i-mode: the beginning of the end
i-mode, once the mobile industry’s role model for data services has been dealt with three swift blows in July from O2, KPN and Telstra. The implications of these announcements have been much debated, some industry pundits arguing that i-mode is fading in Europe, some hinting at the end of the i-mode alliance and some arguing that i-mode isn’t dead yet.
Lack of economies of scale in handset development and purchasing has been the root cause for the gradual demise of DoCoMo’s i-mode global expansion plans. But even if this is the beginning of the end, I suspect DoCoMo has new expansion plans. Let’s take things from the top.
Made in Japan
i-mode is perhaps the most succesful data services model, a success which many operators have tried to mimic over the years. i-mode was launched in February 1999 by DoCoMo and reached more than 47 million subscribers (an impressive 90% of the subs base) as of March 2007, based on DoCoMo’s financial report (.PDF). Since 2002 i-mode has been gradually exported to 17 EMEA countries reaching 7.2 million subscribers according to DoCoMo’s website. The next table summarises the countries where i-mode has been deployed (source: DoCoMo).
The beginning of the end for the i-mode alliance
Despite the success of i-mode in Japan, the i-mode alliance has not done done as well as DoCoMo would have liked. While in Japan service penetration exceeds 90% of the subscriber base, in the remaining 17 countries service penetration is typically less than 5% (an average of 3% in 2005 according to i-mode business strategy). The only exception is Bougues Telecom who had 1.6 million subs or just under 20% penetration as the operator reported in September 2006.
In July three operators announced separately that they would be discontinuing their i-mode service, dealing a blow to the success of the i-mode alliance. KPN announced it would not source any more i-mode handsets. Australian operator Telstra said on its website it would stop the i-mode service on December 2007. O2 UK said it would phase out its i-mode service by mid-2009.
Interestingly, O2’s i-mode was reportedly used by only 250,000 subsribers in the UK, or less than 1.5% of the subs base. This is particularly bad for O2 UK since the operator had reported that i-mode users consume twice as much data per month as they do on comparable WAP services. Note that O2 in 2004 had abandoned plans to rollout i-mode services in Germany.
The failings of the i-mode alliance
The reasons that have led to the demise of the i-mode global expansion plans are several:
1. Firstly, the gamut of handsets supporting i-mode is extremely limited. In the case of O2 UK, according to David Nicholas, the head of communications for O2 in Europe, the operator offers only 12 phone models with i-mode but more than 240 with conventional Internet browsers. The case of Cosmote Greece is very similar; on the operator’s website there are currently 13 i-mode devices on offer (from LG, Motorola, Sagem, Samsung and Sony Ericsson) from a total of 203 devices available on contract (a tiny 6%).
These examples are the rule in i-mode alliance deployments. The reason for this lack of handsets is that i-mode operators have each produced different specifications for their handsets, breaking the economies of scale that could have been reaped (as the alliance had tried with a procurement agreement with LG according to Informa – sub required). Furthermore, i-mode handsets released in Japan carry more advanced software – DoJa 4.0 specification instead of the DoJa 2.5 used in i-mode handsets outside Japan – meaning that i-mode handsets cannot be simply exported. Perhaps more importantly, handset OEMs have resisted releasing handsets where they have no control over service delivery (and monetisation) – the reason for Nokia’s absense from the list of i-mode handset OEMs.
2. The development and release of an i-mode handset takes anywhere from 6-18 months according to a presentation by Bouygues Telecom in September 2006 at the MAPOS conference. Due to the small ordering quantities, handset OEMs cannot prioritise handsets which are i-mode variants, thereby creating an agonising delay in bringing i-mode handsets to market. The first weeks of a handset launch are absolutely critical to sales performance – handsets sell mostly when they are new and cool, after which sales rapidly decline – thereby hurting i-mode subscription growth. Lack of economies of scale is therefore to blaim again.
3. The rev share has deterred some operators (particularly US operators) from deploying i-mode services. O2 offered a 86/14 revenue split while Telstra offered an 85/15 split – both close to DoCoMo s 91/9 split in Japan, but much less interesting for operators compared to premium SMS revenue splits (typically 40/60 in favour of the operator).
4. The investments in the i-mode portal compete with operator investments in other service portals, including SMS, WAP, HTML and HTML transcoding portals. Given that i-mode content provider deals have been local and not pooled within the i-mode alliance, the lack of economies of scale are again to blaim. This is even more so given that supporting third parties with cHTML content development and non-WAP portals require operator investment.
i-mode 2.0 ?
The i-mode alliance is bound to fail eventually without economies of scale, particularly at a time when operator strategies are geared towards opening the mobile phone to the entire internet and not to a ‘sticky’ garden. So what are DoCoMo’s plans for global expansion now ?
In June 2006 DoCoMo established the LiMo foundation with co-founders Vodafone, Motorola, Samsung, NEC and Panasonic – since August more software and equipment vendors have joined, including LG. The purpose of LiMo is to define a complete handset software stack which will support advanced data services. The Linux-based stack will be co-owned and co-developed by LiMo members and will launch in phones towards the end of 2008 (or more likely early 2009).
I believe that in LiMo DoCoMo sees a new export strategy for mobile data services, based on a common data services enabling software. Given that Motorola and Samsung are on board, economies of scale will be easier to achieve in most markets. Moreover, the base software stack and over-the-air software management will allow easier development and launch of i-mode variant handsets by major OEMs.
Is this part of the plans for an i-mode 2.0 ? I believe so.
[update: Informa s Mobile Communications Europe magazine reported in early August that there were just 5.2 million i-mode subscribers outside Japan at the end of Q1 2007, more than five years after operators began launching in early 2002; these figures are 2m subscribers less than the figure reported by DoCoMo at its i-mode alliance website. Informa s figures put i-mode subs to just 3.5% of customers of operators offering the service.
Bouygues Telecom has by far been the main exception to the rule, having the highest penetration of customers with an i-mode handset (20.6% of 8.7 million users). However, Informa reports that only half of these subscribers (about 10% of the subs base) are active users of the i-mode service.]