Multiple standards and critical
masses, and the formation of new
The case of the Japanese mobile internet
Jeffrey L. Funk
Engineering and Technology Management Department,
National University of Singapore, Singapore
Purpose – The purpose of this paper is to analyze standard setting and how a critical mass of users
emerged in an industry in which multiple interface standards co-exist and a critical mass of users was
created multiple times.
Design/methodology/approach – This paper is based on research conducted for almost ten years
using the case study approach. Data were gathered through more than 100 interviews with Japanese
ﬁrms and through analyses of published sources.
Findings – The paper ﬁnds that growth in mobile internet services required agreements on multiple
interface standards where some of these interface standards exhibited interdependencies and thus
required integral design, while others have been built on top of these “basic” interface standards.
Agreements on the former interface standards enable basic data connections between phones, services,
and content and this required integral design. The latter interface standards connect the mobile phone
with content and applications from other industries (e.g. music, video, publishing, broadcasting, and
payment) and each critical mass of phones, services, and content for them partly builds from
previously created critical masses.
Research limitations/implications – The research focused on a single industry in a single
Practical implications – This paper helps scholars and practitioners better understand how
interface standards and critical masses for them emerge.
Originality/value – This is the ﬁrst paper to analyze multiple interface standards in a single
industry and the emergence of a critical mass of users or complementary products for these standards.
Keywords Interface standards, Network effects, Critical mass, Mobile phones,
Mobile communication systems, Internet, Japan
Paper type Research paper
It is widely recognized that a critical mass (Rohlfs, 1974, 2001; Reinganum, 1981;
Cabral, 1990; Shapiro and Varian, 1999) of users or complementary products must be
established in order for growth to continue in industries that display strong initial
direct or indirect network effects (Katz and Shapiro, 1985; Arthur, 1994; Katz and
Shapiro, 1994; Ryan and Tucker, 2006). In industries that display strong initial direct
network effects, a critical mass of users is needed for users to receive sufﬁcient value
from the use of products such as the telephone, fax machine, or social networking
The current issue and full text archive of this journal is available at
The author would like to thank the anonymous reviewers for their comments.
European Journal of Innovation
Vol. 15 No. 1, 2012
q Emerald Group Publishing Limited
services (Rohlfs, 1974, 2001; Shapiro and Varian, 1999). In industries that display
strong indirect network effects, a critical mass of complementary products (e.g.
hardware and software) are needed for users to receive sufﬁcient value from the use of
computers, video games, or video or music players (Grindley, 1995; Gandal, 2000;
Dranove and Gandal, 2003; Ohashi, 2003; Nair et al., 2004). Without such a critical
mass, deﬁned as “a minimum network size that can be sustained in equilibrium”
(Economides and Himmelberg, 1995), users will not receive sufﬁcient value and growth
will not continue. Thus, many economists argue multiple equilibria exist for products
that involve strong network effects where abundant growth may occur in one country
and no growth may occur in another country for similar levels of potential demand
(Rohlfs, 1974, 2001; Farrell and Saloner, 1985; Cabral, 1990).
It is also widely recognized that agreements on standards and in particular on open
standards facilitate the emergence of a critical mass of users or complementary
products (Farrell and Saloner, 1988; David and Greenstein, 1990; Shapiro and Varian,
1999; Shapiro, 2001; Farrell and Klemperer, 2007; Kretschmer, 2008). Most of the
industries that display strong initial network effects do so partly because agreements
on interface standards are needed. As opposed to a single ﬁrm providing a complete
system including all of the relevant complementary products, “open systems” include
open standards that deﬁne the interfaces between different sub-systems or “modules”
where different ﬁrms provide these different sub-systems or complementary products
(Shapiro and Varian, 1999; Hemphill and Vonortas, 2007). Finding agreement on these
standards is highly problematic particularly in multi-sided markets where the
products or services from multiple types of ﬁrms interact with a single module or
platform (Gawer and Cusumano, 2002) through multiple interfaces (Evans et al., 2008).
Research has found that problems in standard setting are one reason why a critical
mass of complementary products has not emerged in many industries/products such
as digital audio tape, digital compact cassette, mini-discs, high-deﬁnition television
(Rohlfs, 2001; Grindley, 1995), and AM stereo (Shapiro and Varian, 1999).
One limitation of this literature is its focus on industries/products that only require
the establishment of a single interface standard or a few interface standards for a
single platform and thus that only require a critical mass of users or complementary
products to be created once for this single interface standard or platform. This is the
ﬁrst paper to analyze multiple interface standards in a single industry and the creation
of a critical mass of users for these standards. Growth in mobile internet services
required agreements on multiple interface standards where some of these interface
standards exhibited interdependencies and thus required integral design, while others
have been built on top of these “basic” interface standards. Agreements on the former
interface standards, which enable basic data connections between phones, services,
and content, required integral design and the inability of ﬁrms outside of Japan and
Korea to accomplish this integral design prevented growth in mobile internet services
until modular design emerged in the form of the iPhone. The latter interface standards
connect the mobile phone with content and applications from other industries (e.g.
music, video, publishing, broadcasting, and payment) and each critical mass of phones,
services, and content for them partly builds from previously created critical masses.
Although this paper primarily focuses on the Japanese market, the paper is not
advocating that western ﬁrms should necessarily copy Japanese approaches. It is
merely illustrating the interaction between standards, critical mass, and industry
formation and it recognizes that solutions are emerging in western markets that are
different from those used in the Japanese market. However, this paper’s analysis is
consistent with those that attribute Japan’s faster growth to greater agreements on
standards, revenue sharing with content providers, and e-mail on phones (Fransman,
2002; Knutsen and Lyytinen, 2005; Funk, 2007a) than outside of Japan. All three of the
Japanese service providers quickly obtained phones from suppliers that conformed to
their standards and speciﬁcations in 1999 and 2000 (Fransman, 2002; Natsuno, 2003;
Funk, 2007a), they take a smaller portion of mobile commerce revenues from content
providers (about 10 per cent for some content) than the 50 per cent that is often take
elsewhere (Natsuno, 2003; Funk, 2007a), and they had made e-mail a standard function
on phones by early 2000 (Natsuno, 2003; Knutsen and Lyytinen, 2005).
The paper ﬁrst discusses some key concepts, research context and methodology.
