Posted by: Kenji Hall on July 11, 2008
NTT DoCoMo’s top brass must be kicking themselves right about now. Japan’s top mobile operator lost out to Softbank in the contest to sell Apple’s iPhone 3G, allowing the third-largest operator to bask in today’s hype and headlines. The iPhone’s arrival in Japan was front-page news in the evening editions of three of the country’s four major dailies.
But DoCoMo stands to lose more than just a little publicity. One fourth of DoCoMo’s 53 million subscribers in Japan account for 80% of the carrier’s data traffic, according to one industry insider who requested anonymity. Those 13 million, who spend a lot of time firing off emails and browsing the Internet, are DoCoMo’s best customers. They are the reason the carrier’s revenues aren’t declining at a faster rate. They also happen to be the most likely to benefit from the bigger screen and easy-to-use Net browser of an iPhone. Imagine if all 13 million of these DoCoMo subscribers suddenly decided to switch carriers.
The scoreboard would read: Softbank 32 million, DoCoMo 40 million. (KDDI has 30 million.)
Of course, Softbank’s gains wouldn’t have come cheaply. To sell the handsets for $215 apiece, Softbank absorbs about $400 of what it’s paying Apple, according to the financial daily Nihon Keizai Shimbun. That means for every 100,000 iPhones it sells Softbank goes $40 million in the hole. And while a line of people snaked more than a kilometer (about half a mile) from the doors of Softbank’s flagship shop in Tokyo’s Harajuku district, and there also were long lines at electronics stores in Tokyo and other major cities, it’s unclear whether the buying frenzy will last. After all, the iPhone is one model among many high-tech mobile phones already available in Japan. With an iPhone, you can’t watch digital TV broadcasts, and many Japanese Web sites, which rely on Adobe’s Flash software for animation, won’t appear as they were designed to.
Still, you have to hand it to Softbank’s CEO Masayoshi Son. He has pulled off any master marketer's dream. And the impact likely won’t be fleeting. With Apple’s help, Son (rhymes with “phone”) is stirring fundamental change in Japan’s mobile market. How? The iPhone marks a shift in the balance of power from mobile operators to tech manufacturers. Until now, it was operators that drove innovation in Japan’s market, telling phone manufacturers what features to pack into phones. Apple is signaling that handset manufacturers with must-have products can call the shots, too.
Son probably realized that if he didn’t do it, someone else would. In the fall, more phones that work like the iPhone but run on the Google-led Android software are on the way, and they are likely to add momentum to this trend. He’s also smart enough to see that most phones look alike and are equally user-unfriendly. So the Softbank brand benefits from the iPhone’s buzz, it gets a gizmo that differentiates it from the other two majors, and it lures a group of customers who are willing to pay a minimum of $75 a month for service at a time when most Softbank customers are paying half that.
It's not clear how DoCoMo squandered its chance to sell the iPhone. Months ago, DoCoMo confirmed that its then-chief exec, Masao Nakamura, had made several trips to Cupertino, Calif., in an attempt to court Steve Jobs. Then, inexplicably, in early June, Softbank announced that it had signed a deal with Apple to offer the iPhone. DoCoMo watchers say the carrier’s execs likely lost out because they tried to get Apple to agree to DoCoMo-branded services so the carrier would be guaranteed the right to offer services to iPhone users. To outmaneuver its rival, Softbank seems to have agreed to all of Jobs's demands. Yet Son is clever enough to have found a way to promote his other properties: Softbank has loaded the iPhone with a virtual button that zips you straight to the homepage of Yahoo Japan, which is owned by Softbank and is this country's most popular Web portal site.