Value Innovation at Docomo

Case 1^[a]: Value Innovation at DoCoMo

1231.3635.01 – Strategic Innovation

Lecturer : Dr. Uriel Stettner

Value Creation for customers of DoCoMo

Introduction of the revolutionary Personal Digital Cellular (PDC) initiated a process of long term value creation for DoCoMo’s customers by providing benefits like lesser background noise and reduced interruption for voice calls, and later went on to become an industry standard. Subsequently the company decided to abolish the deposit fee and lower subscription fees, which resulted in the whole market slashing basic monthly charges. Due to its stable manufacturer relationships, DoCoMo was able to convince them to focus on producing lighter and smaller handsets with longer battery life. DoCoMo decided to expand the market by attracting new customers, at a time when internet was still not seen as an important add-on for the mobile phone industry. This foresight took the company a long way forward and formed the foundation for its entire offering of i-Mode services^[b].

For the first time in the history of telecom companies an ‘Internet Worldview’ was adopted, which required DoCoMo to work together hand-in-hand with other industry players like information providers to increase the content - and subsequently the users^[c]. On the technical side, DoCoMo was forward-looking enough to combine PC Internet and mobile technology to create additional value for its customers. It used Hypertext Programming Language similar to PC (c-HTML) instead of more complicated alternatives like HDML that was used by its competitors. This made it easier for content providers to join their model without having to change existing standards. Additionally, a higher number of third party content providers could be on boarded onto the platform and by charging the content providers 9% commission fees^[d], DoCoMo incentivized them to provide high quality content without additional costs for the end customers.

A combination of these aforementioned factors helped DoCoMo gain the status of market leaders, and created substantial value for its customers through innovation. ^[e]

A new value curve for a new buyer utility

The value curves of i-mode, mobile phone and the PC-Internet differ significantly in certain aspects but are congruent in others as well. Exhibit 1 displays the different value curves with regard to the values depicted by us as most crucial.

As the PC-Internet is physically limited, the value curve naturally differs more from the ones of the portable devices. Thus, the PC-Internet is comparatively inferior due to its immobility and the high acquisition costs^[f]. Even though, the usage costs are comparatively lower. Accordingly, comparing the value curves of the two portable solutions will allow more insights about the value created by the i-mode concept. The content which can theoretically be accessed with regular mobile phones and i-mode is similar even though there is some content especially tailored for i-mode. Both are identically mobile due to their physical body. However, the acquisition and usage costs for the i-mode are slightly higher as the i-mode solution is reflected by a mark-up in the price structure.

The most striking difference can be observed in usability and complexity, which are both closely linked to the value newly created through i-mode: the interface. The interface^[g] is significantly reducing the complexity while browsing the web and consuming online services. It is arguable if the complexity is just reduced or completely eliminated from a customer perspective. Nevertheless, the usability is rising accordingly. But how exactly does i-mode create new buyer utility^[h]?

By pooling the different user demands like entertainment, information, transaction and database services in one interface, a new level of convenience in accessing mobile online services was established. ^[i]Through i-mode, the access to a combination of preselected and easy-to-navigate 3rd party content was eased, providing structure without restricting freedom of choice. Furthermore, i-mode was pioneering in bridging the digital and physical world by enabling M2M communications to purchase soft drinks from vending machines. However, the key to value creation was the combined billing system^[j], reducing complexity in using the newly established features. Hence, it was the balance between facilitating capabilities and at the same time consolidating liabilities, which created new buyer utility.

i-mode’s business model and revenue streams

While in the following we focus on some of the more relevant parts of the model, an overview of the full Business Model Canvas can be found in exhibit 2.

i-mode´s value proposition was to give their customers an easy access to bundled information^[k], through a unique platform gathering services from diverse content providers. Content providers can be considered as one of the customer segments since they were charged a 9% fee for using the platform^[l]. Primarily, i-mode was targeting a wide range of B2C customers owning a handheld device and early adopters and/or power users of the Internet; businessmen, mobile gaming enthusiasts and music lovers were some of the target groups. Since customers used i-mode merely as a gateway to the content they actually wanted to access, DoCoMo couldn’t build strong connections to its end customers^[m]. i-mode capitalized on the advantage of being supported by NTT’s key resources - whether it be massive R&D, financial assets, technical infrastructure or human capital - to develop their strategy to differentiate themselves from other telecommunications operators.