This is followed by a discussion of how a critical mass of complementary products
emerged for about ten broadly deﬁned interface standards that connect phones and
services to content and applications from other industries. Although each of these
interface standards actually involve multi-sided platforms that each involve multiple
interfaces for connecting phones, services, and content, the singular form is used for
each of these interface standards in order to simplify the discussion of these
broadly-deﬁned interface standards. The industries were chosen because the
connections between the mobile phone and the content and applications from them
are often emphasized in discussions of the mobile internet in the Japanese press. The
paper concludes with a discussion of theoretical and practical issues.
2. Key concepts
Many scholars have differentiated between complex systems and simple products
(Tushman and Rosenkopf, 1992) and between open and closed systems (Rycroft and
Kash, 1999). Complex systems and the industries they represent have more
sub-systems than do non-assembled or simple products. Open systems and the
industries they represent involve more modular (as opposed to integral) architectures,
vertical disintegration, and open interface standards than do closed systems. In
integral architectures, the performance of a system is optimized even if this requires
one to design the functional components in an interdependent manner such that the
design of one component depends on the design of other components (Clark and
Fujimoto, 1991; Chesbrough, 2003). With modular architectures, performance is often
sacriﬁced in order that modules can be designed relatively independently by different
groups of engineers who are often in different organizations (Langlois, 1992; Langlois
and Robertson, 1992) where standards deﬁne the ways in which these different
modules interact (Farrell and Saloner, 1988; David and Greenstein, 1990; Shapiro and
Varian, 1999; Shapiro, 2001; Farrell and Klemperer, 2007; Kretschmer, 2008).
Many industries experience an evolution from integral to modular architectures due
to improvements in performance and changes in emphasis from performance to cost
that often accompany these improvements in performance. Although initially
performance is typically more important than costs, the importance of performance
and thus integral architectures gradually declines and the importance of costs
(Utterback, 1994) and thus of modular architectures often increases (Christensen et al.,
2002). The ﬁrst wireline (Brock, 1981) and wireless (Garrard, 1998) telecommunication,
broadcasting (Leblebici et al., 1991), and computer (Flamm, 1988; Langlois, 1992)
systems, music players (Langlois and Robertson, 1992), and even the internet (Abbate,
1999) were designed using integral design. Over time, however, modular designs
emerged along with a vertically disintegrated industry structure in which different
ﬁrms provided different modules whose interfaces where deﬁned by open standards.
For example, the ﬁrst mainframe and personal computers were designed using an
integral approach more than were later systems. This was done because the low
processing power of the ﬁrst mainframe and personal computers required ﬁrms such
as IBM and Apple Computer to use an integral design to provide some minimum level
of performance. Over time, however, the processing power of these computers
increased and this enabled modular designs such as the IBM System/360 and the IBM
PC to emerge in which relatively open interface standards determine the way in which
different modules interact (Flamm, 1988; Langlois, 1992).
Similar arguments can be made with the design of the internet. TC/IP was
developed by a small group of independent researchers, which were funded by the
Defense Research Projects Agency (DARPA), while HTML, and URLs were developed
by one person, Tim Berners-Lee in the late 1980s. It was only after these basic
standards had emerged and the performance of computers and telecommunication
systems had improved in the 1990s that a “modular” design for the internet emerged.
Thousands of modules are designed relatively independent of each other where the
standards that deﬁne the interfaces between these modules are built on top of the basic
standards of TC/IP, HTML, and URLs (Abbate, 1999; Segaller, 1998; Okin, 2005).
For many of these standards, a critical mass of complementary products had to be
created in order for the standard to succeed and for the product to diffuse. For example,
a critical mass of software emerged for some PCs (Langlois, 1992) while such a critical
mass never emerged for AT&T’s Picture Phone Service (which displays direct network
effects). Similarly, a critical mass of complementary products did not emerge for digital
audiotape, digital compact cassette, mini-discs, high-deﬁnition television (Rohlfs, 2001;
Grindley, 1995), and AM stereo (Shapiro and Varian, 1999). One reason a critical mass
of complementary products did not emerge for the latter products was because ﬁrms
were not able to agree on standards (Grindley, 1995; Shapiro and Varian, 1999; Rohlfs,
3. Research context
This paper looks at an industry in which standard setting, a critical mass of
complementary products, and an evolution from integral to modular architectures have
played important roles. Standard setting has played an important role in the industry
since the ﬁrst cellular phone systems were introduced in the early 1980s where these
ﬁrst standards deﬁned the “air-interface” between handsets and base stations. The
most successful standards were developed in relatively open committees and include
AMPS for ﬁrst generation, GSM for second generation, W-CDMA for third generation,
and to some extent Qualcomm’s protocols in both second and third generation systems
particularly in the US and Japan (Garrard, 1998; Funk, 2002).
The emergence of the mobile internet is transforming the mobile phone industry
into a complex “network” industry that involves multiple interface standards where
some of these interface standards must be compatible with each other, and a critical
mass of complementary products must emerge for many of these interface standards to
succeed (see Figure 1 and Table I). On one hand, interface standards for packet,
micro-payment (i.e. billing), user authorization, messaging, text-based content, and
electronic mail services enable basic data connections between the services, content,
and phones, they are highly interdependent, and they provide a foundation for other
interface standards (Natsuno, 2003; Burkhardt et al., 2002; Sharma and Nakamura,
2004; Tilson and Lyytinen, 2006). On the other hand, interface standards for music,
images, video, Java, 3D content rendering, 2D bar codes, short-range wireless
techniques, GPS (global positioning satellite), physical payments, mobile TV protocols,
and electronic programming guides are built on top of these “basic” standards. They
must be compatible with the basic standards but can be created independently, they
enable phones to access speciﬁc types of content and applications from speciﬁc
industries, and each of them constitute a multi-sided platform where a critical mass of
phones and content must be created for each of them.
