor Networks, Cloud Computing, and smart phones.
Mission: to be the most active country in the world.
Vision:
Creating new value-added industries
Solving social problems
Improving and strengthening common ICT infrastructure
Issues: economic growth, employment, information transmission capacity, development of cities, super-aging society, resource problems, open innovation, cybersecurity, utilization of personal data
Prioritized projects are:
Creating new value-added industries:
data utilization
broadcast and contents
agriculture
local revitalization
Solving social problems:
Disaster prevention
Medical, nursing, health care
Resources
local revitalization
Mr Watanabe introduced several industry-academia-government collaboration projects addressing these priority issues. The economic effects by 2020 of creating new industries stimulated by these government programs are estimated as follows:
super-aging society sector: 23 trillion yen (US$ 230 billion)
geospace sector: 62 trillion yen (US$ 620 billion), from today’s 20 trillion yen (US$ 200 billion) market size
A further program is the creation of ICT Smart Towns in Japan, especially also to build towns resilient against disasters.
John Rossant: A people-centric vision for future cities
Founder and Chairman of New Cities Foundation
By 2050, around 70% of the world’s population is expected to reside in urban areas.
Mobile applications transform cities, and in the ideal case create “people centric cities”, an example: AppMyCity!
Panel “Society in transformation”(left to right): Mats Olsson (Ericsson), Katsuya Watanabe (MIC), John Rossant (New Cities Foundation), Douglas Gilstrap (Ericsson)
Business in transformation
Jan Signell, Head of North East Asia and member of Ericsson Global Leadership Team
Jan Signell: Ericsson in Japan, China, S-Korea
Head of North East Asia Region, President of Ericsson-Japan
The first Ericsson distributor travelled to Japan in 1894 – more than 100 years ago.
Super high smartphone penetration and usage in Japan+China+S-Korea: Japan has 76% smartphone penetration, 49% of Chinese make purchases on their smartphone every week, networks have to be prepared.
Hiroyasu Asami, Managing Director of Smart-Life Business Division, NTT-DOCOMO
Managing Director of Smart-Life Business Division, NTT-DOCOMO
NTT-DOCOMO aims to be the customer’s partner for smart-life.
In the transition from traditional feature phones to smartphones including tablets, NTT-DOCOMO sees a new potential market emerging: video, shopping, books, services and contents are booming.
The center of the mobile eco-system (and value creation) is shifting to higher layers.
NTT-DOCOMO seeks effective utilization of its business assets:
Postpaid subscriptions (99.7% postpaid)
VAS sales at mobile shops: DOCOMO has 2,400 carrier DOCOMO branded shops
Handset control: DOCOMO sells handsets with value added services (VAS)
DOCOMO seeks to create new markets in 8 business areas:
Commerce
Finance/payment
Health care/education
M2M
Safety/security
Environment/ecology
Aggregation/platform
Media/content
The basic concept is to bring smart life into reality, and to become a smart life partner. To improve customer satisfaction and to improve corporate value.
DOCOMO is in the process to transition from the traditional i-Mode and i-Menu services on feature phones, to d-market and d-menu for the multi-OS environment (with Google/Android, Tizen, iOS and other OS).
Revenues from new business of DOCOMO increased from US$ 4 billion (FY2011), to US$ 6 billion (FY2012) and is expected to increase to US$ 11 billion by FY2015.
About 300 parties participate in Japan’s ITS programs, lead by the ITS Promotion in the Cabinet office of Japan.
Major cooperative projects are:
ASV-5 (V2V, V2P) by the Ministry for Land and Infrastructure and Transport MLIT
Joint research (V21) by MLIT and NILIM
DSSS/Green wave (V21) by the Nation Police Agency
Key issues are:
Standardization
Common hardware
hybrid communication
sustainable business model
positioning technology
Key targets are to achieve fatality rates below 2500 by 2018, and to reduce traffic congestions to one-half by 2020 compared to 2010.
Honda develops autonomous driving with the aim to realize “the joy of mobility” with safety and freedom.
The vision: As Japan aiming for the safest transportation in the world, we hope to deploy cooperation system in collaboration with government and car OEMs, in four phases. Phase 1: basic services Phase 2: advanced services Phase 3: integrated services Phase 4: autonomous services
Panel (left to right): Akira Yamaguchi (Orient Corporation), Hiroyasu Asami (NTT-DOCOMO),Masashi Satomura (Honda), Jan Signell (Ericsson)(Ulf Ewaldsson, CTO, Ericsson
Ulf Ewaldsson
CTO, Ericsson
A perfect storm:
Network coverage and quality is good enough
Business models make data affordable
App-centric services become mainstream
Smartphone penetration is reaching critical mass
however, for mobile operators there is a HUGE difference between the frontrunner’s revenue and EBITDA growth compared with stagnant revenue/EBITDA for average operators. Key for mobile operators is to be strongly growing frontrunner – not a stagnating average operator.
