Japan Mobile internet Research serial three: SoftBank successful business logic

"Guide" soft silver in the end is a what kind of company? Mobile operators, investment companies, or a software company? 21st Century Economic Report senior journalist @ Zeng Hang dialogue on soft silver research for many years, Japan-Hing Securities senior researcher Seng True division, for you to solve the mystery.

Source: Micro-letter public number "mobile Watch", Author: Zeng Ai (i, Black Horse net columnist)

First, explain the problem diagram. This is SoftBank a few years ago in Japan launched an advertisement, soft silver shaped a family called "White Family", father is the picture of the Hokkaido dog, mother is a typical Japanese housewife, brother is a black, sister is a beautiful Japanese girl.

In all of SoftBank's ads, the white Hokkaido dog is almost always there, and the reason why a white dog is the father of a Japanese family is a matter of opinions in Japan.

So there are all kinds of conjectures. Well-meaning, malicious, pan-politicized, etc. Of course the shrewd son won't say why. Just say the dog is dad. The most interesting is the explanation of some right-wing elements in Japan.

Japan's right-wing view, son is Korean Japanese, "dog" in the eyes of South Koreans are relatively low animals, said who is the dog is the curse of nature. So some Japanese people say son through this advertisement will scold the Japanese miserably. Not even a dog, but a son of a bitch.

But ordinary Japanese do not have this concept. Think the dog is very cute, is a member of the family. Plus the Japanese don't resent the cute puppy. It makes the dog especially famous.

It's just a microcosm of son's marketing in Japan. Son is very good at marketing, he always can hide soft silver weakness, enlarge its advantage. Son's 0-dollar phone call in Japan was criticized by its rival, NTT DoCoMo and KDDI, as being too deceptive to be stopped in Japan, but with great effect.

What kind of company is SoftBank? Is it a mobile operator, an investment firm or, like its name, a software company?

Unlike other Japanese carriers, SoftBank rarely thinks about what it has, but prefers what consumers want. While other Japanese operators are spending a lot of money developing their handsets, SoftBank has introduced the iphone from the United States and made a big hit. Soft silver is a thought that can be seen in many other businesses of SoftBank.

In a recent trip to Tokyo with the Nomura team, Seng, a senior fellow at Japan-Hing Securities, who has been studying SoftBank for many years, has a very penetrating analysis of SoftBank's strategy in the mobile communications business over the past few years.

Here's what the interview is about.

Soft silver iphone Strategy

The author: It is widely believed in China that SoftBank's introduction of the iphone and the abandonment of its dominance of the platform is a more open model, but from another perspective, it is a pipe-type model. Do you accept this view?

Mori Real Division: I do not think the telecommunications industry from the point of view of the soft silver practices. SoftBank is not so much a communications business as a marketing company. Purely from its mobile phone business, it seems to be a communications company, but in fact, so far its business basically and the general business model is not the second.

To understand a business, understand its original business, it initially established the concept is the most accurate. SoftBank's initial business was software sales. But in fact, software is the most difficult to sell a product, because the software does not have the product form, only the actual use can really understand what it is what kind of products. So they need to consider what customer needs, how to allow customers to buy our products, how to let the product set up a good reputation and so on, from all aspects to analyze customers. In all the business, SoftBank adopted this model, as did the mobile business.

Although some people say that soft silver is the route of the pipeline, but this approach has formed the advantages of soft silver, is to do surveys around the world to grasp the needs of users in a timely manner to develop products catering to customer needs.

In contrast, Japan's NTT DoCoMo, KDDI adopted the strategy is to do their own to provide users. The problem with these two companies is that they do it within the company and their vision is limited.

So soft silver Although start late, but can striking, grow faster. SoftBank has tried to communicate before introducing the iphone. SoftBank's entry into the communications industry began six years ago in the acquisition of Vodafone Japan. At that time some media, securities companies are not optimistic about this initiative. But from the result, it is very successful.

Author: What do you think is the reason for the successful success of SoftBank's acquisition of Vodafone Japan?

Sen Line true division: The biggest reason for success is that SoftBank provides customers with new values. Until then, high quality and high prices were the only standards in Japan's communications industry, and everyone thought it deserved. SoftBank has bought a broken internet company, but it has set a very cheap price, thus attracting a large number of new users. This is a very innovative move in the communications industry, but it is very common in other industries.