There have also been several changes between integral and modular design. While
the mobile phone industry moved from integral towards modular design and vertical
disintegration during the 1980s and 1990s, the mobile internet made a return to integral
design temporarily appropriate. The reason is that a lack of processing power and
memory capacity in the ﬁrst mobile internet-compatible phones not only prevented the
use of PC internet content, applications, and standards, it also required both the
integral design of phones and of the complete package of services, phones, and content
using somewhat proprietary protocols. This caused the most successful mobile
internet services to come from countries such as Japan where service providers were
capable of implementing an integral design including the dictation of phone
speciﬁcations and interface standards (Natsuno, 2003; Fransman, 2002). The setting of
interface standards by Japanese service providers is quite different from the
decentralized and relatively uncoordinated approach used by western ﬁrms where
more than 1,000 relatively independent standard setting committees exist of which the
much maligned WAP (Wireless Automation Protocol) Forum is just one of these
committees (Tilson and Lyytinen, 2006).
However, as improvements have continued to occur in the microprocessor and
memory ICs for mobile phones, it has become possible to design mobile phone systems
Interface standards that
connect the mobile phone
(see middle of ﬁgure) and
Industry Product/service Interface standards/technologies
For connecting phones and
For connecting phones and other
1999-2000 By end of 2005
General Wireless infrastructure including
packet system, mail/messaging
micro-payment system, markup
language, user authorization
Entertainment Screen Savers GIF (Graphic Interchange
Thin-client (e.g. Java) and vector
graphic (e.g. 3D, Flash) based
#1 plus music or video and/or
integration of ringing tunes and
Camera phones for creation of
own screen savers
Cable or wireless connection with
PC for exchange of data with other
Music Mini-MIDI (Music Instrument
Mini-MIDI – ringing tones
MP3 for lyrics in ringing tones or
Games Simple markup language (e.g. c-
Java, Vector Graphics (e.g. 3D,
News Simple markup language (e.g. c-
HTML) internet mail
More sophisticated markup
language (e.g. full browser), Java,
Cable or wireless connection with
PC for exchange of data with other
Publishing Shopping Simple markup language (e.g. c-
HTML), Internet mail
More sophisticated markup
language, Java, Vector Graphics
Internal cameras, bar code reading
software, URLs embedded in 2D
Global Positioning Systems
Retail/ticketing Train tickets Not applicable Thin client (e.g. Java) and simple
markup language (e.g. c-HTML),
Smart cards and smart card
Broadcasting Radio Simple markup language (e.g. c-
HTML), internet mail
More sophisticated markup
language, Java, Vector Graphics
Internal radios, infrared,
Television Internal televisions, infrared,
Examples of interface
for connecting mobile
phones with speciﬁc
and the mobile phones themselves using more modular architectures and ones that are
compatible with PC internet standards. Since modular architectures often have lower
development costs than do integral architectures, this has enabled new handset
providers such as Apple and Google to introduce phones and to become the ﬁrst new
entrants to the western mobile phone business (outside of China) in more than 15 years
(Funk, 2002). Unlike the relatively closed approach used by western service providers,
Apple and Google have made it easy for third parties to provide applications.
Furthermore, the compatibility of their phones with PC internet standards makes it
possible for users to access most PC internet content on phones and this reduces the
need for content that are designed just for mobile phones and thus the need to create a
critical mass of this content for phones as occurred in Japan.
One of the main reasons that Japanese service providers were able to carry out
integral design and set interface standards more effectively than were the western
service providers in the mobile internet is because the Japanese mobile phone industry
never became as vertically disintegrated as the western mobile phone industry did in
the 1990s. While a relatively strict separation between services and phones emerged in
the West in which GSM was used by most service providers and thus most phones
were interchangeable with most services, Japanese service providers (NTT DoCoMo,
KDDI, and Softbank) continued to determine custom speciﬁcations for their phones in
the 1990s and thus different service providers used different phones and to some extent
different air-interface standards, e.g. KDDI used Qualcomm’s CDMA technology while
the other two used Japan’s home-grown PDC standard (Funk, 2002, 2003). This made it
easy for the three Japanese service providers to continue controlling the speciﬁcations
in the early 2000s for mobile phones and thus design their mobile internet services in a
somewhat integral way with a consistent set of interface standards that are relatively
compatible with each other.
The greater success of the Japanese than other service providers is reﬂected in the
larger markets for mobile commerce in Japan than elsewhere. Mobile commerce
exceeded 1.15 trillion yen (about 11.5 billion$ at 100 yen/$) in 2007 of which the fastest
growing segment was non-entertainment commerce (which represented 63 per cent of
mobile commerce) such as transaction fees (e.g. ﬁnancial) and the sale of physical
products (Ministry of Internal Affairs and Communications (MIAC), 2009). The service
providers take about 10 per cent of the revenues for entertainment content and almost
none of these revenues for non-entertainment commerce and this has enabled tens of
thousands of mobile content providers to thrive in Japan in a manner similar to how
such ﬁrms thrive in the PC internet. Service providers primarily make money on data
revenues, which are completely separate from m-commerce and were $29.6 billion in
Japan in 2008 (Sharma, 2009). The fact that m-commerce revenues for
non-entertainment content are not reported in the western press or in analyses of
the western mobile internet markets (Tilson and Lyytinen, 2006; Hibberd, 2007,
Sharma, 2009) suggest that they are very small or do not exist at all.
4. Research methodology
This paper is based on research done on the mobile internet for almost ten years using
the case study approach (Eisenhardt, 1989; Gibbert et al., 2008) and in particular
Eisenhardt’s notion of cross-pattern search. The initial research focused on how and
why Japanese service providers created a critical mass of complementary products
(phones, services, and content) for entertainment applications and the rest of the world
did not. As western service providers began to successfully offer entertainment content
and the services and custom phones that support such content in 2002, the research
focused on how and why Japanese service providers were able to create a critical mass
of complementary products in new applications while the rest of the world was not able
to do so. In doing so the research drew from the literature on critical mass, standards,
and modular design that are discussed in a previous section.
Initial resources included published information and interviews. Initially published
information was found in both English and Japanese language newspapers, industry
journals, home pages, consulting reports, and weekly reports from Credit Suisse’s
telecommunications analysts. The English-language sources include books by the
creators of NTT DoCoMo’s i-mode successful services (Natsuno, 2003), an early
academic analysis of the WAP failure (Sigurdson, 2001), and industry reports by J.P.