To move from an average no-growth operator to a fast-growing frontrunner, a mindshift is needed from:
problem focus to opportunity focus
maximizing old revenues to innovating new revenues
connectivity as a commodity (“dumb pipe”) to connectivity as differentiator
from tech silos to tech synergies
Ericsson uses six growth codes:
“Streetwise metrics”, experience centric KPIs
“Show casing”: quality led marketing
Redefine subscription: “unboxing”
Open-ended innovation: “ecosystematic
Visionary collaboration: “co-partnering”
Visionary investing: “gap minding”
Yung-Ha Ji, Head of Network Strategy Dept., KT Corporation
Yung-Ha Ji: How to migrate to future ICT network
Head of Network Strategy Department, KT Corporation
In the IDI/ICT Global Development index ranking, S-Korea ranks 1st globally for broadband, while the Scandinavian countries rank 2nd, 3rd, 4th and 5th, and Japan ranks 8th, followed by UK on place 9.
kt will cover 99% of S-Korea’s population with LTE network based on 20MHz Bandwidth in the 1.8GHz band. With the BenchBee speed test, download speeds of 44 Mbps are achieved with a Category 4 LTE-A phone.
kt saw explosive growth of data traffic: 350 times increase over the 4 years from January 2009 to September 2013. Monthly data usage is 2.2Gb for LTE and 1.2Gb for 3G phones. Total data traffic is about 20,000 TeraBit/Month in September 2013.
kt has the world-first LTE network using virtualization cloud technology.
kt introduced a series of services including Web-enabled IPTV, Giga-Internet FTTH premium services, olleh TV mobile, LTE broadcast, “Total Advertising Open Community” (TAOC) – using targeting of advertisements to differentiate from OTT operators.
Example of an innovative service: if you click an advertisement and watch an ad, you are rewarded with increased transmission speed.
Akira Yamaguchi: Mobile payment systems in Japan
Exec Officer Retail finance and credit cards, Orient Corporation
Jakob Navok, Director of Business Development, Square Enix
Jacob Navok: Games over the network
Director of Business Development, Square-Enix
Games are the ultimate application! Worldwide game industry revenues are US$77.4 billion in 2013, adding all segments from retail hardware to software and services.
Hardware used to be the driver in the past, but today the network drives everything, and networks bring disruption to game design, business models (“free-to-play” is a marketing model – not a business model). Business models include: micro transactions, subscriptions, advertisements and digital pricing.
Marketing disruption include: “free-to-play”, cross-promotional networks, and app-stores.
Video had a dramatic impact on networks, but games have not.
Interactive media bring the next revolution: SONY acquired Gaikai (US$ 400 million), and Microsoft announced Xbox Cloud services (US$ 700 million).
Server side rendering and developer innovation will create game demand on many devices.
Speed is key!
Dan Simmons, Reporter and Producer, CLICK, BBC
Dan Simmons
Reporter and Producer, CLICK, BBC
Dan Simmons showed how smart phones are a second screen accompanying movies, PCs and TV. 60-80% of Americans use a second screen, and 46% use a smart phone.
Eyeballs move to iPads… the question is: who owns the second screen!
CBS made US$ 10 million off advertising, but advertising ads during superball on the internet – not on TV!
TV is about raising emotions, and feedback at the moment, immediate feedback is incredibly valuable. A 2nd screen can give a 360 degrees view.
Dan mentioned the APP-movie, where visitors to the movie theatre downloaded an App to their smartphone and received message to their App during the movie. The messages need to be frame-accurate, and today’s networks are not good enough to ensure frame-accuracy. People with smartphones and using the App knew who the murderer was at 65 minutes into the movie, while visitors without smartphone and App had to wait until 80 minutes into the movie before they know who the murderer was. Initially it was thought that this could be a problem, but it turned out to be a positive part of the enjoyment for the audience. A further attraction was, that visitors could keep the App on their smartphone, and the movie owner could reach viewers long after the performance was over, and they had long left the movie theatre, keep the contact, and potentially create follow-on business.
Panel (left to right): Dan Simmons (BBC), Jacob Navok (Square-Enix), Ulf Ewaldsson (Ericsson), Yung-Ha Ji (KT Corporation)Adrian Ionel, CEO, Mirantis
Shoji Nemoto: Our mission is to fulfill & inspire the desires of users
Question: 3D-TV failed. How can we know that 4k-TV will be successful?
