The company's deals with NTT DoCoMo and KDDI, Japan's two biggest wireless carriers, have cemented its lead in mobile search
At Google's (GOOG) offices in Tokyo, they talk about "John's magic." That refers to the Internet search giant's dealmaking frenzy in Japan since John Lagerling joined the company more than a year ago as manager for strategic partner development. To the astonishment of many insiders, the trim, blond 31-year-old Swede has finessed tieups with Japan's two biggest wireless carriers, giving Google's search technology top billing on the tiny screens of as many as 82 million mobile subscribers.
Even Yahoo Japan, which boasts the country's most popular Web portal, lags far behind. Fewer than 18 million mobile subscribers whose service is with wireless operator and Yahoo Japan owner Softbank own handsets that go directly to Yahoo's search page.
Last month's deal with NTT DoCoMo (DCM) adds to Google's edge in the fast-growing Net search and advertising business in one of the world's most sophisticated wireless markets. Now, the first thing DoCoMo mobile subscribers see when they go online from their handsets is the carrier's site featuring a search box and the phrase "enhanced by Google." Ditto for KDDI users. That means someone in Tokyo's Shibuya shopping district who wants to find a store selling vinyl records no longer has to type in Google on a numerical keypad to gain access to the company's search engine.
A Similar Plan for Other Countries
Google's online traffic will likely surge. While relatively few Americans use their mobile phones to tap into the Net, millions in Japan do so daily. Government data show that Japanese are as likely to go online from a mobile handset as they are from a desktop PC. And when they do, they often search the Net, look at maps, and check train timetables. Those activities rank third among the most popular online activities from a mobile handset, behind e-mailing and reading news stories, according to research firm comScore (SCOR). (Google's mobile services cover all of these areas.)
What's happening in Japan is likely to be repeated in other countries, Google officials say. Their courting of Japan's carriers suggests that the battle for control of the mobile Net—with operators on one side and companies like Google, Yahoo (YHOO), and Microsoft (MSFT) on the other—won't necessarily be the bloodbath that many analysts are predicting. In a report last November, Oppenheimer & Co. (OPY) analyst Sandeep Aggarwal said winning over wireless carriers and handset manufacturers would be one of Google's biggest challenges.
Google and DoCoMo officials have taken pains to stress their cooperation. They will share search data and split ad revenues, and stand to benefit in other ways. Google gets access to a huge pool of behavioral data about cell-phone users in Japan, which it needs to make its online software easier to use and more useful (BusinessWeek.com, 2/14/08). It also gains more sites to sprinkle with mobile ads and make search results more accurate. DoCoMo's and KDDI's sites for video, music and ringtone downloads, comics, and other exclusive services are no longer off-limits to Google. The carriers, meanwhile, can piggyback on Google's search know-how and rely on its transcoder, which converts Web sites normally formatted for PC or laptop software into a readable format for a tiny mobile-device screen.
Deadlines vs. "Managed Chaos"
Sound like a natural fit? Hardly. For Lagerling and his team, it was a constant struggle bridging the cultural gap. Google was lucky to have him. A graduate of the Stockholm School of Economics and the University of Tokyo, Lagerling joined DoCoMo in 2001. Five years later, he quit to go to Google. Lagerling, who is fluent in Japanese, English, and Swedish, says from Day One it was his personal crusade to work with DoCoMo. "There were many, many times when we thought this wouldn't go through," he says. "The ways we do things are so different."
One example: Google's project deadlines are always in flux. Managers won't hesitate to delay the rollout of software that still has software bugs. "At Google, launch dates are flexible," says Takeshi Kishimoto, a mobile product manager in Tokyo. And since Google's engineers around the world are constantly adding lines of programming code to upgrade maps, Gmail, YouTube, and other services, they rarely bother to keep a record of the changes.
That can be maddening for the staff of a company such as DoCoMo, which prefers to create thick manuals of technical specifications and thinks deadlines should be set in stone. "Japanese companies focus on getting everything down on paper in detail, which makes things more predictable," says Lagerling. "But we like the managed chaos."
Can the Cooperation Last?
In their free time, members of Lagerling's team were negotiating with Japanese social networking sites Gree and mixi and handset makers Fujitsu and NEC, as well as working on a new service with KDDI called au one that gives subscribers a single e-mail address that can be used from a PC or mobile phone.
Despite Lagerling's efforts, some analysts think it's a matter of time before the veneer of cooperation wears off. Wireless operators outside Japan have made no secret of their resentment of Google's ability to use their networks for free while raking in a handsome amount of the mobile online ad revenues. Such revenues are still miniscule, amounting to just $83.3 million globally last year, according to researcher eMarketer. Yet by 2012, the figure could grow to nearly $3.8 billion. As the stakes get higher, tensions could mount. "I simply cannot conceive of these arrangements as anything other than a marriage of convenience," says eMarketer analyst John du Pre Gauntt. "Sooner rather than later, one of the parties will feel that it's learned enough from the other."
In the long run, their interests diverge more dramatically. The carriers want to channel subscribers through a proprietary Net gateway using proprietary browser software on mobile phones so they can charge subscribers for services, not just airtime. That's at odds with Google's mission: to give everyone Net access and make the online experience on a mobile device virtually indistinguishable from that on a PC.