Morgan Securities Ltd (2000), Credit Suisse (2004), and Autorite de Regulation des
Although the exact number of interviews can no longer be calculated, between 2000
and 2004 the author interviewed more than 100 ﬁrms in the Japanese mobile internet
and more than 25 outside of Japan. Multiple interviews were conducted with managers
at more than ten service providers, ten phone manufacturers, ten ﬁrms that are using
mobile intranet systems as an internal productivity tool, 20 technology suppliers, and
100 content providers. The service providers include NTT DoCoMo, KDDI, Softbank,
Vodafone, Sprint, Cingular, T-Mobile, and Hutchison Telecom. The phone
manufacturers include Nokia, NEC, Panasonic, Sharp, Sanyo, and Kyocera. The
implementers of mobile intranet systems included Sony, Sumitomo Construction, and
NEC. A broad deﬁnition of content providers is used where it includes retailers,
broadcasters, train companies, and providers of hotel and airline reservation, maps,
tickets, and restaurant guides, in addition to the traditional providers of information
(e.g. newspapers, magazines), and entertainment. Although these interviews support
the conclusions made in this paper concerning the differences between Japan and the
rest of the world, these conclusions are based entirely on published sources since the
interviews were carried out many years ago.
Focusing on the most recent research in Japan that is reported in this paper, the
speciﬁc interface standards, content, applications, and the industries that supply this
content and applications were chosen based on the early interviews, various books
(Natsuno, 2003), consulting reports, and articles in the Nikkei Shinbun. Data on these
interface standards, content, and applications was also collected from these sources,
the author’s personal experimentation with the services, and more recently a larger
variety of Japanese internet newspapers. Keyword searches were done over many
years for “keitai denwa” (portable phone in Japanese) in the online version of Nikkei
Shinbun where articles on speciﬁc content and applications were analyzed. More recent
keyword searches on Google Japan have focused on more speciﬁc terms such as 2D bar
codes (nijigen ba-codo), navigation (navi ), wallet phones (osaifu denwa), mobile TV
(wan segu), and electronic programming guides (keitai denshi bangumihyo) where the
Japanese terms are shown in parentheses.
The analysis and interpretation of this data were done using Eisenhardt’s (1989)
concept of cross-pattern search. First, the analysis focused on the interface standards
for the applications, their initial users and method of use, how the users beneﬁted from
the content and applications, and the role that network effects play and thus how a
critical mass of phones and content/applications emerged for each interface standard.
Second, the interpretation focused on applying this analysis to each interface standard
in order ﬁnd a consistent and credible explanation for how a critical mass of users
emerged for interface standards and how they built from previously created ones (see
5. Results: entertainment
The ﬁrst critical mass of phones, services, and content in Japan was created for
entertainment content such as screen savers, ringing tones, and later games in 1999
and 2000 (Fransman, 2002; Funk, 2007a). Following the introduction of the ﬁrst mobile
internet phones from NTT DoCoMo in February 1999, phones capable of transforming
a downloaded GIF (graphical interface format)-compatible picture into a screen saver
were available by the spring of 1999 and those capable of downloading ringing tones
using a compressed form of the MIDI (Musical Instrument Digital Interface) protocol
were available by late 1999 (Takeishi and Lee, 2006). These interface standards for
screen savers and ringing tones also depended on the existence of more basic interface
standards for packet, micro-payment, and user authorization and the compatibility of
these basic standards with the standards for screen savers and ringing tones.
Micro-payment and user authorization systems enabled service providers to collect
content fees from users on monthly bills and distribute some of these revenues to
content providers (Takeishi and Lee, 2006). The creation of a critical mass of phones
and content providers is reﬂected in the rapid growth in the number of content
providers (tripled) and in the percentage of them that offered entertainment (from 9 per
cent to more than 50 per cent) between February and September 1999 (Funk, 2007a).
Improvements in the phones and systems has enabled more sophisticated ringing
tones, screen savers, and other entertainment content to emerge and this has required
updates to the existing interface standards and the deﬁnitions of new ones. The service
providers work with the phone manufacturers, content providers, and technology
providers to upgrade the interface standards (Fransman, 2002; Knutsen and Lyytinen,
application Entertainment General text-based internet sites
Publishing Critical mass of newspaper and
magazines sites that depended on
micro-payment system and relevant
Critical mass of retail outlet and
restaurant sites that depended on mail
Critical mass of map providers that
depended on existence of micro-
payment system and relevant
Critical mass of retail outlets and
providers of hotel reservation,
restaurant guide, and real estate
services that depended on mail
Critical mass of mail users and need for
mail in wallet phone applications
Broadcasting Critical mass of entertainment ﬁrms
that rely on micro-payment system and
Examples of how a
critical mass of users
built from previously
created critical masses
2005; Funk, 2007a) so that new phones can handle more chords in a ringing tone, a
transition from chords to CD-quality music, the use of larger and more sophisticated
Java programs, Macromedia Flash, and 3D rendering techniques, the inclusion of
higher resolution cameras, and a transition from still photos to video in these cameras..
Each of the three service providers to some extent deﬁned their own standards and this
required the phone manufacturers and content providers to customize their phones and
content for each service provider. This caused some phone manufacturers and content
providers to only work with a single service provider.
The western service providers and mobile phone manufacturers initially ignored
entertainment content. As documented elsewhere (JP Morgan, 2000; Funk, 2007a),
these ﬁrms focused on business applications and thus did not consider entertainment
content and micro-payment services in their mobile internet services. Even the
standard setting bodies such as the Wireless Application Protocol (WAP) Forum did
not address micro-payment systems or other standards needed for delivering
entertainment content such as ringing tones and screen savers. Furthermore, western
ﬁrms initially argued that westerners would never download ringing tones, screen
savers, and games and they and the western press attributed the success of the
Japanese mobile internet to unique aspects of the Japanese market such as the
supposedly low PC internet usage in Japan and the greater use of public transportation
in Japan than in Europe and the US (Markoff, 2000). The fact that the market for SMS
in Europe (Autorite
gulation des Te
communications (ART), 2004; Credit Suisse,
2004) has been much larger than the market for mail and SMS has been in Japan on a
per capita basis and the fact that entertainment content has subsequently succeeded in
the West suggests that these initial interpretations were wrong (Funk, 2007a).