Shoji Nemoto: 3D is not only a consumer product. 4k-TV also has industrial applications, such as telemedicine and other medical applications. SONY cooperates with Olympus for medical applications.
Adrian Ionel
CEO, Mirantis
Today for every new product you need a network and a data center:
SIRI: Apple invested US$ 1 billion in a data center
X-BOX: Microsoft built a data center
Open source is extremely powerful vs closed systems:
opensource is created by users, users are involved from the beginning and users are extremely powerful
Open: anybody can contribute
Closed source vs open source:
closed source: traditional hierarchical industrial structure, waterfall model, top-down
open source: works like nature, social network, meritocracy and transparency, very different to traditional industrial structure
Examples for open source: Linux, JAVA, Big data.
Open source creates new business models. Facebook, Google, Amazon.com are only possible with open source. Gigantic data centers are only possible with open source.
Most major players invest in open source.
Taro Kodama, Country Growth Manager, Facebook Japan
Taro Kodama
Country Growth Manager, Facebook Japan
No. 1 Facebook employee in Japan.
“We can’t just copy what we did in Japan – we must reinvent in Japan”
Facebook’s complacency about mobile is surprising. Its this kind of complacency that kills companies (Forbes.com, February 2012)
Facebook’s future is in mobile. Mobile is THE strategy for Facebook (Forbes.com, May 2013)
Facebook: over 874 million users on mobile, 49% of revenue is now generated from mobile, up from 0% last year.
Internet traffic is shifting to mobile: 13% of global internet traffic is on mobile.
Panel (left to right): Ulf Ewaldsson (Ericsson), Adrian Ionel (Mirantis), Taro Kodama (Facebook)
Innovation and technology evolution
Ulf Ewaldsson, CTO, Ericsson
Ulf Ewaldsson: “Transforming networks
CTO, Ericsson
We see cities as organisms.
Trendspotting:
scarce spectrum
simplicity and automation
continued traffic growth
from nodes to systems
mobile entreprise
blurring of IT and telecom
Concept of “Network slices”:
Network performance needs depend on industry, beyond just smartphones.
A matrix of industry needs covering the following industries: cars, processing, utilities, transport, media, and NSPS, healthcare etc. Which have different needs for: throughput, latency, QoS, volumes, coverage, capacity, security and location.
A common network platform includes dynamic and secure “network slices” with different specifications for different industries and applications.
Three new products:
Ericsson Radio Dot System
SDN on a chip: SNP 4000
Cloud on a blade: Ericsson Cloud System
Technology in-depth sessions
Erik Ekudden, Head of Technology Strategies, Ericsson
Network Slices: Service Provider (SP) Software Defined Networks (SDN), Network Functions Virtualization (NFV) and Cloud
Erik Ekudden
Head of Technology Strategies, Ericsson
Service Provider based Software Defined Networks (SP SDN) are on the way to deployment. The path to deployment includes: technology, business model development and operations. Currently we are still midway in the technology development phase, business model development is in the early phase, and we are just before operations and deployment.
Network functions are virtualized in the DC/cloud infrastructure. Functional layers of the network are virtualized, and networks become open to developers.
Networks are elastic and we have “network slices” for different applications.
OpenDayLight
Ericsson is leading participant/founder in the open source “OpenDaylight” LINUX community, the first release of the Hydrogen Code was on September 13, 2013. OpenDayLight is an open source community developing software-defined networking (SDN).
Daniel Ehrenstrahle, Head of Strategy & Portfolio, BU Networks, Ericsson
Connecting the dots in the Networked Society
Daniel Ehrenstrahle
Head of Strategy & Portfolio, BU Networks, Ericsson
Business cases and clear rationale why technology is introduced is necessary.
We need to redefine how network performance is defined: “app coverage” defines network performance not in terms of technical data alone, but in terms of usability of each app. App coverage for video will be different than for voice, or low intensity data applications.
70% of usage is indoors, therefore we need indoor coverage, and Ericsson does not believe in Femto-technology, and introduces the Radio Dot System. Launch will be in 2H 2014 for 3G and 4G and for WiFi later. Up to 4 channels per unit.
Component based architecture: AIR = antenna integrated unit SSR = Edge router
Ericsson “DOT”Ericsson Radio “DOT” System: RJ45 Antenna Mounting Unit and Active Antenna Element taken apartEricsson “DOT” system, RJ45 connector socket
Monetizing the network assets
Beau Atwater
Head of Strategy and Business Intelligence, BU Support Solutions, Ericsson
Tomas Ageskog, Head of Consulting and Systems Integration, BU Global Services, Ericsson
Business Transformation – Ericsson Consulting and System Integration (SI)
Tomas Ageskog
Head of SI Core, IP & Media, Ericsson
Manufacturing and other industries have rationalized decades ago. Telcos are not yet rationalized.
