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NOVEMBER 27, 2000 VOL. 156 NO. 21

What Makes DoCoMo Go
Great tech, fun apps, hot phones—plus an ability to think and act unlike any other Japanese company
By TIM LARIMER Tokyo

ALSO
Thumbs Up
A look at Japan's mobile-phone culture
Wireless War: Japanese mobile-phone manufacturers take aim at Nokia and Ericsson in the battle to dominate the coming market for third-generation handsets. Can the Europeans hold the fort?
Entering the Fray: Outsiders want a piece of the action, too
Big Screen: Say goodbye to those old phone displays

Product developers at Bandai, the Japanese toy company that gave the world the Tamagotchi electronic pet, wandered into the offices of NTT DoCoMo in late 1998, looking to make a deal. The Bandai team wanted ideas on how to connect handheld game machines to mobile phones. The DoCoMo engineer they visited, Keiichi Enoki, wasn't interested. He was cooking up something else, a new wireless Internet service called i-mode. "Give me some ideas for content you can provide," Enoki suggested.

Bandai did just that, and six months later, its menagerie of cartoon characters was popping up on mobile phone screens around the country, emerging as the most popular feature on DoCoMo's by-then red-hot i-mode service. Users download pictures of baseball players and pop stars and animated characters that move, albeit jerkily, when the phone rings. You can e-mail characters back and forth. There's even a Hello Kitty for every day of the year. The Bandai-DoCoMo link has been a match made in marketing heaven, marrying two things Japanese adore above all—cool and cute. "The key to i-mode's success? The content," says Naomi Tobita, an executive manager at Bandai.

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Viewpoint: Let Asia's elected leaders finish their terms

TELECOMMUNICATIONS: Wireless War
Japanese mobile-phone manufacturers take aim at Nokia and Ericsson in the battle to dominate the coming market for third-generation handsets. Can the Europeans hold the fort?
Entering the Fray: Outsiders want a piece of the action, too
Role Model: NTT DoCoMo's stunning success with the i-mode offers valuable lessons for all of Japan Inc.
Thumbs Up: A look at Japan's mobile-phone culture
Big Screen: Say goodbye to those old phone displays

GOLF: Homecoming Daze
He may be all-conquering on the course, but Tiger Woods didn't win many new friends on his visit to Thailand

EXHIBITIONS: National Treasure
Exquisite works by Japan's 17th-century master Koetsu

CINEMA: Guardian Angel
How Cheung-Yan Yuen got Charlie's Angels looking so good
Young Turks: A new direction for Taiwan film

TRAVEL WATCH: Finding Peace in a Himalayan Hideaway

That analysis isn't merely self-serving. The technology that made i-mode possible was critical, of course, in converting Japan from an Internet-bashful country into a web-addicted nation. So, too, were the light, elegant handsets that served as conduits for the data flow. But what transformed DoCoMo from a neglected offshoot of telecommunications giant NTT into the hottest Japanese company of the '90s was an ingenious marketing strategy. And at the center of that strategy was DoCoMo's success at persuading companies like Bandai to create the content that has made i-mode irresistible. Without Hello Kitty, games, horoscopes and the dating services that have all become i-mode fixtures, DoCoMo would have had nothing to sell but a fancy paging service. Now more than 14.7 million Japanese use i-mode, and the numbers are growing at the dizzying rate of 50,000 subscribers a day. Two years ago, barely 10% of the population was Internet-savvy. Today, more than 40% are. The mobile phone has become Japan's gateway to the Internet and is inspiring users to move up the ladder, buying PCs for desktop web surfing—a reversal of how things have evolved in the West. Japanese didn't object to the small phone screens because they weren't comparing them to computer monitors. Moreover, says DoCoMo's president Keiji Tachikawa: "They like the key pad. Japanese don't like keyboards."

Those features will be harder to sell to Americans and Europeans. But i-mode, and two similar wireless web services from DoCoMo's domestic competitors, have leapfrogged Japan past rivals in the race toward a 3G world. And i-mode has made DoCoMo a very rich company: profits in the six-month period that ended Sept. 30 rose 20% from a year earlier to $3.6 billion. At $250 billion, DoCoMo's stock value now exceeds that of parent company NTT. DoCoMo announced it would slash its prices by about 20% next month, a move that could generate even more business.

It's engaging stuff. With i-mode, access to the Internet—and, more importantly, to a network of some 23,000 websites designed specifically to fit the tiny screens of mobile phones—is almost instantaneous. Users are essentially connected when their phones are turned on, although there is a brief wait (of seconds) for websites to pop up on the screen. There are limits to what i-mode can do, however: video and animation, for example, won't actually be available until DoCoMo begins offering its 3G service next May. But for now, the technology has won over a nation.