6. Results: general text-based internet sites
A second critical mass of “general text-based internet sites” and phones compatible
with the relevant interface standards also emerged in Japan in 2000. This critical mass
of sites and phones depended on two interface standards that are in addition to those
described in the last section and that enabled connections to be made between mobile
phones and a larger number of industries (see Figure 1). The ﬁrst relevant interface
standard is the markup language and its associated browser. The lower processing
power and memory, smaller screen sizes, and slower network speeds of mobile phones
than PCs required the use of a markup language and browser that are different from
their PC internet versions. NTT DoCoMo chose a simpliﬁed form of HTML called
c-HTML (compact hyper text markup language), KDDI created its own version of
WAP (Wireless Application Protocol), and Softbank (formerly called Vodafone) chose a
modiﬁed form of c-HTML (Fransman, 2002; Knutsen and Lyytinen, 2005; Funk, 2007a).
These different markup languages also required different browsers to be included in
the phones for each service provider. This required content providers to not only
format their content for the small screens of mobile phones; it also required them to
format the content differently for each service provider. Users were able to access these
sites either through a service provider’s ofﬁcial menu or by inputting a relevant URL.
A second key interface standard that played a critical role in the creation of this
critical mass of “general text-based internet sites” and phones was internet mail that
connected mobile phones with PCs (Knutsen and Lyytinen, 2005). Like the markup
language and browsers, the technological limitations of the phones required a slightly
different form of mail from the PC internet, but one that is roughly compatible with PC
internet mail. I call this mail, push-based internet mail. Like SMS, it is automatically
“pushed” to phones after it arrives on a service provider’s servers and it the number of
characters is limited. The mail’s arrival on the phone causes the phone to beep and
display an icon on the screen. Users merely click on the icon to access the mail and it is
not necessary for them to open their mail clients or browsers as most people do when
they access mail on their PC. Unlike SMS, it has always been possible to send this mail
for free from a PC to a phone and to embed URLs (Universal Resource Locators) in this
The last two features enabled many content sites to create mail services for which
users registered their mobile phone mail addresses in order to receive mail. For
example, ticket providers created mail services for speciﬁc artists that informed users
of when tickets were available for a speciﬁc artist and concert. News sites created them
for speciﬁc topics, book or CD sellers created them for speciﬁc artists or authors,
on-line trading sites created them for speciﬁc stocks, and travel sites created them for
speciﬁc destinations. These mail services enabled users to purchase a product or ﬁnd
information merely by clicking on a URL in a mail message without doing keyword
searches that took much longer on a phone until recently. Some observers claim that
more than 50% of such purchases originated from URLs embedded in mail message
(Funk, 2007b). These mail services also formed the basis for each mobile intranet
services. For example, corporations used mobile mail to communicate with their
employees where embedded URLs enabled maintenance employees to access
information about their next job, construction employees to input their daily work
status, airline employees to receive updates and conﬁrm schedule changes, and sales
employees to input their sales data while in the ﬁeld (Funk, 2006).
The combination of standards for markup languages and the inclusion of mobile
mail in most phones enabled the number of internet sites that are formatted for the
mobile phone to increase dramatically in 1999 and 2000. This was particularly true for
NTT DoCoMo’s i-mode service where indirect network effects played an important role
in the creation of a critical mass phones and sites. The greater the usage of mobile
mail-compatible phones, the greater the number of users browsing, and the greater the
number of users browsing, the greater the incentive for ﬁrms to format their content for
phones. By the end of 1999, there were more than ten times as many general text-based
internet sites that had been formatted for NTT DoCoMo’s mobile phones than those
that were on NTT DoCoMo’s ofﬁcial menu. The number of these sites exceeded 40,000
by mid-2001 and trafﬁc to them exceeded trafﬁc on NTT DoCoMo’s ofﬁcial menu by
September 2000 (Natsuno, 2003) and was double that of trafﬁc to all the sites on all the
service providers’ menus by the end of 2006 (Nihon Keizai Shinbun, 2007a).
Improvements in phones, such as those discussed in the entertainment section,
constitute new forms of interface standards for these general internet sites. For
example, many text sites can be accessed via Java programs, which reduce
downloading time and cost and enable the greater use of graphical images and the
automatic updating of data on the phone’s display. The increased use of graphical
images also increases the importance of vector graphic engines such as Macromedia
Flash and 3D rendering techniques. Full browsers, which can access regular internet
home pages, have been a standard function on new Japanese phones for many years.
The diffusion of enterprise applications such as the ones mentioned previously are
driving the emergence of software that links the mobile phone with existing customer
relationship management, sales force automation, or enterprise resource planning
software. In each case, ﬁrms and content providers must make their systems
compatible with these new interface standards.
In the West, a lack of agreements on markup languages among phones for the same
service provider and a lack of inexpensive push-based internet mail have prevented a
critical mass of phones and sites from emerging for text content that is formatted for
the mobile phone. As far as I know, not a single non-Japanese service provider had
made such internet mail services a standard feature on all of their phones, as of early
2011, and others have reached similar conclusions (Knutsen and Lyytinen, 2005;
Sauser, 2007; Funk, 2007a). Although many non-Japanese service providers have done
this for speciﬁc phones such as RIM’s Blackberry or they have made it possible for
their users to send an SMS to phones from a service provider site, none have made it
possible for all users to send an SMS from their PC mail client and it is harder to embed
and access URLs from SMS messages than from internet mail (Knutsen and Lyytinen,
2005). Furthermore, growth in many of the services discussed in the subsequent
sections also depends on agreements on markup languages among phones, the
existence of inexpensive push-based internet mail, and the promotion of site access via
the input of a URL where a critical mass of phones and content for the standards
discussed in the subsequent sections build from the critical mass of phones and general
internet sites that are discussed in this section.
The success of Apple’s iPhone suggests that a critical mass of “general text-based
internet” content formatted for the small screens of mobile phones may never emerge
outside of Japan. It would be as if new software was not created for PCs in the 1970s
and thus PCs were not used until their processing power and memory capacity enabled
them to run mainframe or mini-computer software. Apple has used improvements in
chips, displays, and other technologies to enable their phones to access content that is
formatted for PCs and to develop the phones from externally available technologies
using modular architectures. Japanese ﬁrms did not initially focus on content that is
formatted for a PC because the ﬁrst phones did not have the performance in processing
speeds, memory capacity, other ICs, and LCD size and resolution that was necessary to
do full browsing. As described previously, Japanese ﬁrms have introduced full
browsers as the performance of phones has improved and enabled the operation of
these full browsers. The growth in western mobile internet markets may depend
primarily on the diffusion of phones such as the iPhone.
