Asian mobile services bring more experience to Western markets
An interview with Benjamin Joffe, who has been living the mobile reality in China, Japan and South Korea for the last six years.
Benjamin Joffe is CEO of the research company [+8*] (http://www.plus8star.com/) and consults on mobile and Internet business, covering China, Japan and South Korea. He started as a technology consultant for Jitex in Paris and Tokyo in 1999. In 2001, he becomes licensing manager for France Telecom R&D in Japan and then works as an analyst on Japanese and Korean mobile markets. In 2003, he becomes an independent consultant before founding [+8*] in 2005
Benjamin holds a Msc in Engineering from the Ecole Centrale de Lyon, France, and a Msc in Acoustics from the University Claude Bernard, Lyon, France. He also participated in the European Commission’s Executive Training Program in Korea. Benjamin speaks Japanese, Korean and Mandarin and lived a total of 6 years in the three countries.
Interview by Markus Göbel (http://www.goebel.net/)
We know you as long term expert on the mobile phones markets of Japan and Korea and co-author of the report "MOBILE MUSIC – BEST PRACTICES FROM JAPAN AND KOREA: The future of Ringtones, Real Tunes, Ringback Tones and Full-Length Song Services from the World’s Most Advanced Markets" with Vectis International. But recently you founded your own company in China. What is it about?
I founded [+8*] earlier this year and spend most of my time in Beijing, China. [+8*] focuses on providing business consulting about the Chinese, Japanese and South Korean Internet and mobile markets.
Our customers are mostly foreign companies who want to understand why some mobile and Internet services are successful, to adapt the best practices in their own markets, or find partners. We also work in the other direction with local companies who look for partners to reach foreign markets or bring foreign services to their own. Last, we do various works like consult on PR, branding, investment, all in the mobile and Internet fields.
What are the latest technology developments in the Asian mobile market?
In Japan the most interesting aspect in my opinion is the rolling-out of what NTT DoCoMo calls the "lifestyle infrastructure", following the "voice communication infrastructure" and the "IT infrastructure". The key elements of this are the FELICA contactless IC chip technology and its EDY and SUICA applications, and the thousands of convenience stores, rental shops, retail stores, restaurants, train stations, etc. where you can use them. This is about creating a complete ecosystem where mobile acts as payment method, train pass, membership card, etc. Already over seven million Felica-enabled handsets are in circulation. That is about 15 per cent of DoCoMo’s users, and just starting for other operators).
In Korea the most interesting services are in my view what SK Telecom is doing with mobile music and their "MelOn" service. This deals directly with the rights associated with music instead of just selling a digital file. For instance, if you pay for a song, you are able to stream or download it on your PC in one format, on your phone in another via the network, and transfer it to one music player, for instance. They also started an "all you can eat" payment for a monthly fee, which was apparently replicated by Yahoo! a few months later. This is an entirely new approach to mobile music, which is much closer to what music is and what users want.
Another one that is truly cutting edge is SK Telecom’s "1 millimeter" intelligent agent. This service is somewhat comparable to NTT DoCoMo’s "iChannel" service: a combination of push and pull content personalized and sent timely, to which SK Telecom added the South Korean expertise in avatars and interaction.
Which is the craziest feature you know in a mobile phone?
We need to distinguish here "feature" and "service". Feature would be a piece of hardware or software enabling – or not – a service. A camera is a feature, but services associated are: MMS, bar-code recognition, games using it, etc. GPS is another one and services are: navigation, friends finder, LBS games, etc. Very often, a new feature is added but the service behind it is non-existent or offers a poor user experience, disappointing them with it.
There are three things I am fond of at the moment:
- SK Telecom’s intelligent agent service called "1 millimeter" – because it’s really that close to you.
From a distance you can mistake it for an advanced Tamagochi, but it actually combines sophisticated research in two key domains: interaction design and personalization. As a result, it is a sort of useful and entertaining "daily advisor" connected to whatever other service or database that might be useful to users. The role of the agent is to provide only what is useful to you, and only when you need it.
