iPhone turns corner in Japan

By Terrie Lloyd

An interesting thing seems to be happening in the Japanese cell phone market. Smart phones (think Apple’s iPhone) are enjoying a rapid surge in user numbers, even as cell phone shipments overall dropped last year (FY2008) a big 31% to 35.85 million units. The smart phone segment is estimated by the Japan Electronics and Information Technology Industries Association (JEITIA) to have grown a whopping 79% to 1.97 million units last year. This number is expected to increase to 3.29 million units a year by 2012.

So how much of this growth is iPhone related? Neither Apple nor Softbank offer shipment numbers, but anecdotally, it looks like the iPhone is unnerving DoCoMo and so clearly it must be becoming a threat. At that same time, the iPhone is clocking in at the No. 1 sales position in retail stores, as measured by companies that track in-store POS sales data—real data, not guestimates.

It wasn’t that long ago that industry followers were panning the iPhone, writing articles with titles like, “Why the Japanese Hate the iPhone.” The rumors were that after DoCoMo turned down the iPhone because Apple wanted too much control over the applications business, Softbank was the only carrier small enough to agree to take it and then only reluctantly. This reluctance was at one point seen to be justified after the initial two-month sales surge of 200,000 units tanked, and by the end of 2008 the iPhone was selling at less than half Apple’s expectations.

This was a low point for the product, and earlier on this year Softbank decided to take action by offering the iPhone for no money down, instead amortizing the cost of the handset over the term of the contract. Softbank also very significantly set a great fixed-price unlimited data plan so that the iPhone’s applications could provide maximum user experience. These two actions seem to have been the main turning point for the iPhone.

The experts had lots of reasons why the iPhone wouldn’t be successful, pointing out that the Japanese already had highly capable smart phones, and were used to using their devices as simple purpose-built tools, rather than taking a more intimidating “miniature PC” approach. Among the things the first iPhones fell down on were the lack of a built-in one-seg TV, GPS navi, poor camera quality, and no debit card or rail pass payments capability. Then, by virtue of the fact that the iPhone is a miniature PC, users couldn’t connect with popular cell phone-centric sites operated by Mixi, Gree, and DeNa.

So it seemed that Apple’s iPhone would languish from lack of willingness to localize the product to compete with domestic offerings, with the possible exception of a few foreigners who liked the cool apps they could download from overseas App Stores.

Suddenly, however, in June this year, a report by BCN, the POS data ranking service, surprised everyone by reporting that Apple’s iPhone 3G 8GB model had grabbed the No. 1 sales position over the previous 3 months, at 2,300 store outlets monitored by BCN. In second place was the iPhone 16GB model. In third spot was a domestically produced smart phone, the Aquos SH-04A, sold by DoCoMo, which apparently did well because of its better quality one-seg TV reception.

Then in mid-June, the new faster, re-tuned iPhone GS showed up, and early data from GfK indicated that the iPhone was still top of the heap in June and July. So that gives us 5 months of data putting the iPhone at No. 1, which in my book is proof positive that the iPhone is no longer a temporary phenomenon.

We are seeing a lot of iPhones on the subways and buses, almost always in the hands of young females or businessmen. From what I can tell speaking to purelyJapanese users, while the camera and some other aspects detract from the iPhone’s appeal, the simple coolness of the interface and the rapidly improving selection and quality of the music and games make the iPhone highly desirable.

Also, although Softbank isn’t saying it, it appears that the iPhone is starting to make a contribution to the company’s bottom line as well. In the April-June period, Softbank saw a 20% increase in its overall corporate profitability. There is no indication of what the iPhone contributed to this, but it does appear that the flat rate communications plans (of which iPhone owners are major users) of 6,000 yen/month, are pumping lots of yen into the company coffers.

So what does the future hold for iPhone? I have heard on the grapevine that DoCoMo is quite concerned about the surge in iPhone sales and is pushing to move its Android alliance up and in front. My take is that they may have left things too late. Word-of-mouth promotion by young iPhone early adopters seems to be winning over their friends in droves, and the coolness factor is spreading. These early users are doing Softbank’s marketing work for them and are helping to prepare their friends for both the negatives as well as the positives of the device.

As a result, I believe that Apple and Softbank may have broken through the market acceptance barrier. Now, if they can move quickly and do something about improving the camera quality (guys, 10 megapixels is the minimum we should be seeing on the iPhone), payment systems, and built-in one-seg TV, then sales should climb through the roof.

Terrie Lloyd writes a weekly newsletter for entrepreneurs and business people about business and political opportunities in Japan.

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Latest 15 of 34 Total Comments Show All

888naff at 06:09 AM JST - 6th September

article starts with "Smart phones (think Apple’s iPhone)"

mmm..shall i read any more?...smart phoines were around way before the iphone and even now the iphone can only claim to makes up a tiny % of the smartphone market worldwide whatever the fanfare

... shall i read the rest of the article?... maybe later.
helloklitty at 10:32 AM JST - 6th September

Are Japanese slow adopters?
gogogo at 12:38 PM JST - 6th September

I dont give a crap about the camera in phones, I have never seen a camera phone take a good photo until it was in a super super lite up place. The only phone cameras that take really good photos are virtually cameras with a phone attached to it. So screw that I would just carry a phone and a camera its much better. I don't want to pay for 10 megapixel camera it would raise the price of the phone by so much.