7. Results: publishing
A critical mass of two-dimensional (2D) bar codes, advertisers that use them, bar code
users, and phones containing these bar code readers emerged several years ago in
Japan and we can say that open standards for 2D bar codes have enabled connections
to be made between the mobile phone and publishing industries (see Figure 1). First
offered by Denso (it calls them QR codes) for logistics applications, 2D bar codes can
now be found in a wide variety of printed material such as newspapers, magazines,
maps, posters, and even restaurant menus in Japan. Simply by using a camera phone to
photograph the 2D bar code or by using an internal bar code reader, software in the
phone recognizes the URLs that are embedded in these codes and automatically
connects the phone to the relevant internet site. This enables users to more quickly
access a site than by using a search engine. According to a survey conducted in
mid-2006, 70 per cent of the respondents had used their phone to access a site through a
QR code, up from 6 per cent in a survey done in mid-2004, and most of them had done
so from a newspaper or magazine ( Japan Internet.com, 2006). A more recent survey in
2008 found that 4 per cent of the respondents had printed QR codes on their name cards
to enable others to more easily access their personal home pages (Japan internet.com,
The large number of newspapers, magazines, retail outlets, restaurants, and other
ﬁrms that created mobile sites for the reasons discussed in the last two sections
provided a ready market for 2D bar codes and thus facilitated the creation of a critical
mass of phones and sites for them. For example, many newspapers and magazines had
started mobile sites that depended on the service provider’s micro-payment systems to
collect subscription fees from users. Retail outlets and restaurants had started mobile
sites in order to distribute discount coupons where mail services played a critical role
in distributing them. The availability of 2D bar codes merely provided another way to
attract more visitors to their sites and to strengthen their relationships with them. For
example, including a 2D bar code in a magazine advertisement may lead more quickly
to a sale through an internet purchase than through the customer’s visit to a retail
outlet and the internet sale may enable the advertiser to obtain far more information
about the customer than through the customer’s visit to a retail outlet.
Furthermore, a new form of interface standard that is called “color codes” may
strengthen the connections between the mobile phone and publishing industries. Color
codes are pictures that contain URLs and thus are much more attractive than 2D bar
codes. Mobile internet sites can be accessed merely by taking a picture of a color code
with a camera phone even from a distance of 50 meters where up to 17.1 billion
different types of color codes (each representing a different URL) can be embedded in a
color picture (Nikkei Ryutsu Shinbun, 2007a). As of April 2007, Color Zip Japan had
licensed its color codes to 170 ﬁrms (Nikkei Ryutsu Shinbun, 2007b) and more than
200,000 of these codes were in use (Nikkei Ryutsu Shinbun, 2007c). Since the reader can
be downloaded from the internet by most Japanese phones, new phones containing
pre-loaded software are not necessary. This is another beneﬁt from the improvements
in networks and in mobile phone microprocessors and memory ICs in that it is now
possible for users to download software from the internet onto their phones just as they
do on PCs. Thus, changing from 2D bar to color codes may be much easier than the
ﬁrst step of implementing 2D bar codes.
8. Results: location-based services
A critical mass of location-based services, content, and phones containing the chips for
global positioning services (GPS) has also emerged in Japan where we can say that
open standards for GPS have enabled connections between phones and these services.
Through the use of Qualcomm’s GPS technology, KDDI was able to offer successful
services much earlier than the other Japanese service providers have been able to do.
By March 2004, more than 500 ﬁrms had provided GPS phones to more than 50,000 of
their employees in order to improve internal productivity (e.g. sales, maintenance,
delivery and other workers). There were also more than 750,000 subscribers at the end
of March 2006 to KDDI’s consumer navigation service that is called “EZ Navi-Walk”
(Nihon Keizai Shinbun, 2006) and there were hundreds of sites in which these
navigation services could be used.
Like the discussion of the 2D bar codes, the large number of map, hotel reservation,
restaurant guide, real estate, and retail outlets that created mobile sites for the reasons
discussed in previous sections provided a ready market for location-based services and
thus facilitated the creation of a critical mass of phones and sites for them. For
example, map providers started mobile sites in 2000 that depended on the service
provider’s micro-payment systems to collect subscription fees from users. The number
of subscribers to map sites increased as the resolution of the mobile phone display was
improved. Retail outlets and providers of hotel reservation, restaurant guide, and real
estate services started mobile sites as a critical mass of general internet sites emerged
in 2000 for the reasons cited in Section 6. Many of these ﬁrms began to link up with
map providers as the resolution of color displays and thus the quality of the maps
improved. KDDI’s GPS services merely provide additional value to the users of these
sites and thus it was easier for KDDI to create a critical mass of GPS content and
phones than if a critical mass of them had not been created for the interface standards
described in previous sections.
9. Results: retail and ticketing systems
A critical mass of “wallet phones and readers” is also emerging in Japan and we can
say that interface standards for these wallet phones have enabled connections to be
made between the mobile phone and retail/ticketing industries where the
establishment of this critical mass builds from a critical mass of smart cards and
smart card readers. Bit Wallet (a subsidiary of Sony) was the ﬁrst Japanese ﬁrm to
successfully create a critical mass of users and readers (connected to the POS systems)
for its smart card technology in a small shopping area of Tokyo called Osaki and then
expanded the usage of them through licensing the technology to Japan Railways (JR)
and chains of convenience stores, super markets, and fast food restaurants (Nihon
Keizai Shinbun, 2007b, c). JR created a critical mass of users and readers through its
existing train riders, licenses to other train lines, and alliances with kiosks and other
stores in or near train stations. Initially riders could only use the cards as train tickets
and JR later added the capability to make purchases with smart cards and wallet
NTT DoCoMo, JR East, and Sony established a ﬁrm called Felica Networks that is
producing the smart card chips for phones and is encouraging smart card users to
become wallet phone users. NTT DoCoMo released the ﬁrst phones in 2004 that
contain Bit Wallet’s smart card technology and the other two service providers have
subsequently introduced phones that contain the same technology. To use these
phones, users download Java-based application from the network that is issued by
different ﬁrms in much the same way that different banks issue Master or Visa cards.