- Newt Games‘ "Mogi" service with KDDI in Japan
This is a location-based community game in Japan which has been running for over two years but is still at the forefront of innovation. Position gives an unequaled sense of reality and "connection" to other users, which appeals to a larger audience than the usual games. You could call it a mobile social networking service as well, and many other things.
- Motion sensor in mobile phones
I saw it in Korea on a Pantech phone – now Korea’s second largest and fast growing manufacturer, front of LG Electronics. I was not too enthusiastic about this feature because NTT DoCoMo in Japan released a far-fetched golf game where you swing the phone and look crazy or at best like a geek. My view changed radically after trying a very plain shoot-them-up game in Korea where you move the handset instead of using the keypad to pilot your ship. This innovative way of playing gave added a lot to an otherwise very basic game. Especially, I think the input method in phones need a breakthrough and the motion sensor might just be it. It brings something useful and fun in mobile interfaces, like navigating the phone menu by just twisting your wrist. Properly combined with one-click selection, it allows very easy and fast navigation. Something closer to Tom Cruises browsing images in "Minority Report" than to an old-style typewriter. It sounds weird at first, but everybody laughed at the Japanese typing messages on tiny phones in 1999 and the world is now doing it.
To look even further, the other limitation to phones after the input is … the output, namely the display. Using a screen is a bit problematic as you want it tiny enough to fit in your pocket, but large enough for easy reading. For this, different eye-mounted displays I tried in Japan and Korea looked very promising: half-mirrors on glasses, or an half-an-inch screen front of one eye. They solve the problem of screen size entirely as they can provide today the equivalent of a 12 Inch display in front of you. Technology is almost mature, but the cost is still high, so I don’t see this having a significant presence in the market before at least five years.
Just think about it: navigation through motion sensor – maybe a ring? Or eyesight tracking, which is used extensively to measure efficiency in advertising already, and display within your sunglasses. That sounds a bit "Cyberpunk", but this is already possible today. Any kid playing with this would master it in 10 minutes, just like teens now don’t need to look at their phone to type messages. It might take a couple hours for you and me. However, the ones making these type of decisions are usually those who always need to look at their computer’s keyboard to type…
Which features do really make sense to a mobile phone?
Anything bringing value to its user! Appraising this value is very difficult, though, and even users often change opinions before and after trying new services or functions.
Among the obvious ones:
- Music player function. This is already a standard in Korea and becoming one in China and Japan, with different Digital Rights Management and service ideas. Most markets are too immature for over-the-air distribution and there are widespread worries among record companies. But the situation will improve and show that digital distribution of music creates more value than it destroys. After some bleak years, South Korea’s music market is now bigger online than offline, for a total value superior to the era before Peer-to-Peer.
- Credit cards are technically easy to include in mobile phones once security issues are addressed. A credit card is just a 16 digits code, a date and a 4-digits PIN. This would be very useful for "macro payments" while micro ones could be handled on the phone bill or a separate credit.
- GPS: after using KDDI’s "EZ Navi Walk" in Japan, I also found GPS great, and many unique and exciting services apart from navigation can be built around it. Most people associate GPS with something technical, or unreadable tiny maps, or fear about the privacy of their location ("GPS mugging?"). Once those fears are dealt with properly, there is no coming back after trying once, because it is so simple.
Also, some feature become far more attractive in combination: Think of camera + Bluetooth or W-LAN – transferring your pictures in an instant to your computer or to another phone. Or within a developed environment, for instance: contactless IC card and public transport. It is very likely that new features not connected to services or some sort of IT or content infrastructure will have less appeal from now, as the most obvious ones are already there.
Which features are just stupid?
I used to mock some features to finally be proved wrong after trying them, or after they mature. High price, wrong business model, restricted function or clumsy interface can easily make a good idea become stupid. Motorola’s ROKR mobile phone is an example of this.
As a result I don’t think any feature is stupid per se but some might not be properly included in an environment: What is the use of Bluetooth in your phone if your PDA or computer is not enabled? What about videophone if nobody else has one? You will find the feature useless until half of your friends get it. In many cases, the value of some functions increases with their spread and their use "outside the box" and reaching a "tipping point" where it becomes a must-have.