There is a reason apple doesn't use the latest tech, they want to sell more units, ALL apple products are unpowered, they do it for a reason. Push more units and get the fans to say "wait until xx comes out" it will be the best.
elzey02 at 01:11 PM JST - 6th September

I like my blackberry!!!
Beelzebub at 09:37 PM JST - 6th September

Mobile communications devices are the equivalent of teething rings for adults.
DeepAir65 at 10:08 PM JST - 6th September

I have owned at least two phones that are 1 seg capable and never used it.

Best thing about my iphone is that I can listen to my music on my bluetooth head phones and it will interrupt the play so I can take a call. When I end the call the music starts again - fantastic!

The problem with the iPhone in Japan is not the product but the carrier. I wanted to go with the Android phone but was over-ruled by the misses as all her friends are on softbank so calls would be cheaper
DeepAir65 at 10:09 PM JST - 6th September

oh yes and there are loads of blackberries in Japan - you see them all over the place, open your eyes
Jaegger at 10:18 PM JST - 6th September

I-Phone is nice, but I need also: - a real cellular phone - a real digital camera - a real MP3 player - a real laptop

Uh, I don't need the I-Phone any more!
flammenwerfer at 11:59 PM JST - 6th September

Android rocks: Google and the Open Handset Alliance-v- Apple. The OHA and android is going to win this battle. The iphone is a great "niche" phone nonetheless.

As far as one seg, felica go and it that local crap for phones go - as soon as Docomo have that on an android phone with I-mode, they will kill the minnow that is softbank. And docomos android phone has a loop for a strap ;-)

Open Handset Alliance, a consortium of several companies which include Texas Instruments, Broadcom Corporation, Google, HTC, Intel, LG, Marvell Technology Group, Motorola, Nvidia, Qualcomm, Samsung Electronics, Sprint Nextel and T-Mobile, Docomo, Softbank*, Sony Ericsson, Toshiba Corp, Vodafone Group, Acer, Garmin and others.

Even Softbank are in on it, they have their foot in both camps as they have seen the writing on the wall. Watch for softbank phones with android soon.
JeffLee at 06:18 AM JST - 7th September

writing articles with titles like, “Why the Japanese Hate the iPhone.”

This is a regular pattern in Japan, after a foreign consumer technology makes inroads in the Japanese market. After Windows 95's introduction, I recall articles along the lines of "Why the Japanese Hate Personal Computers," etc.
notimpressed at 02:21 PM JST - 7th September

Brantastic: waiting on Android to mature and for WinMo 7 to bring it;) Getting tired of having to convert my avi files and the frustration (for me personally) that is iTunes.

Best statement yet.

Right now to me, the lack of multiple language interface is a major flaw in WM regardless of what gimmicky developments they come up with to try and be "cool" like the iPhone. I played with the android handset yesterday and was stoked when it took me all of 20 seconds to change the os to English and back. Problem with that handset seems to be that its internal memory is only around 500mb. Even if you can have up to 16GB on a mini SD, that wont be any consolation as you cant yet run applications from the SD. SOmething Im sure they will get on top of eventually.

Also, so far, one annoyance of both the iPhone and the HTC Magic, is the capacitive screens. Resistive screens can actually do everything a capacitive can with the right software behind it, but a capacitive is not made for handwriting recognition. Try writing all that kanji with your finger on one of those screens and you will understand. Having onscreen keyboard only is a drawback if you wanted to search a kanji definition, by writing it down. If you dont know the kanji, you cant type it out in kana and convert it. In fact, I like that resistive screens can be used with any object including your finger. With the latest technology on them, you can use a paintbrush on it if you so desired, in addition to multi-touch( if Appple didnt block every other company out with thier copywrite litigation)

ahh, what to do? my 2 year contract is up, and I have to choose between iPhone, WM, and android, which all have thier drawbacks, but its pointless to wait for them to combine all the good features on one device. At the moment, in my mind, I would either have to go iPhone just because its free up front, (it could take its gimmicky gadgetry and stick it otherwise), or the android thanks to its open development ethos, and non regionlisation of anything ( itunes store etc ) sigh. Maybe I should just do anything in direct opposition to apple fanbois...god forbid I become one.
societymike at 02:18 PM JST - 8th September

notimpressed, you can get the Android HTC-03a? phone for free up front now as well and you can expand on-board memory using the mini-micro SD card. Everything is much easier to modify and work on the Android then my iPhone. The touch screen keyboard seems a bit more accurate on the Android as well. I'm about the ditch the iPhone, for a new Android hand set, as I despise itunes and the lack of Japan friendly features on my iPhone.
notimpressed at 02:09 PM JST - 9th September

societymike, its actually 18,000 odd yen up front, while in début mode, then goes up in price after October. I know you can expand the memory with SD card, but that is like external memory, the internal memory of the phone itself is only 512mb of flash memory, a lot of people have had trouble with filling that up, as you cant install new apps to the SD.The SD may be onboard, but it is still separate from system memory. Oh and the HT-03A is the same as the HTC hero, re-branded for docomo.
inakaRob at 01:02 PM JST - 10th September

i cant get one... soft bank is always out of stock. I went into the store the first day of their new iphone speical... oh so sorry. they are on back order. is this becuase i am a gaijin or you just like people to think you have awesome deals on phones you cant acutlly provide. well.. they have until the end of September until their deal is up, and I switch to AU and get their new SPORTIO water proof touch screen phone (with a built pedometor) oh yeah... counting my steps to the store.
notimpressed at 04:54 PM JST - 10th September

good point, why release something you don't have in store? Especially stupid considering that people have a limited window of opportunity when changing company.