Arguably, the two most significant value-added data services to come out of Japan in the past 12 months are Java and picture mail.
Java was launched in January 2001 by NTT DoCoMo, and is now deployed by all three carriers. Each offers a different Java environment in terms of what an onboard application can do, and each offers different application download limits and speeds.
Java apps can be received at 28.8 Kbps by 2G i-moders, and up to 384 Kbps by their 3G pals. On KDDI, the corresponding limits are 64 and 144 Kbps; on J-Phone, download speeds are about the same as DoCoMo 2G, i.e. 28.8 Kbps. DoCoMo, KDDI, and J-Phone allow Java apps to weigh in at 30, 50, and 100 KB, respectively.
Java has grabbed Japan’s wireless Internet by the horns. DoCoMo’s latest Java-enabled handsets, the 504i series, allow users to call, access email, and run a Java i-Appli all at once, and are selling very well.
Java represents a significant and growing percentage of subscribers(and therefore, carrier data revenue); as of June, 42 percent (14.2 million) of DoCoMo subscribers were Java users, as were one-third (3.56 million) of J-Phone subscribers according to CSFB analyst Mark Berman (no word on KDDI numbers, but we guess they’re also in the 30-40 per cent range).
Picture mail, first launched by J-Phone in November 2000 under the “Sha-mail” brand and later extended to include video mail (“Movie Sha-mail”), has racked up similarly impressive usage numbers. In June, J-Phone added some 372,300 Sha-mail users, for a total of 5.47 million (about half of the 10.6 million J-Sky user base). All three carriers now have camera-equipped handsets (Big D, however, was more than a year late in creating one!), and these models are selling well.
But the question is, Which of these two value-add technologies represents the best ROI for the carriers? Java was, no doubt, hugely expensive to bring to market. Also, Java was implicated in several costly handset recalls early last year. But now that the onboard software environment has been more or less sorted out, Java is a steady money-maker, and we suspect that the marginal cost to add Java to new handsets is now little more than the cost of the license itself.
In contrast, adding a camera to a handset is probably more expensive than adding Java. The camera comprises additional hardware, including the lens and color processing circuitry, and causes extra battery drain (carriers don’t release precise cost figures, so it’s difficult to know for sure — see third News Item below for one figure).
In fact, in last week’s WWJ, we mentioned that DoCoMo’s recently slower handsets sales may, ironically, help the carrier’s quarterly financial reports since this means smaller sales commissions for handset retailers and greater profit margins in the short term. Later, our Deep Source at DoCoMo weighed in with some comments supporting the carrier’s reluctance to rush to market with a camera handset.
“While market share has increased for camera phones, have the operators really benefited?” asked Deep Source. He agrees that with the subsidies to make the retail prices competitive, camera phones may not be such a good idea for operators. “There is a reason why DoCoMo waited so long [to launch a camera phone] and why the main series is still the 504i with Java,” he added. Hmmmm. While hardly a disinterested opinion, DS may have a good point.
We think that the market heavyweight, NTT DoCoMo, gets a better payback by spreading Java far and wide (at a low marginal cost), while eschewing pricey gadgets and add-ons (or making the consumer pay for same when desired; we note that DoCoMo’s SH251i is selling for about 5,000 yen more than J-Phone’s high-end Sharp Sha-mail handset).
Meanwhile, the smaller, nimbler competitors do better by fielding sexy hardware that grabs market share and bragging rights, if not that much real revenue. As CSFB analyst Berman pointed out in a recent report, “Slower growth continues to favor DoCoMo in terms of margin growth.”
DoCoMo, for all its other faults, does little that is truly irrational.
– Daniel Scuka