DoCoMo & Google Case Questions

1) Is DoCoMo wise to offer its existing mobile phone rivals access to FeliCa?
It certainly is a wise idea for DoCoMo to offer its existing mobile phone rivals access to FeliCa. DoCoMo has a 38% equity in FeliCa Networks. Firstly, to begin with FeliCa Networks had three sources of revenue: (i) Collect license fees from carriers that purchased mobile FeliCa chips with DoCoMo being exempt. (ii) Provide platform management services. Users downloaded applications into a 5-kilobyte memory area. FeliCa Networks managed the memory area and served encryption keys needed to activate the application. (iii) FeliCa Networks could provide application providers with a range of hosted services such as managing the servers used to download applications or to authenticate users. For most such services, FeliCa Networks would collect transaction fees.

‘DoCoMo’s equity stake in FeliCa Networks was a potential source of both profits and competitive advantage.’

Therefore, the more the number of carriers of FeliCa technology the more revenue for FeliCa Networks. This means Do Como will benefit more from the three sources of revenue.

Secondly, given the rapid replacement rate (as cited in the case) for mobile phones in Japan, FeliCa could become a de facto standard or a preferred platform and could soon be built into 80 million handsets. By making FeliCa a defacto standard DoCoMo could create positive network effects. Although rivals will have access to the FeliCa technology, applications in those handsets must be activated through FeliCa Networks and rivals must license technology from FeliCa Networks. This implies that DoCoMo has considerable power over rivals because of its 38% stake in the company and might become profitable.

Thirdly and most importantly, although it offered rivals access to FeliCa technology DoCoMo differentiated itself from competition through its exclusive upper level services such as loyalty-points program. Initially, when FeliCa mobile phone was launched DoCoMo partnered with Asano SuperMarket and offered a loyalty program, which provided a 5% discount to customers who made cashless payments using FeliCa. Another way it differentiated from rivals was by promoting the user of eMoney on FeliCa phones in different ways. One way was to continue its support for Edy and the installation of Edy-exclusive readers. Payment services appeared to be especially promising for DoCoMo. FeliCa technology was already used for electronic money, that is, digitally stored value that could be used like cash and replenished. With eMoney, it became easy for users to make payments especially in locations where speed was important.

Fourthly, as a major shareholder DoCoMo always has the competitive advantage to learn about new mobile FeliCa applications before its rivals. This provides launch time advantages and a head start in the market. Therefore, by offering the FeliCa technology to rivals DoCoMo has made a smart move. Although it has invited competition in the mobile FeliCa market, it has gained competitive advantage by being the ‘first mover’, differentiating itself through it’s exclusive features and has increased its profit potential by increasing the number of FeliCa carriers. DoCoMo’s decision has worked out to its benefit.

2) Is search a winner-take-all business?
I agree with the statement that understanding whether a new-networked market is likely to be served by a single platform or by rival platforms is crucial when formulating entry strategies. However, I don’t think Search is a winner-take-all (WTA) business. Because in a WTA business, competition is fierce and losers face extinction (as cited in the case). At the end there is a single platform provider. But in today’s world this is not the case yet. Like Google, there are many search engines, such as Yahoo and MSN. Although Google is considered as one of the most frequently used search engines, it is not a WTA because the ‘Homing’ costs are low. In other words, it not expensive for a network user to affiliate with multiple platforms other than Google. However, if it is expensive then they will be inclined to use a single platform provider.

Secondly, ‘Switching’ costs are lower or close to none in most cases. There is absolutely no cost to search neither on Google nor on any other sites. I also think some amount of marketing and brand name / perception plays a role here. For example, if I want to search a recipe or some information the first site I will access will be Google. I may access Yahoo and or MSN as well. I think the vast amount of information on Google attracts many users. But it does not deter them to visit other sites, which clearly validates that Search is not a ‘Winner take all’ business.

Thirdly, Network effects are also another reason why Search is not a winner-take-all business. Google offers several networking capabilities such as Gmail, Picasa Webalbums, and Gtalk. Likewise, Yahoo offers Yahoo mail, messenger and MSN offers Hotmail and messenger services. Therefore, users can continue to use these services even if they switch providers.

In order for Search to be a winner-take-all business it should become a single platform, which is not the case right now.