This week, I spoke at the Ad:tech International conference in Tokyo as part of a great lineup of speakers that also included McCann and Unilever. Japan has historically been on the forefront of mobile innovation, but new competition from other Asian and global markets has emerged over the past decade. Is the ecosystem of innovation going to return to Japan?
I presented Verto Analytics data that looks at the current state of affairs in Japan’s mobile device and content ecosystem, and offered our predictions for how that market will change in 2017 and beyond. What follows is a snapshot of the data I presented; please contact us if you’re interested in a copy of the full presentation.
A Brief History of the Mobile Internet
For many in the wireless industry, the late 90s were a critical moment for the mobile internet: as Nokia was exploring the market viability of color screen phones, the Japanese carriers, led by NTT, were already bringing innovative mobile devices to the market. Meanwhile, Apple was on the brink of bankruptcy and Google was still developing its now-famous search engine based advertising models. The launch of NTT DoCoMo’s iMode in 1999 is still referred to as the one of the most significant kick-off moments for the mobile internet. For the first time ever, mobile devices in Japan had the capability to connect to the internet, work with IP-based protocols, and run Java code and thus downloadable apps. In fact, the Japanese quickly adopted these devices and the new types of content that were now available, from games and weather forecasts, to email and news.
While the late 90s were a significant time of open internet-based innovation globally, the Japanese ecosystem was actually very closed, largely due to the fact that Japanese carriers (specifically NTT) controlled the whole stack, from network connectivity to apps. They defined the devices and protocols, and they operated the ecosystem in which publishers were able to monetize their content. They also charged their commission, taking a cut of each Japanese yen spent on mobile content. However, the Japanese ecosystem, as innovative it was, was never able to succeed abroad. The Japanese carriers were not able to export their concept overseas: Japan’s iMode, despite all of its content and the consequent user behaviors it helped create, never gained traction outside Japan.
As a result, innovation started shifting to other countries at the start of the twenty-first century. RIM cornered the enterprise market with its iconic Blackberry devices. Finland’s Nokia introduced the Symbian smartphone ecosystem for consumers, with great success and widespread adoption across Europe and Asia. Nokia’s line of N- and E-series smartphones included the world’s first-ever email communicator and dominated global smartphone sales from 1998 to 2008. According to Anssi Vanjoki, Nokia’s former head of multimedia and smartphone business units, Nokia at that time became the world’s biggest mobile phone, camera, portable media player, and gaming device manufacturer – all concurrently.
But, of course, the rest is history: Apple introduced the iPhone in 2007 and revolutionized how people engage with digital devices, creating a new paradigm for user experience and inventing the app store and underlying business models. Google, meanwhile, acquired the developer of a Linux-based mobile operating system called Android and subsequently became the operator of the most widely used operating system in the world. As Apple and Google launched their incredible rises to success, RIM and Nokia both suffered heavy losses to their device sales and market share and eventually went out of business.
Throughout the early 2000s, Japan’s mobile market remained independent, though isolated: local device vendors from Panasonic to Mitsubishi still manufactured Japanese color-screen mobile devices, based on strict specifications from carriers. Even as the iPhone rapidly rose in popularity in the U.S. and European markets, the local Japanese market resisted the introduction of iOS or Android-based smartphones. Finally, in June 2008, (more than a year and a half after the iPhone was originally introduced) Softbank (which went on to become one of the rare Japanese deal-making international internet powerhouses) brought the iPhone to Japan.
The Japanese Mobile Internet Ecosystem Today
Even though the Android and iOS mobile ecosystems both enjoy strong adoption in Japan today, the legacy of Japanese feature phones is still clear. As seen in the above chart, modern smartphones and tablets (running Android or iOS) have high penetration in Japan – 54 million Japanese adults (ages 18+) currently use Android or iOS smartphones, and 24 million use tablets running one of those platforms.
However, when comparing relative incidence (how many people out of the total Japanese online user base are using these devices), it is clear that Japan still lags behind China and India, with only 58% of the Japanese adult population using modern smartphones and 26% using tablets monthly. But the numbers here can be misleading: many of the remaining users are still active mobile users who are simply using older Japanese features phones, many of which have equivalent capabilities to Android or iOS-equipped smartphones. These devices, and the ecosystems therein, are just very different from those available in American and European markets.
Today, Japanese companies are back in the tech headlines, both at home and abroad. Line, which ranks as the fourth most popular Japanese app in Verto’s latest results, just launched the year’s most successful IPO. And Softbank, the company that introduced the iPhone to the Japanese market, has made several recent high-profile acquisitions and continues to introduce new features to the mobile world.
I have to admit, whenever I land in Tokyo, I still have the same thought as I originally had 10 years ago: experiencing Japanese mobile behavior is like looking two to three years into the future of the Western mobile Internet. I first got to use my mobile phone to issue a mobile payment in Japan. Likewise, I have seen people using chatbots (more than 300 already listed in Japan and counting) or group messaging countless times over the past couple of years, well before they became commonplace in the US.
More recently, the Pokémon GO craze has been dominating headlines all summerDr. Serkan Toto announcing this week that the Japanese mobile gaming market has hit already nine billion dollars – probably the biggest mobile gaming market today.
Japan is still clearly still innovating in the mobile sphere. However, these innovations and successes have largely remained isolated to the domestic market, with less success abroad. Will players like Softbank, Nintendo, Pokemon, NTT, Sony, or even Yahoo Japan, be able to change this in the future?
From my perspective, the most promising entry point is the app marketplace. In today’s app-centric world, Japan is on the forefront of innovation, with apps like Line introducing new features and ways for people to interact and transact in today’s digital economy. The Japanese app market has already proven to be several years ahead of its Western competitors in terms of innovation and adoption – the real challenge is whether Japanese companies can leverage this lead before other rivals – from the US, Europe, and, increasingly, other Asian markets – get there first.
Interested in learning more about our data about mobile markets? Click here to request a copy of the full presentation from Ad:Tech Tokyo.