Some of these applications are for pre-paid and others for post-paid (e.g. credit card)
JR, Bit Wallet, and other ﬁrms are encouraging their smart card users to change to
wallet phones because wallet phones provide more convenience than smart cards do
and these ﬁrms hope to provide additional services with the wallet phones. Money can
be downloaded onto phones anywhere a signal is available while downloading money
onto smart cards is limited to train stations and some banks. Firms also hope
consumers will use the phone as a point card, subscribe to their mail services, and
access their sites via URLs in this mail or through general browsing so that these ﬁrms
can more easily promote their products and services to users. For example, in one
service, mail is generated when a user passes through a speciﬁc train station that the
user has registered for on the relevant menu. Such applications would build on the
critical mass of mail users and web browsers that are described in previous sections.
By the end of June 2008, 87 million cards had been issued and 370,000 readers had
been installed. These cards were used 810 million times in ﬁscal 2007 (between April
2007 and March 2008) to make 563 billion yen (US$ 5.63 Billion) in purchases.
Although about 10.1 billion or 11.3 per cent of these smart cards are in phones (Bank of
Japan (BOJ), 2008) and this ﬁgure had reached 51 million by the end of February 2009,
the percentage of purchases that are made with wallet phones versus smart cards is
10. Results: broadcasting
A critical mass of broadcasting-based phones, content, and services have emerged in
Japan and we can say that interface standards for these phones have enabled
connections to be made between the mobile phone and broadcasting industry. Phones
with analog tuners (both radio and television) were ﬁrst offered in December 2003 and
digital television services (called One-Seg in Japan) that can be accessed with mobile
phones were started in April 2006. In the digital television services for mobile phones,
users can watch the program, access data, or do both on a split phone screen. The
number of Japanese owning a “One-Seg” phone had reached 39 million by September
2008 and according to one survey 37.2 per cent of those that owned such a phone
watched television with the phone at least once a week (Japan Internet.com, 2008b).
However, the programs are currently free and it is not clear whether the additional
viewing time of mobile users will signiﬁcantly increase the advertising fees for the
broadcasters, whether users would be willing to pay for programs and if so how much,
or to what extent users will download content or other data that is related to a program
on a split-screen.
Another approach is to link mobile phones with stand-alone televisions and radios.
This can be done by broadcasters announcing their home pages during televisions
programs, by broadcasters showing them on the screen during the program, or
through interface standards such as infrared or Bluetooth. Phones with infrared
devices have been available since 2002 and more than 50 per cent of Japanese phones
contained these infrared devices by the end of 2004. These phones can be used as a
remote-control device for a television or other device (radio, CD player, karaoke
machine). In addition, it is possible to use Java programs as electronic program guides
where not only the program schedules but also online information about the programs
can be accessed and displayed on the phone’s screen while the user is watching the
stand-alone television. Available online information about a program is automatically
displayed as the user changes channels in the Java program. The most popular
electronic programming guide is from D2C, which is the mobile advertising subsidiary
of Japan’s largest advertising company, Dentsu. More than 30 million people had
registered for D2C’s electronic program guide by November 2008 (MarkZine, 2008).
A number of applications have already emerged for these electronic programming
guides. For many years Japanese users have been downloading ringing tones that are
made from television program theme songs or screen savers that are based on
animated characters or popular actresses and actors in a television program. Revenue
collection by these broadcasting sites has depended on the existence of micro-payment
systems and other interface standards that are described in section ﬁve of this paper.
Viewers are also starting to participate in game, sports, and talk shows via voting and
to order products or access information that is discussed in these or other types of
television programs. For example, Tokyo Broadcasting Systems had 170,000 viewers
visit its mobile internet site during a quiz game in October 2005 (Nihon Keizai Shinbun,
2007d). With the proper type of interface standard in place, viewers might select a
speciﬁc program ending for the television program or purchase the ending that is not
shown in the program as a video downloaded over the mobile phone network. They
might purchase sports tickets or access sport data while watching a sporting event.
They might purchase clothing, cosmetics, or perfume used by actresses in a program,
or they might access a map of a restaurant or other place that is shown in the program.
Like the 2D bar codes, location-based services, and wallet phones, this discussion
suggests that creating a critical mass of phones and content for broadcasting-related
interface standards will build from previously created critical masses of phones and
11. Discu ssion
This is the ﬁrst paper to analyze multiple interface standards in a single industry and
the emergence of a critical mass of users or complementary products for these
standards. The establishment of some interface standards required integral design
while the establishment of other standards did not. Standards for packet,
micro-payment (i.e. billing), user authorization, messaging, text-based content, and
electronic mail services enabled basic data connections between the service providers
and phones and their establishment required integral design both between them and
with standards for speciﬁc types of content. For example, just looking at entertainment
content, standards for markup languages, micro-payment services, user authorization,
ring tones, screen savers, and Java programs facilitated the emergence of a critical
mass of phones and content where integral design was needed during the early years of
the industry. For general text-based internet content, standards for markup languages,
user authorization, mobile mail, and URLs in this mobile mail facilitated the emergence
of a critical mass of users where integral design was needed during the early years of
the industry. Furthermore, the success of many general internet content sites depended
on the broad availability of internet-compatible mobile mail.
One of the reasons that integral design of mobile phones and of the complete
packages of phones, services, and content was initially needed is because of the low
processing power and memory storage that existed in phones until recently. Achieving
this integral design required a single ﬁrm to make many of the decisions and thus the
most successful mobile internet services came from countries such as Japan where
service providers had the power to implement such an integral design and dictate
interface standards to other ﬁrms (Natsuno, 2003; Fransman, 2002). Outside of Japan,
such an integral design was difﬁcult to implement because standard setting was done
in a highly decentralized manner where more than 1000 relatively independent
standard setting committees exist (Tilson and Lyytinen, 2006). Furthermore, although
the largest western service providers were partially successful at setting these
standards, they have not made mail a standard function on all phones nor have they
promoted site access via URLs (Knutsen and Lyytinen, 2005; Funk, 2007a).