OSS/BSS need to be good and fast to make money.
A revolution will happen in the broadcast space when processes are being rationalized.
In Australia, Telstra spent US$ 1.1 billion for a billing system.
As another example, a Tier-1 European telco operator had 62 different billing systems.
Challenges:
Business agility,
time to market,
from network centric to customer centric,
Next generation networks, mobile broadband and cloud computing
Roles in new business models and eco-systems
Ericsson Global Services division grew from SEK 29 billion and 8000 people in 2003 to SEK 97 billion and 60,000 people in 2012.
On July 17, 2012 The Wall Street Journal reports, that as far as Transport for London is concerned, there is no viable mobile payment solution at this time:
Transport for London sees no way to use mobile payments at ticket barriers at this time, because the technology is not advanced enough
London’s state-of the art mobile payment transactions take longer than 500 milli-seconds which is too slow for Transport for London requirements
Mobile payments in Tokyo:
While no viable solution has yet been found in London, in Tokyo millions of people use “mobile SUICA” mobile payments every day at Tokyo’s rail, subway, tram lines and buses:
mobile payments at ticket barriers were first demonstrated in Tokyo in 2003 (photo below shows a demonstration at a trade show in Tokyo in 2004)
“mobile SUICA” mobile payments were commercially introduced to the public since January 28, 2006
payment transactions take 100 milli-seconds or less, which would fulfill Transport for London’s speed requirements
in addition mobile SUICA also has a full e-money function, and can be used at 1000s of stores all over Japan for payments, and for 1000s km of high-speed trains all over the main island of Japan, between Hakata and Aomori.
Mobile payments: Why does it take at least ten years to reinvent the mobile payment wheel in London?
Why is it that a problem the solution of which was demonstrated in Tokyo in 2003 and put to commercial use every day since January 28, 2006 without any problems, has not yet been solved in London even today?
The answer to this question is of course complex, and you will find elements of a discussion of this question on pages 185-188 of our mobile payment report (click here for free download which includes pages 185 – 188, pdf-file).
In our opinion the answer for this huge delay even today in the age of globalization and internet is a combination of:
human nature and
the huge communication gap and disconnect between European organizations and companies and Japanese organizations and companies and
the totally different way in which banking systems, payment systems, and also the commercial structure and way of thinking of transportation companies are organized regulated in EU vs Japan.
We have been working on mobile payment and e-money issues here in Tokyo for about 10 years or longer, and you may be interested in some of our reports:
Gave presentation to the Telecommunications Committee of the American Chamber of Commerce in Japan (ACCJ) on October 7, 2009, entitled “Will cash become obsolete? E-money, mobile payments and mobile commerce”.
Talk was attended by about 30-40 executives from major global telecom operators, global banks, new-age payment companies, and from major internet companies.
Outline:
What is money?
Medium of exchange
Unit of account
Store of value
(Standard of deferred payment, unit for debt)
e-Cash value to society:
reduced cash handling costs
Higher transaction speed
Convenience
Greater security (especially mobile) vs. reduced privacy
Why should be care? (Summary)
Electronic money is here to stay
One e-money card/Japanese person
2% of banknotes and coins today
YEN 100 billion outstanding
YEN 100 billion transactions/month
Japan is far in advance, rest-of-world is likely to follow. But can Japan capture the value? maybe not.
Exponential growth: The number of e-cash payments per month increases by a factor of 10 about every 4 years
E-money transactions (including mobile e-cash) grow exponentially in Japan, and we expect to see 1 Billion e-money transactions/month around 2014 (this figure would be much bigger if contactless train travel tickets were included). e-Money now represents about 2% of all cash (banknotes + coins) in circulation in Japan, a recent examination of e-money by the Bank of Japan shows. More below, and a detailed analysis in our mobile payment and e-money report, where we combine the newest data from the Bank of Japan with our own research data.
Exponential growth: The number of e-cash payments per month increases by a factor of 10 about every 4 years
We expect 1 billion e-money transactions per month around 2014. Green curve shows payments with Suica, Pasmo and Edy (not including train travel). The blue curve shows data for all e-money transactions researched by the Bank of Japan.
Total number of e-money transactions in Japan per month
Research by the Bank of Japan shows that e-money has reached the level of 2% of all cash in circulation (bank notes and coins).
Mobile phone payments with RFID start in Japan in 2003
i-Mode mobile payments started in Japan in 1999
10 years ago – 1999 – the global mobile payment revolution started in Japan: with i-mode introducing an essentially Japan-only highly successful micropayment system for online content and brick-and-mortar based m-commerce, and SONY’s Edy starting e-cash experiments in Tokyo’s Osaki district. In 2003 SONY’s Felica IC semiconductor chips were combined with mobile phones to introduce the first “wallet phones” (“saifu keitai”). Today the majority of mobile phones in Japan are wallet phones.
