NTT DoCoMo: Can i-mode go global? (Case #20, Notes)
Overview
What's next for i-mode? After its huge success with i-mode in Japan, DoCoMo tried to bring the i-mode model to U.S. and European markets, but could not succeed. Although it has over a quarter of the Japanese population as subscribers, it is once again facing tough price competition in the domestic market. Recently it has formed new alliances with cell phone companies in the U.S. and Europe. Can it succeed this time?
In May 2005, NTT DoCoMo announced that its annual net profit in FY2004 rose 15% YOY to 747.56 billion yen resulting from the sales of its stake in AT&T Wireless, while revenue fell 4% YOY. This implies that the main business operation of the company is at risk and the net profit reported in FY2004 is non-recurring and not sustainable. Facing increasing price competition, DoCoMo unveiled a number of discounts e.g. family plans and a flat-rate data communications charge for 3G services in order to maintain a customer base. This resulted in a reduction in profit margin and a 33% drop in earnings.
i-mode Success Story
i-mode became an instant success in Japan, resulting in phenomenal growth of DoCoMo's subscriber base. Company sources mainly attributed the success of i-mode to its simple and efficient network access, its middleware software, its innovative business model, and its unique marketing strategies. DoCoMo controlled everything from the design of handsets to the contents provided by content providers. Clever marketing including price and promotion was another key factor in i-mode's success. The i-mode phenomenon coincided with changing social behavior, particularly among Japan's urban youth.
i-mode had a brilliant business model as it not only made Internet access available to mobile users, but also succeeded in charging for the Internet content.
International Expansion
To extend i-mode and 3G services outside Japan, DoCoMo focused on acquiring stakes in various cellular companies around the world.
In May 2000, it bought a 15% stake in Dutch KPN mobile to set up Europe's first i-mode service and in December 2000, it completed the acquisition of a 16% stake in AT&T for $9.8 billion, planning to establish the first 3G network in the U.S. in 2003-04. DoCoMo also invested in Hutchison in Hongkong, KG Telecom in Taiwan, and Tele Sudeste in Brazil. In exchange, these carriers agreed to roll out i-mode and DoCoMo's version of 3G mobile technology.
Problems Aplenty
In fiscal year 2001, DoCoMo was forced to write off almost 1 trillion yen due to decline in the value of its investments in various foreign wireless companies. In mid 2002, it was reported that DoCoMo was facing problems in convincing its partner wireless companies to adopt its technology. DoCoMo tried to own stakes in partner companies without truly analyzing the synergy effect from these deals. It accumulated direct or indirect shares in nine mobile operators, but with no management control. Furthermore, mobile operators in U.S. and Europe decided to delay their 3G roll out plans due to technical and financial problems. It is doubtful whether DoCoMo evaluated the success factors for its i-mode service in Japan before expanding to overseas markets.
Current Expansion Strategies
U.S.
DoCoMo and Cingular Wireless LLC are negotiating to introduce i-mode and 3G services to Cingular's customers in the U.S. They aim to reach an accord in 2005.
UK
In November 2004, DoCoMo signed an agreement with mm02 plc under which the European mobile operator will provide i-mode services to its 22 million customers in the UK.
Japan
In April 2005, DoCoMo acquired 34% stake in Sumitomo Mitsui cards as part of its plans to develop a range of mobile payment services. DoCoMo has also announced plans to stop rolling out 2G handsets and focus on its 3G service FOMA.
i-mode clone grows quietly in France
France's Bouygues Telecom has successfully duplicated DoCoMo's development and marketing strategies. As of April 2005, Bouygues had 1.1 million i-mode subscribers. It seems that the availability of better handsets like those in Japan, a well-defined and controlled portal strategy and a marketing focus similar to the one that led to i-mode's success in Japan, if properly cloned, could be successful.
Does this mean i-mode's global strategy has finally taken off?
Discussion Questions
1. What were the major factors that led to the success of i-mode in Japan?
2. Do you support DoCoMo's global strategies in 2001? Why or why not?
3. Why are there signs of success in the Europe?
4. Given the current scenario, do you think DoCoMo should focus on Asia or continue with its global expansion in U.S. and Europe?
5. DoCoMo is diversifying into credit card business. How effective do you think is this strategy?