To talk about some features whose market is not yet clear and sound funny:
- In Japan, Fujitsu released several phones with DoCoMo including a fingerprint recognition technology, used to unlock the phone.
- Casio released a waterproof handset for KDDI, so those who drop their phone in the toilets are now safe. It also includes an electronic compass which can be used in combination with GPS navigation to orientate the map.
- Vodafone also included this infamous "dog barking recognition" function named bowlingual, that one Korean carrier launched as well.
- Some "well-being" phones with health-related features hit Korea since last year, with functions such as evaluation of body fat, anti-germs coating, gyroscope to measure movement and burning of calories while walking, hiking, etc. Another recent phone has an alcohol sensor embedded. You blow on it and it gives an indication of your alcohol level. Health-related functions do make sense, but the first ones to appear are mostly surfing the Korean health trend and are quite funny.
Will the mobile phone replace all other mobile devices like Pocket PC, iPod and even cameras?
Several mobile phone devices already have capacities similar to the main functions of PDAs and music players, and their lenses and optical zooms have a quality comparable to middle-range digital cameras. So the replacement of all those devices by an all-in-one handset is already possible and will happen when 3-megapixels cameras will become a must-have feature for mass-market phones.
On the other hand: For PDAs, it is possible that they become phones with Voice-over-IP capabilities, while at same time some phones become like PDAs. You might also ask when you will be able to use your phone as credit card, small change, subway pass, magazine, key and even TV as trends indicate in Japan and Korea.
Where are the limits of this development?
Limit is when users do not see enough value for money. Developments are now more about how to create or transfer new value from somewhere else and add the convenience of mobility and network to it. Mobile phones are unique as the value perceived by users encompasses not only communication but a sense of security, comfort, fashion, entertainment, and emotional values. Your car, your credit card and your computer combined do not reach this.
Do the customers want this? Is there a difference in the needs of the customers and of what the companies want to sell them?
I don’t think customers have a clear idea of what they "want". Also, the experience they will eventually have with a new feature will likely be quite different from what they imagined. Especially, convenience and emotional aspects are very often misestimated.
Another point is that consumers, carriers and manufacturers have conflicting agendas:
- Carriers want to win and retain subscribers
- Manufacturers want to sell their hardware
- Users want value for money
Those objectives are often reflected in short-term vision and hype of doubtful hardware features, over the development of services. The fact is, it is much easier to sell a phone saying "it has a three megapixels camera" than explaining about a new service. Operators and manufacturers have to deal, like anybody selling things, with shoppers‘ short attention span. So they go the easy way and end up not developing and educating users about services, which slows down the service market expansion and only fuel the hardware fever. As far as I know, Japan and Korea are the only countries where some services have become an important selling point, but I expect other countries to follow at their own pace.
Are we seeing a "feature overload" in mobile phones? Do the customers really want this?
The feature overload is a result of their marketing easiness and fierce competition. Customers buy them mostly to not "fall behind" and look good. Really useful but less glamorous services will probably never outsell shiny hardware, but the life of good services is much longer than ever-changing handsets.
I also see a trend in phones specifically targeting new categories of people, like seniors, phones for females or for young kids. This often goes with a specific design, with which they can look good, and functions or services related to their lifestyle. In Japan there is Tu-Ka, a carrier that almost never appears in English press coverage despite its 3.5 million subscribers. It had a tremendous success with a "simple phone" very easy to use for seniors, that was copied recently by NTT DoCoMo, more than a year later!
What makes this recent "feature overload" possible? Is there a new chip or new technology that is responsible?
I don’t know if there is one specific breakthrough to point at. Chips for mobile phones are improving all the time and phones today are like small computers or game consoles. Some have dual chips to handle all the new processing in addition to the communication part. Also, some elements that were like separate software or processes are now included within the hardware to increase performances and add new features. We talk today about mobile OSes.
But on a business side, "feature overload" is possible because:
- Mass market and innovation drive prices down and performances up
- The market is very competitive and some features – even the ones useless for the majority – have been declared "must have"
- Users end up paying for them through their phone bills
Are there maybe differences in between what Europeans and Asians customers want? Maybe Asians want more features?