The establishment of other standards did not require integral design. Standards for
music, images, video, Java, 3D content rendering, 2D bar codes, short-range wireless
techniques, GPS (global positioning satellite), and physical payments are built on top of
the basic standards, they could be developed somewhat independently of the basic
interface standards and they enable connections between the mobile phone and content
and applications from other industries. However, like the basic interface standards, the
success of these standards required a critical mass of phones, services, and content. For
example, if the release of a phone with a 2D bar code reader, GPS chip, smart card, or
electronic programming guide for televisions was not accompanied by the release of
appropriate content for 2D bar codes, GPS chips, smart card readers, or other services,
usage could not occur, the phone would experience poor sales, and the phone
manufacturer would mostly likely discontinue the sale of the phone. Similar arguments
can be made from the perspective of the content or service providers.
The second key difference with the existing literature is that instead of a critical
mass of phones, services, and content emerging a single time in for example CDs or
DVDs, the growth in the Japanese mobile internet has involved the emergence of a
critical mass of phones, services, and content multiple times where a critical mass for
many of these interface standards partly built from previously created critical masses.
For example, a critical mass of content providers for 2D bar codes partly built from a
previously created critical mass of publishers (e.g. newspapers and magazines) and
distributors of discount coupons (e.g. retail outlets and restaurants); publishers initially
depended on the existence of the service provider’s micro-payment services and the
retail outlets initially depended on the existence of push-based internet mail. Similarly,
a critical mass of content providers for GPS grew from a previously created critical
mass of content providers for 2D bar codes (e.g. restaurant guide, real estate, and retail
outlets) or that depended on the availability of micro-payment systems (e.g. map
providers). A critical mass of users, wallet phones, and readers grew from the use of
smart cards for trains and convenience stores and many ﬁrms support a move from
smart cards to wallet phones because they hope to use push-based internet mail,
browsing, and other mobile internet functions to provide users with additional
services. A critical mass of content providers for electronic programming guides partly
built from a previously created critical mass of content providers that used
micro-payment systems to provide entertainment content.
These conclusions have implications for ﬁrms and policy makers. For ﬁrms, as
opposed to the emergence of a single standard, Japanese ones have needed to monitor
the continuous introduction of new interface standards and whether a critical mass has
or might emerge for the standards in order to understand when they should modify
their phones or content for the standards. To do this they have needed to develop close
ties with the service providers since service providers largely set these standards. If a
ﬁrm wants to propose a new standard, it needs to convince a service provider and thus
needs close ties with service providers. Even if it merely wants to adapt to emerging
standards, it needs close ties with service providers in order to receive the most up to
date information about standards and whether a critical mass has or might emerge for
Although ﬁrms outside of Japan have also needed to monitor the introduction of
new interface standards and whether a critical mass had or might emerge for the
standards, outside of Japan it was mostly about whether any critical mass of users
would emerge. For content providers or corporate users, a lack of agreement on
standards meant that a large content business or the possibility of employees accessing
corporate information on their phones did not quickly emerge. The result was that
most content providers and corporate users were forced to wait until a more open
platform emerged. Although these ﬁrms could complain to service providers, handset
manufacturers or governments, the inability of service providers and handset
manufacturers to agree on standards meant there was little that content providers and
corporate users could do until modular design in the form of the iPhone emerged and
provided a more open and workable platform.
This is particularly true for complex applications such as those covered in sections
7, 8, 9, and 10. For example, while Japanese content providers merely considered
whether adding 2D bar codes to published material would increase the number of
visitors/revenues to their already somewhat successful sites, for many years western
content providers were considering whether they should even offer a mobile site, much
less make their sites compatible with 2D bar codes. Thus, there was very little reason
for technology suppliers, handset manufacturers, or even western service providers to
promote standards for 2D bar codes and certainly there was even less reason for
western manufacturers to add 2D bar code readers to phones. This did not change until
the success of the iPhone enabled a critical mass of users and content providers to
emerge for many types of text-based internet sites. For content providers, it is a matter
of whether there are a sufﬁcient number of iPhone users that are interested in reading
2D bar codes and that are interested in the speciﬁc content from the content provider.
This issue of timing exists in every one of the technologies covered in sections 7, 8, 9,
and 10, both inside and outside of Japan.
With the success of the iPhone and similar phones, many of the issues that the
Japanese ﬁrms have been addressing for years may now become relevant to ﬁrms
outside of Japan. The main difference may be that it is the phone manufacturers who
are at the center of the standard setting as opposed to the service providers. These
phone manufacturers are introducing and will likely continue to introduce interface
standards for publishing, location-based services, payment, and broadcasting. Thus,
ﬁrms who want to propose a new interface standard must convince a phone
manufacturer and thus need close ties with phone manufacturers. Even if a ﬁrm merely
wants to adapt to emerging standards, it needs close ties with handset manufacturers
in order to receive the most up to date information about standards and whether a
critical mass had or might emerge for the standards.
These conclusions also have policy implications. Outside of Japan and Korea,
governments have primarily ignored the fact that Japan and Korea have been
experiencing much faster growth in mobile internet services, content, and intranet
services than have their countries. These governments could have encouraged
agreements on standards or required service providers and handset manufacturers to
offer phones with inexpensive mail services. They did not. Should they act now? More
open platforms for the mobile internet, such as the iPhone and Google Phone, are
diffusing fairly rapidly. They may also be spurring Nokia to make changes to phones
that previously emphasized proprietary protocols (Financial Times, 2010) and content.
Will these changes be sufﬁcient? It is difﬁcult to say. Perhaps the appropriate window
for policy action has already passed.
Future research should look at other industries in which there are multiple interface
standards. How did these interface standards emerge? Did they emerge simultaneously
or in series? Were there interdependencies between some of the interface standards that
required them to be developed simultaneously? Did they emerge primarily through
market forces or through committees? Who were the players that promoted these
standards? Were they system or component suppliers and how were these standards
packaged as platforms (Gawer and Cusumano, 2002)? For the standards that required a
critical mass of users, did the emergence of a critical mass of users emerge
independently from others or did they build from previously created ones? How did
this emergence of critical masses impact on the players that promoted standards and
the competition among them?
It would also be interesting to combine these questions with those from other
literatures such as the entrepreneurship literature? Did the sponsors of these open
interface standards enable new entrants and if so how? How did sponsors of these
standards align themselves with new entrants in order to promote their standards? Did
these alliances occur in speciﬁc geographical areas or did they cross regional and
national boundaries? Industries in which multiple interface standards co-exist present
a rich and fertile ground to address existing and new research questions.
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