Kouji Ohboshi is a worried man. It‘s early 1999, and NTT DoCoMo‘s Chairman is anxiously waiting to hear how the press conference for i-mode – his company‘s new mobile Internet system – has fared. He has every reason to be nervous. Although DoCoMo is a leader in the Japanese mobile industry, the market is showing signs of saturation and Ohboshi has gambled a large stake of his company‘s future on the development of the new system. The report arrives and his worst fears are realized: the press conference was a debacle. The launch of i-mode couldn‘t have gone worse. With only seven reporters attending, imode‘s extravagant debut had fallen on deaf ears. Those journalists present were among Japan‘s least charitable. With the Internet boom waning, reporters were more skeptical than ever. Mobile Internet services had failed elsewhere so why should they work in Japan? Why not wait, like everyone else, for the third generation (3G) global wireless Internet protocol? Ohboshi knew that unfavorable or – worse – weak press coverage in Japan‘s trend-driven mobile phone market could spell disaster. Had he made the wrong decision to shift the company‘s strategic focus? Were his skeptical colleagues at DoCoMo right? What Ohboshi didn‘t know at the time was that in the weeks to come, i-mode would become an explosive success. Like the Walkman and Gameboy that preceded it, i-mode was to be more than simply a commercial success - it became a phenomenon. What explains this amazing success in Japan? How did DoCoMo turn a highly competitive industry with declining growth potential into an attractive business opportunity?
NTT DoCoMo’s Troubled Birth
NTT DoCoMo was formed in 1992 as part of a partial government break-up of the powerful Nippon Telephone and Telegraph (NTT) telecom monopoly. Formerly NTT‘s mobile phone unit, it was cast from the nest to take over wireless communications sales and operations as an independent enterprise. Kouji Ohboshi, an energetic 60-year-old, was the first CEO of a company whose name DoCoMo is both a play on the Japanese word for ―anywhere‖ and an abbreviation of ‗Do Communications over the Mobile network.‘ From the start, Ohboshi realized that DoCoMo had a tough road ahead. The mobile phone market was over-regulated, transmission quality was poor, subscription fees were costly and mobiles were heavy. Moreover, there was a palpable sense that the market had reached a plateau (Exhibit 1). Japan‘s economic bubble had burst and businesses had cut back mobile phone purchases. To add insult to injury, tough new government rules forbade the fledgling DoCoMo to ask NTT for financial assistance. By the end of its first year DoCoMo was saddled with a ―10 billion yen loss ... and bankruptcy was a serious threat.‖ Faced with a looming crisis, Ohboshi went for broke, setting out to expand the market by bringing cellular phones to the masses. And he did so with a vengeance. During the next two years, Ohboshi invested ¥50 billion – a large sum for a company making a loss – to bring DoCoMo‘s mobile network services to everyday users. His first move was to improve DoCoMo‘s network. In 1993 the company launched its new revolutionary PDC (Personal Digital Cellular) standard, bringing crystal clear calls, fewer interruptions and less background noise. Moreover, PDC helped DoCoMo use its limited allocation of radio spectrum more efficiently. Within a few months DoCoMo‘s PDC standard was adopted by competitor carriers across Japan. By December 1998, it would account for 98.7% of the
Japanese market. (Exhibit 4) Next DoCoMo slashed prices. Its high deposit was abolished in October 1993 and subscription fees were cut in 1996. By March 1999 monthly basic charges had dropped 73%, the average charge for a three-minute call on DoCoMo falling 57.6% in the same period. Once again, the rest of the industry quickly followed suit by cutting fees (Exhibit 3). The lust for market share in the mid-90s drove carriers to...