For the last 10 years, Japan has been a laboratory for mobile payments and e-cash, conducting a test on 125 million population on which mobile payment and e-cash models work and which don’t. -> We can all learn from Japan’s 10 years of experimentation which mobile payment business models are likely to work, and which might fail!
Edy stands for Euro, Dollar, Yen… expressing the hope for global success – Intel Capital believes in this success and has invested in the company that runs Edy: BitWallet (initially backed by SONY and now acquired by Rakuten).
Which are the most effective e-cash systems?
While SONY has distributed the largest number of cards, in our view the world’s largest (by payment volume) and most effective e-cash and mobile payment system is operated by the world’s largest railway company: SUICA and mobile SUICA.
Edy, SUICA and other e-cash usage in Japan
the world’s most effective railway company in our view also operates the world’s most effective mobile commerce system: The Express Card / EX-IC system.
Seven-Eleven rolls out national electronic money and mobile payment system
Retail chain AEON follows with WAON e-cash and mobile money
This week two of Japan’s largest retail chains roll out electronic and mobile cash: Monday April 23rd, 2007 the Seven & I Holdings Group started “nanaco” and tomorrow, Friday April 27th, 2007, the AEON retail group will start “WAON”.
At first sight the massive roll-out of electronic cash and mobile payments systems during March and April this year here in Japan has been smooth and without problems (except for PASMO underestimating the success and running out of cards). However, when we look below the surface, clouds of a competitive storm are brewing. This storm might be followed by consolidation. Here are some examples:
PASMO cards were sold out within the first three weeks, and PASMO is now losing market share (and commission payments) to SUICA day-by-day – PASMO became a victim of it’s own success.
Seven-Eleven’s nanaco and AEON’s WAON use different business model variations
7-11’s “nanaco” offers twice as much discount as AEON Group’s “WAON”. Clearly “nanaco” is on a more aggressive course than “WAON”. We expect competition to heat up.
By the way- on Wednesday April 25th, 2007, two days after Seven-Eleven’s national roll-out of their e-money and mobile payment system, our company Eurotechnology Japan KK arranged a meeting between Seven-Eleven’s Chief e-Money architect and manager with the top-management of one of Europe’s most important mobile operators to enable the European operator to almost live experience an important global mile-stone in the development of e-money and mobile payments. To this day, to our knowledge, there is nothing like Seven-Eleven’s nanaco e-money and mobile payments system in Europe.
E-cash business model schematics
Schematic of Seven-Eleven’s nanaco e-money and mobile payment system
On Sunday, March 18, 2007, about 100 transportation companies in the Tokyo region switched to the near-field electronic money and payment system PASMO. Electronic money is a new battle field which JR-East pioneered with SUICA. Seven & I is still to throw it’s weight into the battle – read about today’s status of the electronic money marketplace in our “Mobile Payment and Keitai Credit” report.
A new multi-billion dollar power? Here is the character for PASMO: with an antenna on the hat, a pocket on the chest to store PASMO away, and wheels on the shoes, and in cherry-blossom pink… Does this cherry-blossom-pink guy look like he represents a new US$ multi-billion economic power?
PASMO – near field smart card for fare payment in Tokyo region – started Sunday, March 18, 2007 and exceeded all expectations
Example: mobile payment for the world’s busiest train line
CLSA – Asia-Pacific Markets – last week organized the “CLSA Japan Forum” here in Tokyo. About 800-1000 investment bankers, portfolio managers, investors, analysts came together. Since last year interest of global investors in Japan has increased a lot.
Eurotechnology Japan KK participated actively, and on Friday March 2, 2007, gave a presentation on:
Mobile Payment workshop and Global 3G Evolution Forum in Tokyo – Makuhari
3GPP, UMTS-Forum, Verizon and Docomo and others
22-25 January 2007 MarcusEvans organized the “Global 3G Evolution Forum” in Makuhari near Tokyo.
Speakers included:
Takanori Utano, Executive Vice-President and CTO of DoCoMo,
Takehiro Nakamura of NTT and Vice-Chairman of 3GPP
Jean-Pierre Bienaime, Chairman of the UMTS-Forum,
Gaston Ormazabal of Verizon Labs
and many other leading mobile communications managers from all over the world.
Jointly with Jan Larsson, General Strategy Manager of TeliaSonera International Carrier division, I chaired all sessions all day on Wednesday January 24, 2007.
Workshop on mobile payments
On Monday, January 22, 2007, I held a three hour workshop about “Mobile Payment”.