The story behind DoCoMo's success contains important lessons for Japanese companies trying to revive themselves from what's commonly referred to as the "Lost Decade," the 10-plus years of economic decline that have seen Japanese powerhouses in electronics, autos, banking and computers transformed from world beaters to also-rans. DoCoMo—a crude abbreviation for "Do Communication Over the Mobile Network"—was formed in 1992 within NTT, the government-owned phone monopoly. Its beginnings as a small subsidiary inside a slow-footed behemoth didn't give it much promise. In those days, Japan lagged behind badly in mobile phone development. But an initial stab at deregulation in 1994 led to lower connection fees and spurred a rapid development of hardware technology that helped DoCoMo take off. Its customer base has roughly doubled each year, reaching 61 million this year, about half of Japan's total population. DoCoMo probably benefited from starting life as something of a backwater at NTT. In those early days it was difficult to persuade workers to join the subsidiary, which forced the company to recruit outsiders—many of them young and fresh-thinking. The average age at DoCoMo is 35, or 10 years lower than at NTT. "We knew we needed young people if we were going to create an Internet service," says Tachikawa, the 61-year-old, M.I.T.-educated president.

I-mode's early brain trust included Enoki, a former NTT engineer, Mari Matsunaga, editor of a recruitment magazine, and one of her colleagues, Takeshi Natsuno. Tachikawa joined the team in 1997. "In 1998, we started to think about what to do in the 21st century," says Tachikawa. That doesn't sound especially far-sighted, since the new century was only two years away. But he and other managers realized that DoCoMo would soon reach a saturation point for its traditional mobile phone subscribers. "The competition for voice communication was over," Tachikawa says. "It was obvious that we should do non-voice communication." Engineers at DoCoMo thought they could get a jump on 3G by using packet switching. With this system, many users can access at the same time; by contrast, in current cellular networks, every user has to have an exclusive radio channel. A packet-switched system also lowers costs since charges are based on the volume of data received and sent, not on the amount of time one is connected.

The irony of DoCoMo's wireless Internet play is that it pretended, through its promotions, that i-mode had nothing to do with the Internet. It was a clever approach. "The Internet scares people. It makes people think they need a PC, a modem, an isdn line, it costs too much," says Yukiko Takahashi, a manager at Bandai. Instead, DoCoMo stressed what customers could do with the service: check horoscopes, stock tables and baseball scores, make restaurant reservations, find train routes. Enoki and his team realized that people wouldn't use a mobile phone to access the Internet as they do at home. What they would go for, DoCoMo correctly predicted, were bursts of information during "in-between" time: while waiting for a train, riding in a taxi, sitting alone in a coffee shop.

DoCoMo's other breakthrough involved figuring out how to get people to pay for accessing websites. This isn't e-commerce as normally defined, in which consumers buy goods and services online. Instead, it's i-commerce, paying for using the Internet itself. DoCoMo charges a monthly subscription fee. With that, customers have access to hundreds of free websites. But there are also premium sites that cost up to $2.75 a month to access. Those charges are simply added to the monthly bill; DoCoMo pays the content provider—after taking a 9% cut.

The volume and variety of sites and services have helped attract a wider audience than just the techie crowd. Some of the biggest users are young girls, who use i-mode to e-mail friends frequently and frenetically. Japan offers a sneak peak at what a 3G world might look like. Many of the sites are pure entertainment, such as crude interactive games like the one from Namco in which people enter personal information and find out how long they can expect to live. There are news portals and sites for booking reservations and mapping out travel routes. Then there are the anonymous e-mail applications—many Japanese are developing friends they will never meet face-to-face but communicate with actively by e-mail. On one Bandai site, called Falling in Love by E-mail, male users try to romance virtual women. The objects of their affection (they come in seven types, including nurse, teacher and schoolgirl) respond with pre-programmed messages. "Sometimes, the men think the women are real and send us messages begging to meet them," says Tobita.

DoCoMo hopes to export its technology to grab a slice of the global 3G pie. It has shunned the takeover tactics pursued by other phone carriers. Its strategy is to invest, taking minor stakes in competitors overseas: 19% of Hong Kong's Hutchison Telecom, 15% of the Dutch phone operator KPN and, through these ventures, stakes in 3G licenses in Britain and Germany. It has a tie-up in Japan with AOL and another with South Korea's SK Telecom. Tachikawa says DoCoMo is scouting for a partner in the U.S. as well. He is betting heavily that his company's technological expertise gives it international clout. DoCoMo, he boasts, has sufficient resources to invest in future technology, backed by 700 R. and D. engineers. Technology, to be sure, made i-mode feasible. But it's worthwhile remembering what truly made it successful: those cartoon characters, astrological websites, stock indexes and imaginary women for lonely men to woo via e-mail.

Reporting by Isabella Ng/Hong Kong, Sachiko Sakamaki/Tokyo and Carole Buia/New York

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