That is why at the outset it was said that it was not possible to look at soft silver in terms of communications industry.

SoftBank's second innovation is SoftBank's partnership with Pantone, which introduced Pantone handsets in Japan for the first time. In the past, the communications market in Japan only high-end models to sell. The world's investors are wondering why Japan sells well only high-end machines. In fact, this is not the user's choice, but the communication operators targeted the target audience in the high-end machine users.

As a result, this is a good thing for some people who are proficient in mobile phones, but it is very annoying for ordinary users who don't need a lot of versatility. Although 0 yuan to buy a machine, but in fact, the cost of the charges. As a result, research and development costs are high and eventually passed on to consumers.

Before the Japanese model 50% cost is the terminal development cost, the global GSM model is 10%~20%, and GSM special (audio 14:35) model is 5%. But these research and development are not the user wants. At this time soft silver launched a colorful model. For ordinary users, color diversity is more popular than those that are not used.

This practice is not in fact soft silver original, in other industry is very common. For example, the development of new models, need tens of billions of yen research and development costs, want to recycle these inputs, a year is far from enough, must be six or seven years, the car companies need to continue to sell the same model. But selling the same one every year is certainly not popular with customers, offering a new color model every year. The procedure of the SoftBank is from the assumption of other industries used in the communication industry.

The iphone is also a continuation of this practice. SoftBank's iphone sales are divided into two phases. The first year as a high-end machine, sold to mobile enthusiasts, the second year began to reduce terminal prices, open up a broader market. The reason for this is that SoftBank realizes that the iphone is a touch screen and can be easily manipulated by ordinary users. The strategy is based on SoftBank's ease of operating the iphone and is the closest to the user-demand model, which continues until the year before.

The iphone's strategy in Japan has changed since last year. By the end of the year, Japan's only SoftBank sold the iphone. But since October the previous year, KDDI also made the iphone in Japan's sales power.

Before that, the iphone was a powerful differentiator between SoftBank and other carriers, and SoftBank won many users. But since the start of the year, the price of the SoftBank iphone has increased slightly, and the LTE fee system has been raised to close to the other two levels.

This is because for SoftBank, the iphone is not a differentiated monopoly, but rather a market share from other angles. In the future, if the iphone has an advantage, SoftBank will continue to work with it, but if there are other good products, there is no rule of cooperation.

When new products appear, we do not know whether the soft silver approach will change, although now known as the pipeline. But from the iphone's strategy alone, soft silver looks like a conduit. But when customers go to the business hall to buy an iphone, they may also create other opportunities.

For example, the iphone and ipad's peripheral products sell well. Mobile phone, flat membrane, protective shell profit of about 50%. Also, for example, when selling iphones, wireless photo frames are recommended. SoftBank is not really going to maximize the profits it gets from the iphone, but to maximize profits from each user.

The other is because of Yahoo's presence (SoftBank is Yahoo's investor). In fact, Yahoo and SoftBank were unrelated, but now closely linked. Although the soft silver pipeline, but in the content of this part is more substantial, but also a new profit growth point.

Author: How does SoftBank cooperate with Yahoo? If Apple adjusts the iphone's strategy, will it have an impact on SoftBank?

Mori Real Division: This business is not based on the iphone, after all, compared to Android, the iphone is a noticeable decline, and the future of Android has a lot of space, there will be useful.

While it looks like the iphone's strategy hasn't changed, it's actually fine-tuning it.

The iphone generation takes the form of a split with the carrier's communications business. But telecoms operators are resisting it. After entering the second era, it becomes a form of content folder partitioning. Once the application is completed, the cost will not increase.

So how to put it on a bigger platform is what they're going to do. The second era with the telecommunications operators have terminal sales contract, compared to an era from the tariff, this terminal division reduced the sense of conflict.

Another feature is a contract with only one operator, but the user dispersed after the cooperation with a number of operators. In addition to China Mobile, the largest operator in the world that does not work with the iphone is DoCoMo, a Japanese company. In order to conquer all operators, perhaps the iphone will open a portion of the pipeline to the operator.

The purpose of the acquisition sprint

I: The price war brought by the pipeline will not lead to soft silver profit decline?