Mobile payment Japan, e-money and mobile credit report:
Annual Nikkei Marketing Journal (NMJ) ranking list of most successful products
NFC prepaid fare cards ranked near the top of most popular products for 2006
Every year Nikkei Marketing Journal publishes a ranking list of the most successful products of the past year in the form Sumo wrestling results are traditionally displayed: there is a Western side and an Eastern side, winners at the top are displayed in much larger print than also rans at the bottom as in Sumo rankings.
IC tickets are the “Ooseki” (second place) winners on the Eastern side of the Sumo ranking of hit products for 2006.
On March 18, 2007, more than 100 transportation companies of the Tokyo region including 25 train operators which serve a population of around 30 million will introduce PASMO IC-Tickets. Introduction of PASMO will increase market share for IC-tickets and ecash in Japan – and globally.
On March 18, 2007, more than 100 transportation companies (26 railway companies and 75 bus companies) – moving 30 million people of the Tokyo region – will switch to the IC card ticketing and e-cash system named “PASMO”. PASMO will interoperate and partially compete with SUICA.
Preparations go back more than 20 years, when Japan’s national railways started research on IC cards for ticketing. SUICA IC-card tickets were introduced commercially in November 2001 at 424 JR-EAST rail stations in the Tokyo region.
Tokyo’s PASMO combined with SUICA is likely to develop into one of the world’s biggest electronic payment and e-cash systems.
PASMO – near field smart card for fare payment in Tokyo region – started Sunday, March 18, 2007 and exceeded all expectations
Paying with the mobile phone in shops and trains, unlocking doors, security check in offices, paying the air ticket and checking in, all just by waving the wallet phone close to a reader/writer unit is addictive – and daily life in Japan today.
SUICA in Tokyo, Octopus in Hong Kong and Oyster in London are great success stories but they use different and incompatible technologies and software.
For mobile payments to take off globally, global interoperability is a must.
NXP (Philips’ former semiconductor division) and SONY on November 20, 2006 announced a cooperation, which will bring global interoperability to wallet phones and mobile payment.
Mobile operators expand into mobile payments and mobile credit
Mobile phones use qr codes for payments
Japan’s mobile operators DoCoMo, KDDI/AU and SoftBank are expanding their business into mobile payment and mobile credit, traditionally the realm of banks, credit card companies, financial institutions and cash. With the bubble/post-bubble bad loans problem largely resolved and the mega-mergers completed, Japan’s banks are now ready again to develop new business.
Customer’s camera phone reads the barcode or QR-code on an utility bill or mailorder invoice, and forwards secure payment instructions to the customer’s bank account.
What is the expected impact?
Expect positive impact on Mizuho’s earnings
Today such payments are typically made by walking to the nearest convenience store: expect negative impact on convenience stores which handle much of the barcode based bill payments today
Expect additional competitors with alternative methods to compete with Mizuho in the domain of mobile phone based bill payments
The day before the Finland-Japan Ubiquitous Society Conference in Tokyo, I briefed the top-management (CEO, CTO and other top managers) of TeliaSonera, on October 26, 2006.
The next day, October 27, 2006, the Finland-Japan Ubiquitous Society Conference was held. Tero Ojanpera, Exec VP and CTO of NOKIA, gave an overview of NOKIA’s vision of communications, other speakers and panelists included Juho Lipsanen, Finland CEO of TeliaSonera, KDDI Chairman Murakami.
Nokia CTO Tero Ojanpera talking at the Finland Japan Ubiquitous Society Conference
Panel discussion with TeliaSonera CEO Juho Lipsanen and KDDI-Chairman Murakami.
Nokia CTO Tero Ojanpera talking at the Finland Japan Ubiquitous Society Conference
Docomo acquires music retail know-how and a laboratory for mobile payments at the point-of-sale
NTT Docomo acquisitions: 32.34% of Tower Records a major share of Japan’s second largest Credit Card issuer
Nikkei reports several NTT Docomo acquisitions: DoCoMo will use a total investment of around YEN 10 Billion (approx US$ 100 million) to acquire 32.24% of Tower Records Japan’s shares from Nikko Principal Investments Japan Ltd, and additional shares in a third party allotment taking it’s stake to around 40%. Tower Records Japan plans an IPO, and DoCoMo apparently intends to keep a 33.4% controlling stake even after the IPO.
Tower Records Japan was founded by the US-company Tower Records in August 1979 in a pioneering entry by Tower Records into the Japanese market. At that time, almost all foreign companies entering Japan formed a joint venture with a Japanese company or licensed their brand to a Japanese company. Tower Records instead acquired an unrelated Japanese company with the same name (“Tower Records”) and built it’s business in Japan successfully alone without a Japanese joint venture partner.
