Online Extra: A Recipe for Mobile-Net Success, a l'i-mode?

Takeshi Natsuno's i-mode service is a huge hit in Japan, but some analysts wonder how well it would travel

Maybe failure, not necessity, is the real mother of invention. Take the case of Japan's mobile-Net pioneer, Takeshi Natsuno. Though he's the brains behind Japan's wildly popular i-mode mobile-Internet service, Natsuno learned the business the hard way.

Five years ago, he helped create Hypernet, Japan's first free Internet service provider, which expected to reap riches from ads. Users stormed the service and the business grew rapidly the first year -- too rapidly, as it turned out. Although the company tried to keep up with the volume by putting in the latest technology, it was still plagued with glitches. Corporate advertisers soon started dropping out. Natsuno himself bailed in mid-1997, and Hypernet closed its doors in December of that year.

What's the upside to all this? It provided valuable lessons that Natsuno, 36, took to his next job -- helping mobile-phone giant NTT DoCoMo (NTDMY ) launch a wireless-Net business. Among those lessons: slow technology is better than no technology (especially if it's easy to use), and don't rely on ads. Instead, charge subscription fees and form partnerships with content providers that can also earn revenue by offering eye candy tailored for a tiny screen. "Telecom people only think of launching services unilaterally, never with partners," says Natsuno. "That doesn't work on the Internet."

DoCoMo adopted Natsuno's business plan wholesale, and it paid off handsomely. Today, i-mode ranks as the world's first commercially viable mobile-Net service. Since its launch in February, 1999, it has signed up 24 million subscribers, who contributed $2.8 billion in revenue to DoCoMo in the year ended Mar. 31 -- a whopping 840% increase over 1999. DoCoMo, in turn, posted profits of $3 billion, a 45% jump from the previous year. "For the whole wireless industry, the question is: How do you make money on the mobile Net?" says Andrew Cole, head of global wireless at Adventis, a Boston-based consulting firm. "DoCoMo offers an answer with its biz model."


  Now, the company hopes to apply the lessons it learned from Natsuno in taking i-mode global. But not everyone is convinced i-mode is the model to adopt. European and American critics point out that the mobile Net in Japan is largely focused on entertainment sites, ranging from music and animation downloads to services that locate the nearest karaoke bars and best windsurf beaches. They may appeal to young people, but perhaps not to corporate customers.

Moreover, these aren't the best of times to try to sell anything that smacks of wireless. Europe, despite its penchant for cell phones, is still recovering from its failed experiment with a mobile data service known as WAP (wireless application protocol). And European operators have taken on massive debt, the legacy of overspending on acquisitions and next-generation cellular licenses in the great rush to stake out wireless territory.

The U.S. isn't exactly a booming market, either. While more Americans are buying cell phones and logging on via wireless devices, the market remains fragmented, due to different service platforms.

Even so, some aspects of i-mode are expected to infiltrate the next generation of wireless services taking shape outside Japan. And DoCoMo is investing in wireless carriers to help make it happen. In the U.S., the company spent $9.8 billion for a 16% share in AT&T Wireless (AWE ) and plans to launch an i-mode-type service in Seattle early next year. In the Netherlands, it paid $4.5 billion for 15% of KPN and plans to roll out parts of i-mode in Germany late this year, and in the Netherlands in 2002.


  Both carriers will introduce i-mode's user-friendly, packet-switched network, which lets subscribers tap into an always-on connection without dialing up. They're also planning to copy i-mode's micropayment system, allowing content providers to charge low monthly fees that are collected as part of the carrier's monthly bill. DoCoMo has attracted nearly 2,000 official content providers who charge $1 to $3 for services such as music, horoscopes, and more. The point is not to replace what's on the main Web, but to offer content specially designed for people on the go, whether it be simple games or news briefs.

Yet everyone seems edgy about adopting the key element behind i-mode's success: its emphasis on simple, entertaining content. European and American service providers offer little more than banking, news, and travel information aimed at business users. "The West has focused on the wrong set of items and still doesn't get it," says Jeffry Funk, a mobile-Internet expert at Japan's Kobe University. Funk thinks users aren't as serious as service providers think they are, and that they would be willing to pay for fun content.

Europeans argue that the type of whimsical entertainment featured on i-mode appeals only to the Japanese. "When I look at what is successful with i-mode in Japan, I'm not impressed," says Arian Dorrestijn, an analyst at Rabobank in Amsterdam. But DoCoMo's Natsuno believes users everywhere will want a variety of content and services on their handsets. "If you can read the headlines, check all your e-mail, and play games on a simple phone, why not do so?" he asks.

Natsuno is convinced that if the European and American operators heed his advice, they could recreate i-mode's spectacular success in Japan. He acknowledges that the mobile Net will never replace PC-based services. In an increasingly mobile world, however, it could become the communication tool of choice for everyone -- from teenagers in platform shoes to corporate warriors who just might want to search Zagat's for a good restaurant or check the latest baseball scores. Even the pinstripe crowd sometimes just wants to have fun.

By Irene M. Kunii in Tokyo, with William Echikson in Brussels

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