Android in Japan - Levi Shapiro - MediaBizBloggers

The iPhone zooms to #1. Competitors react to declining market share and diminishing ARPU (Average Revenue per User) by embracing Android. Sound familiar? Actually, this is not the U.S. but Japan. Market leader NTT Docomo, which turned down the iPhone three years ago, is now saying "Konnichi Wa" to Android. Their approach is providing a rare opportunity for Western content companies to penetrate the Japanese market and may be a roadmap for other carriers.

Android, the mobile operating system (OS) from Google, is on a tear. Because it is free and open source, there are now 24 different Android devices available from 61 operators in 49 countries. Last month, Google CEO Eric Schmidt announced that Android is selling 60,000 handsets every DAY. At that rate, and if Google continues to double sales every quarter, we can expect to see 25 million Android handsets this year. Most of this market share expansion is at the expense of Windows Mobile.

Operating System		Global Market Share (%)
Symbian		43.2
RIM Blackberry		19.9
Apple		16.1
Android		8.3
Microsoft		6.8
LiMo		4.0
Linux Others		0.2
Others		1.6

Source: Strategy Analytics

In many ways, Japan represents a potential future scenario for other countries. The mobile sector is saturated, with net additions growing at 3% per year. Docomo controls 50% of the market; KDDI 28%; and Softbank (acquired from Vodafone in 2006), parlayed its iPhone exclusive to capture 19% of the market. Half of Japanese customers pay for unlimited data plans (compared to only 25% in the U.S.) and more than 90% use the high-speed, 3G network. In fact, Docomo is the world champion in data revenue, with over $16 billion in data revenue last year (Chetan Sharma Consulting). In addition, last year Softbank became the first major operator (outside of the Philippines) to earn more revenue from data services than voice.

This does not mean the transition to dumb-pipe has been all cherry blossoms and enka music for the Japanese wireless carriers. Willcom, the small operator that started the unlimited flat-rate phenomenon, filed for bankruptcy last month. At Docomo, aggregate ARPU for FY 2009 plummeted 6.5% and market share sunk an alarming 1.1%. Throw in a good old fashioned price war (led by Softbank) and the need for innovation becomes clear.

Docomo has chosen to innovate through Android. To stimulate an ecosystem of world-class Android applications, last month Docomo hosted an Android Developers Workshop in Palo Alto, which I attended and helped organize. The event united Docomo's top technical brass with leading mobile content and application developers like Getty Images, Reuters, MySpace, Foursquare, Shazam and 15 others.

At the workshop, Minoru Etoh, Managing Director of Docomo's Service and Solution Development Department, promised support for Western developers and a slice of Docomo's annual $1 billion R&D budget. This support includes the following:

Linguistic translation
Application porting
Adaptation for Japanese culture
QA testing
Introductions to experts for "Japanization" of applications
Operator specific API's in Q3 2010

According to Mr. Etoh, "So far Android in Japan has been calm. Though I believe we will see another avalanche to Smartphones, when looking at the U.S. Smartphone market share (i.e., 30%) and popularity of iPhone among the innovator segment (urban, 20-30 year olds). To prepare a new ecosystem with Android, Docomo is supporting the Android developer community. Our support includes network API's, operator charging systems, localization, and federation of developers."

Etoh's view aligns with forecasts from research firm Infinita that Smartphone penetration in Japan will double from 15% to 30% in the next two years. In this scenario, Android attains 5 million cumulative sales by 2011, catching up to iPhone, which has already sold more than 2 million units. The process kicks into high gear next month with the world launch of the Sony Ericsson Xperia X10 on Docomo.

Google launched support in Japan for paid Android applications in October, 2009. However, only a handful of the 30,000 Android applications have been ported to Japanese. A Google spokesperson chose to view this particular sake cup as half full, saying "Japan has been a strong source of applications on the Android Market and we're excited to see continued innovation and Android development from Japan." Docomo recognizes that a robust ecosystem of world-class applications will not occur without proactive support from the carriers.

International Android developer outreach efforts are being coordinated by Docomo USA President Masaaki Maeda and Adrian Van Meerbeeck, VP Research & Strategy. Maeda emphasizes that "In addition to promoting Docomo's Android strategy in Japan, we have put in place resources and are actively cooperating with local developers to make their Japan launch successful. We plan to hold our second Android Developers Workshop in New York in June."

One developer working toward implementation with Docomo is Israeli mobile start-up Waze. DiAnn Eisnor, VP Community Geographer for the crowd-sourced, ad-supported, community navigation tool, says "we're thrilled to be part of a partnership with Docomo -- a large company partnering with the disruptive start-up to break new ground, new revenue opportunities and new business models."

Scott Goldberg, Director of Mobile Business Development for MySpace, sees Android as a means to gain ground on #1 Japanese social network Mixi. "Android is such a flexible platform and provides so many cool features... things like desktop widgets, live wallpapers, quick search box, etc. You can design and build a front-end on Android that comes at 1/100th the time-to-market as building your own platform. Android is perfectly tailored to small, agile developer shops and large giants like Docomo."

Of course, Docomo is not the only market for Android in Japan. Number two carrier KDDI will launch the Sharp ISO1 mobile internet device (MID) in June and link their "Au One Market" to the Google Android Market. Integration to KDDI's billing platform will begin in late August. Number three player Softbank will also launch the HTC Android smartphone "Desire" later this month.

Combined, these efforts may create the critical mass needed to support an advertising-based revenue model. Google is betting that giving away its operating system for free to carriers and handset manufacturers will create the user-base needed to expand the Japanese mobile advertising industry beyond the $800 million it generated in 2009.

Mike Dehm is Vice President of Mobile Business Development for Thomson Reuters. "I personally believe there is room in the Japanese market for multiple business models, including advertising. Although you need a large audience for advertisers to be interested, we have shown you can make money long before 10M users. In fact, even within one application you can look at multiple business models."

Android represents a rare opportunity for Western content owners in the Land of the Rising Sun. Savvy developers should seriously consider support programs from Docomo and other carriers. This could be your chance to become "Big in Japan."

Levi Shapiro is a Partner at TMT Strategic Advisors, a research and strategy firm focusing on the technology, media and telecom sectors. He can be reached at levi.shapiro@tmtstrat.com or via twitter: @levshapiro

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