In October 2002, Tower Records Japan became independent of the US mother company through a Management Buy-out by Japanese management.
NTT Docomo acquisitions strategy
Repordedly, DoCoMo aims to implement many synergies including:
use of mobile FeliCa wallet phones for customer relationship management (CRM), reward points, and customer data collection for marketing purposes
Napster Japan: Since about 1/2 of official content sales of i-mode is from mobile music, and since Tower Records Japan is about to launch Napster-Japan in a joint venture with Napster, we expect DoCoMo to become involved in online music distribution through Napster Japan.
NTT Docomo acquisitions: The bigger picture
Acquisition of a controlling stake in Tower Records is the latest step in a string of investments by DoCoMo, to expand revenue into new areas independent of ever shrinking voice and data traffic related charges. Recent investments include:
With more than 100 stores the Tower Records Japan investment will give DoCoMo an excellent experimentation ground to develop many new ways of using FeliCa wallet phones in a real-life retail environment.
We worked out that about US$ 0.5 Billion/year worth of train tickets for the Tokyo-Osaka Shinkansen train line are sold by mobile phone. Not a bad m-commerce record for a single train line. For details see our Mobile Payment report. The picture shows a Shinkansen train preparing to stop for 2-3 minutes in Nagoya on the way to Osaka:
In 2005, the Tokyo-Osaka Shinkansen high-speed train line alone sold about US$ 0.5 billion in tickets via mobile commerce
Mobile Payment Forum and Eurotechnology Japan KK jointly organize the Mobile Payment Forum meeting in Tokyo
Japan leads the world in mobile payments and m-commerce
by Gerhard Fasol
The Mobile Payment Forum promotes usage of mobile phones for payments, and works on interoperability, usability and standardization issues.
The major credit card companies (VISA, Mastercard, American Express…) together with the leading mobile phone makers (Nokia, Motorola, NEC…), and mobile operators (Vodafone, DoCoMo, TIM, T-Mobile, Sprint…) lead the Mobile Payment Forum.
On April 4, 2005, the Members and Directors for the first time held their meeting in Tokyo
On April 4, 2005, the Members and Directors for the first time held their meeting in Tokyo. Eurotechnology Japan KK took part in the organization of the meeting, and Gerhard Fasol gave an almost 2 hour long keynote presentation about mobile payment in Japan.
Mobile Payment Forum discovers KDDI, introduced by Eurotechnology Japan KK
At this meeting, I also had the opportunity to introduce KDDI to the Mobile Payment Forum – there was no previous relationship between KDDI and Mobile Payment Forum.
KDDI gave a keynote, and explained KDDI’s mobile payment business, and in particular also the recent success of mobile books, mobile novels, and mobile manga: ebooks, novels and manga specially produced for mobile phones.
Mobile Payment Forum Member’s meeting in Tokyo: “Mobile Payment Forum is a cross-industry organization launched in November 2001 to create a framework for standardized, secure and authenticated mobile payments, based on payment card accounts. The Forum intends to quickly and efficiently act as the bridge between the mobile and financial industries to accelerate the maturity of the mobile marketplace”.
Mobile payment Japan, e-money and mobile credit report:
Amazon.co.jp introduced a barcode reader i-Appli (JAVA application for DoCoMo’s i-Mode phones), with which shoppers in brick-and-mortar stores can directly compare the prices with Amazon.co.jp’s mobile webstore prices. If the shopper prefers, he/she can order directly by i-Mode mobile phone from Amazon.co.jp online while still standing in front of the shelves of the brick-and-mortar store.
With this barcode reading mobile phone application (i-Appli), Amazon.co.jp is directly taking the competition into brick-and-mortar stores, battling on the same ground.
User interface of Amazon.co.jp’s barcode reading i-Appli – click to scan:
With Amazon.co.jp’s barcode scan application customers shopping in a store can compare prices with Amazon.co.jp’s ecommerce prices, and if cheaper, can order from Amazon.co.jp directly from the mobile phone
The customer can directly scan the barcode with his/her Docomo i-Mode phone, and the Amazon.co.jp barcode i-Appli:
Customer scans the barcode in a store using the Amazon.co.jp bar code application on a DoCoMo i-mode phone
On the next screen Amazon.co.jp’s i-Appli shows the same product’s page in the Amazon.co.jp mobile store. The customer can directly order with one click if he/she prefers Amazon.co.jp’s offer instead of the brick-and-mortar store, where he/she is currently shopping. This i-Appli allows Amazon.co.jp to catch customers from within traditional stores.
After scanning the barcode, the Amazon.co.jp i-appli directly shows the price and order page of the same product on the Amazon.co.jp mobile site
Read our QR-code report for in-depth analysis and lots of applications of QR-codes and bar codes in Japan.