Sen Line: First of all, I have a question, although the plumbing has become popular, but is this true? This is not the beginning of the moment. Before the iphone, DoCoMo has mode–compatible, but other operators have their own model, in fact, there is little difference. The price competition was not very fierce at that time. In other words, in the growth stage, the price war cannot hit.

Most importantly, communication operators are making new attempts. For instance, KDDI's Smartpass business. So far, the communications operators pay attention to the investment of hardware equipment, the content package is outsourced to other companies, their profits only for the generation of fees, profit margin of less than 1%. Smartpass that KDDI purchase applications, and then provide to customers, that is, after the cost of recycling, continue to earn income that becomes profit. For example, the handling fee is 10% and the profit margin is 30%-40%.

In the smartphone age, there is a greater potential for introducing this approach. The thing to consider here is what is most important in the entire business circle. The first is the fund, the second is the customer information, the third is the brand. With three elements, coupled with strong will, it is possible to succeed. The first company to import benefited most. But after a few months, other operators will launch similar businesses.

Recently, companies say the ARPU value of the data will rise 2000 yen if the smartphone is changed. The most important point is that among smartphone users, there is an increase in the number of middle and high age users. More than 10 years ago, commuters in the subway were reading the evening paper, and the nearest middle-aged and elderly users were switching to smart phones. Although the previous mobile phone has read news function, but the operation is inconvenient. The evening paper each 140-160 days, 20 days to work, about 3,000 yen expenditure.

This consumption has slowly entered the operator's mouth. The scope for operator competition will be limited to these perimeter areas. At that time mode–compatible to young people as the target, but with the development of user-friendly smart phones, users to expand to the middle and high age level.

Author: But in Japan many customers think soft silver network service is poor. What steps has SoftBank taken to improve the user experience?

Sen Line True Division: Previously said, the acquisition of Vodafone Japan, Vodafone network is poor, so just start targeting customers for low-end users. After the iphone was imported, a base station was set up around the big city. SoftBank's iphone customers are mainly urban users, and they do not often go to the countryside, so its strategy is to meet the needs of the vast majority of users in large cities to build a base station. And then continue to radiate the surrounding expansion base station.

In other words, SoftBank chooses the target customer very clearly, each stage adopts the different strategy. Do user surveys around the world to develop the products that users need most. For example, through the survey, understand that users do not need high-end machines, only need a variety of color models. The strategy of SoftBank is to analyze users ' needs very carefully after collecting feedback from users. And the general company is after deciding a strategy, then impose to the user.

Psychologically speaking, user satisfaction is actually predetermined. For example, customers expect more of the high quality requirements of DoCoMo, the network a problem, users will respond. Soft silver is expected to be lower and there will not be too much criticism. So the finished product is also easy to launch, failure has no particularly big impact. So looking back on the 5 years of new initiatives in the industry, the basic is the soft silver launched.

The purpose of SoftBank's acquisition sprint is to extend the mobile internet business to a global scale? What next steps will be taken to expand global business?

Mori Real Division: Soft Silver acquisition sprint will generate bargaining power, SoftBank and Sprint each year to add a trillion yen investment, although their technical format is different, but still have a bargaining effect.

On the other hand, SoftBank has so far been the Freecash model, with the previous practice of investing cash into the most promising business. The fastest growing in the last few years is the communications industry. Before is Yahoo BB ADSL broadband business, but ADSL also has a strong competitor NTT, so now it does not invest in Yahoo BB, (center of gravity) has shifted to the mobile business.

Looking at the Japanese market, there is value potential but no equipment potential. If the iphone advantage disappears, investing in equipment can lead to a price war. Then the soft silver saw the sprint, like Vodafone 6 years ago. When the smartphone penetration rate 40%~50%, the future traction market is the lower and middle users. In the face of high-end users, there are network quality can be improved. At&t and Verizon have high quality networks with high gross margins. Sprint has a slightly lower quality and is geared toward low-end users. These are the same as soft silver at the beginning, and gradually pull up customer growth. So looking at these potential, SoftBank uses cash not only in Japan but also globally.

If everyone can see the fun, tomorrow we will be a series on SoftBank's biggest competitor Japan's first major carrier NTT DoCoMo status of the article. The NTT DoCoMo has long been seen as China Mobile's teacher, and with China Mobile is the world's only two large operators not to introduce the iphone, how it is against Apple? Please don't miss it.

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