You've Got DoCoMo!

An interview with @Asia Inc. CEO Paul Anders Schwamm on the long-term implications of the tie-up between AOL Japan and NTT DoCoMo.
by Daniel Scuka

Paul Anders Schwamm is CEO of @Asia Inc. (www.atasia.com), a fast-growing leading developer of Asian-language Web sites. The company's Bargainnews.net site was recently selected by Lycos as the best bargain-related site in Japan. We asked Schwamm about the strategic implications of the recently announced tie-up AOL Japan and NTT DoCoMo. -- Daniel Scuka

JI: What's your Big Picture take on the AOL-DoCoMo tie-up?
SCHWAMM: AOL is merging with Time Warner, so we are really talking about the new AOL, which will be an Internet-media-content powerhouse. What would make this new powerhouse even more powerful? Adding telecom to the equation, especially wireless telecom. Such a combination would benefit by having tens of millions of international users; infrastructure to deliver content by cable modem, dial-up connections, wireless, interactive TV, and offline via magazines, books, and films; and a rich and diverse portfolio of content.

Simply put, the AOL-Time Warner-DoCoMo troika would have the people (users), the pipes, and the product (content and services)--and the money and brains to make it all work seamlessly together.

The AOL-Time Warner-DoCoMo troika would have the people, the pipes, and the product.

JI: Will the deal affect other industries?
SCHWAMM: Business schools will use the AOL-Time Warner merger in a few years as a case study of a very smart, forward-looking, strategic merger. The addition of DoCoMo to this equation makes it even more impressive. These moves will reconfigure the competitive landscape in several industries -- Internet, media, content, telecom -- at one time. Equally important, these two deals will accelerate the process of convergence that these industries have been going through over the past decade.

JI: What does AOL bring to DoCoMo in Japan?
SCHWAMM: People in Japan already know about DoCoMo's incredible i-mode success, with a projected 13 million subscribers by the end of this year. However, given the relatively minor player that AOL is in Japan, many people may not be fully aware of AOL's assets, and they are probably even less aware of Time Warner's assets. You need to recognize the extent of these two companies' assets to fully appreciate the potential of an AOL-Time Warner-DoCoMo alliance.

AOL and CompuServe have 30 million combined subscribers. AOL's ICQ service has more than 62 million registrants, with more than two-thirds of them outside the US. AOL owns two major Internet music brands, Spinner.com and Winamp, and the top movie Web site in the US, Moviefone.com. Time Warner owns 1 million music copyrights, 5,700 feature films, 32,000 TV titles, and 13,500 animated titles. More than 1 billion people worldwide have access to Time Warner's CNN service. Time Warner has the top two cable TV networks in the US, with 36 million subscribers, and 36 magazines with 130 million readers. Twenty percent of the top 200 music albums in the US in 1999 were on Time Warner labels.

The deal with DoCoMo could, in one fell swoop, help AOL go from "AOL Nowhere" to "AOL Anywhere" in Japan.

AOL has a strategy called "AOL Anywhere," the objective of which is to let consumers access various AOL services, "whenever and wherever they want them," via a variety of devices. The deal with DoCoMo could, in one fell swoop, help AOL go from "AOL Nowhere" to "AOL Anywhere" in Japan.

JI: How can either party leverage the deal?
SCHWAMM: There are many ways in which this deal could be leveraged, and, looking ahead, it is easy to imagine a scenario in Japan that goes something like this: Two friends send each other email messages via their i-mode phones or their AOL accounts. Later that day or the next, they use ICQ to communicate with each other while they are at work. After work, they call each other using their i-mode phones. They get movie information and directions to the theatre, and purchase their tickets using AOL services via their i-mode phones. They see a Time Warner movie with a sound track available on a Time Warner music label. They chose this movie after seeing advertisements for it on their i-mode phone, on their DoCoMo bill, and on their AOL log-in page. After they part for the evening, they send each other final email messages via i-mode saying how great the Time Warner movie was. They agree to visit a Time Warner store the next week to buy movie-themed merchandise. They also download characters from the movie to display on their i-mode phones, and part of the theme song to play every time they receive a call.

DoCoMo would have a significantly higher probability of success in the US with the cooperation of AOL.

JI: Can DoCoMo expect to easily enter the US market with AOL's help?
SCHWAMM: These are dynamic, competitive markets, and no entry into a new market can be characterized as "easy." It might be useful to think in terms of relative probabilities of success. DoCoMo would have a significantly higher probability of success in the US with the cooperation of AOL.

JI: Do you think DoCoMo will become more powerful in Japan, gaining even more subscribers?
SCHWAMM: DoCoMo was already leaving its local competition far behind before this deal was announced. With this deal, it will be like DoCoMo turning on the turbo-engines, suddenly shooting out even further ahead of would-be competitors. The diverse AOL and Time Warner services and content that can be offered to DoCoMo's users can only make DoCoMo even more attractive to consumers.

JI: How can DoCoMo competitors compete with this move?
SCHWAMM: It will not be easy. I would advise DoCoMo's competitors to conduct a lot of consumer research to try to find unfulfilled market needs, and conduct rigorous competitive analysis to try to find the "loose brick" in DoCoMo's strategies. These companies will probably have to redefine the market and rewrite the rules of the game. They should strongly consider combining forces with competitors.

It is very important for all players to remember that "content is king." DoCoMo's competitors need to be very aggressive in lining up proprietary content and services -- and this does not necessarily mean making a deal with a media giant like Time Warner. In fact, a lot of unique, interesting, local content is generated by small, entrepreneurial companies right here.

JI: How can other content providers compete with this move?
SCHWAMM: This deal will fuel the fast-growing demand for good Internet content. We are in the very early stage of a long-term boom for companies with unique, interesting, local content. AOL's merger with Time Warner makes clear for the new media industry what many of us with traditional media backgrounds already knew: "content is king." Ultimately, what consumers really care about is content--music, news, sports scores, stock quotes, games, information for their work, education, or entertainment.

One of the important lessons learned in the Internet industry over the past year is that "e-tail" sites are generally unsuccessful when they are nothing more than a big online catalog or price list. The relatively few successful e-tail sites have been those that offer "contextual commerce" -- ecommerce in an appropriate context of community and useful information. To be successful, ecommerce sites need content.

JI: How important is it for Japan's domestic mobile network operators to tie-up with foreign content providers? Is this absolutely required before a Japanese wireless network operator can move into a foreign market?
SCHWAMM: Most media content is local or national in nature, not international or global. Most people start their day with national news, a local weather forecast, reading about goods on sale in their town, and listening to traffic reports, among others. In the evening, they look at local TV programs, check schedules for nearby movie theatres, and read local restaurant listings. There are exceptions, of course, with some American news (CNN), films, music, and some sports entertainment enjoying global demand. But with few notable exceptions (Pokemon, Hello Kitty), Japanese media content generally does not play well outside of Japan. Japanese wireless companies will certainly need good local content to penetrate foreign markets.