FeliCa mobile payment wallet phones at the centre of attention
by Gerhard Fasol
Wireless, mobile phone industry trends years before they reach outside Japan
Every year the Wireless Japan sets global trends in wireless communications and mobile phones. Mobile phone industry professionals cannot afford to miss this trend setting show. It is here that Japanese carriers and handset makers introduce their latest products and show design studies and concept phones which set industry trends for the next months and years.
There were some surprises: In recent Wireless-Japan shows usually the KDDI/AU-design project prototypes were at the center of attention – this year I could not find any. For example, at Wireless-Japan-2002, KDDI/AU showed “Infobar” prototypes a full 16 months before market introduction. Did KDDI/AU decide to keep future design-project releases secret until they hit the market? Could well be so, given Japan’s increasingly ferocious mobile phone competition. Another surprise was Vodafone’s absence – Vodafone in recent years used to have the biggest show.
On the other hand this time most handset makers showed impressive concept phones, Matsushita/Panasonic under the heading “Beyond 3G”. The image shows NEC’s concept design study of a flexible multimedia phone: this phone has two screens which can be bent together, and used jointly as a larger screen.
Wireless Japan 2004 Highlights: “Beyond 3G”
Beyond 3G: SANYO 3.5G phone for 2.4Mbps data download (for KDDI/AU):
KDDI/AU 3G phone W21SASANYO show at Wireless Japan 2004
Wireless Japan 2004: NEC “tag” wrapping multimedia design concept phone:
Concept model phone by NEC at WirelessJapan-2004 exhibition
“Wireless Japan 2004” – much was expected: for example, it wasn’t surprising for anyone that DoCoMo’s i-Mode-FeliCa wallet-phones were center stage of the DoCoMo exhibit with lots of partners demoing wallet-phone applications.
NEC concept phoneNEC concept phone
Matsushita/Panasonic “Beyond 3G” design concepts:
Panasonic concept phone
DoCoMo UbiButton and UbiChip:
DoCoMo’s UbiButton and UbiChip
DoCoMo i-Mode-FeliCa wallet phones – for electronic cash:
the world’s first commercial wallet phone: P506iC – by DoCoMo and Panasonic
DoCoMo i-Mode-FeliCa wallet phones – as an electronic door key:
Mobile phone as a RFID key to lock and unlock doors
We have substantial documentation about the Wireless Japan 2004 exhibition, and most other year’s Wireless Japan exhibitions. If you need information or documentation for prior art or other investigations, please contact us.
Learn more: report on Japan’s telecom sector (269 pages, pdf file):
Docomo’s first 3G phones, KDDI brings design to mobile phones
The annual Wireless-Japan exhibition highlights the trends of mobile communications in Japan. At Wireless-Japan 2002 KDDI started setting the trend of concept phones.
KDDI/AU “Design Project:” Design study for the bestselling “INFOBAR”.
KDDI/AU design series prototypeKDDI/AU design series prototypeKDDI/AU design series prototypeKDDI/AU design series prototypeKDDI/AU design series prototypeKDDI/AU design series prototypeKDDI/AU design series prototypeKDDI/AU design series prototype
The KDDI/AU design study above became the origin of the bestselling “INFOBAR”-3G phone.
And here are two images of the bestselling “INFOBAR”-phone in the version sold by KDDI.
KDDI/AU design series – Infobar
Design study by AU/KDDI for future mobile handsets. This design study was the basis for the PENCK model sold by KDDI/AU at a later date.
KDDI/AU design series prototype: PENCK
Big Blue Vending machine for mobile internet usage by IBM
IBM vending machines for mobile payment
Combined mobile phone and television receiver by DoCoMo:
Automatic Teller Machine (ATM) linked to mobile phones by DoCoMo gradually DoCoMo is introducing payment applications to mobile phones. In 2004, two years later, DoCoMo introduces the walletphone.
IY Bank (later renamed 7-Bank) ATM protoype
Karaoke Machine linked to mobile phones by DoCoMo
Linking Karaoke to mobile phones
FOMA video telephone and MOPPET fixed line video telephony terminal, allows video conversation between FOMA mobile phone and fixed line telephone.
More information about 3G in Japan and FOMA: www.eurotechnology.com/3G/.
NTT Moppet
SH2101V handheld PC and video camera for FOMA (3G) use, including video camera
DoCoMo 3G prototype multi-media phone SH2101V
We have substantial documentation about the Wireless Japan 2002 exhibition, and most other year’s Wireless Japan exhibitions. If you need information or documentation for prior art or other investigations, please contact us.
Learn more: report on Japan’s telecom sector (269 pages, pdf file):