In most cases, people buy features because they are there. Many features appear in Japan and Korea because they have many local manufacturers in a highly competitive market serving very few carriers. Also, carriers are deeply involved in the technical and services roadmaps so it accelerates the whole process. Manufacturers try out new features to make a difference. Some work, some don’t. The situation is very different from Europe where only a handful of very strong players share the market and have to serve dozens of carriers to reach the same volumes and has to rely on a "catalog" rather than a "custom" strategy.
On the consumer side, hype, "social status" and me-too behaviors make features a standard. In highly concentrated areas like Tokyo, Seoul, Beijing, etc., word-of-mouth and information spreads at a very high speed and fashions come, then stay or go. Those which stay are very likely to encounter a similar success in Western countries, such as text messaging, ringtones, logos, color screens, flip phones, cameras, games, ringback tones, GPS navigation, contacless payment, etc. All those were laughed at when introduced or dismissed as "Asian gadgets" and are now self-evident. Schopenhauer would love it.
Which technology is better for mobile TV? DVB-H or DMB?
I am not deep into technological issues for mobile TV and not familiar with the standards and their backers. I don’t think this will make a significant difference for the consumer. Korea and Japan use DMB. To makes things more complicated, KTF in Korea is apparently also considering Qualcomm’s MediaFlo technology as the DMB effort relies mostly on SK Telecom.
What is more interesting is to see how S-DMB (satellite) and T-DMB (terrestrial) will compete. Korea is already very advanced in as thousands of handsets are already on the market. But this is more of an investment for operators and broadcasters as the price of the handsets make them out of reach of the average customer. In October, there were already about 20.000 subscribers to the T-DMB service. Quality is quite appealing and without a doubt mobile TV is going to be big.
Eventually, mobile digital TV would not mean a TV per household but a TV per person, always with the user, and with a back channel using the wireless network. This will allow a lot of old and new business models to be applied once the audience is there. The Korean consortium TU Media estimated that they would need two million handsets in circulation to start to be taken seriously by announcers. Interestingly, the mobile does not seem to compete so much with the standard TV, but more with other mobile content like games, etc for the mobile users‘ attention.
What are the latest market numbers?
Japan and Korea are still the world’s most advanced mobile markets and South Korea is also the world’s most mature broadband country. But China is already a behemoth in mobile, with 380 million users, and Internet: 100 million users of which 50% use broadband. And it grows at a fast pace.
Japan has 40 per cent of 3G penetration and Korea about 85 per cent. As a reference: Vodafone reported recently having five million 3G users, two million of them in Japan, out of 170 million users. Considering the handset replacement rate, Europe will need at least three years to reach the same penetration as Japan combining EDGE and W-CDMA users.
Japanese and Korean Operators are offering flat-rate data plans to enable the spread of rich content making use of their 3G networks, dragging up the average ARPU as users get more experience and use some new attractive services. Messaging is now only a small part of the operators‘ data revenues, less than five per cent in Japan and less than 25% in Korea. However the data revenues are representing about 25% of the total ARPU, which shows real services and widespread usage developed. As an example, the Japanese mobile music market was worth about one billion Euros in 2004-05 representing two billion polyphonic ringtones, 200 million hi-fi ringtones and a new full-song service already sold 20 million songs in 10 months.
The markets are much more mature. Only five per cent of users are prepaid in Japan and Korea, versus an average of fifty per cent in Europe.
Thanks to the very strong control that Japanese, Korean and Chinese carriers have on the mobile value chain, it is way easier for them to deliver a consistent user experience and roll-out efficiently new services. Most Western carriers do not have the same muscle due to markets fragmentation and over-dependence on powerful manufacturers. However, they have lots of room to offer something unique to their users and can make use of the best of Asia for that!
CEO – [+8*] – http://www.plus8star.com
Mobile and Internet Business Consulting
China, Japan, South Korea
Tel: +86 137 1880 3321 – Skype: benjamin0123