Ever since 1999, when the Web-service/portal known as “i-mode” first appeared on Japanese keitai (cell phones), Japan has been hailed as the world leader in mobile phone technology — until recently that is.

For those of you who may not know, i-mode is the mobile Internet-access service built into cell phones from Japanese communication giant NTT Docomo. It costs ¥315 per month to use and includes the i-mode network, which is Docomo’s closed system, separate from the Internet at large. Within this network there are “official” i-mode sites, which are only accessible from an i-mode enabled cell phone. On sites such as these, users can purchase goods and services and have the payment appear on their cell phone bill. This cell phone-integrated-payment is what makes the i-mode system so special.

Imitators soon followed i-mode (in the form of its competitors KDDI au’s ezWeb and Softbank Mobile’s Yahoo! Keitai), and today over 80 percent of Japanese cell phone holders use such services — and pay a monthly fee to do so.

Recently, with the advent of the iPhone and other so-called smart phones such as Google-based Android phones, there has been little news about the Japanese cell phone market, especially in the foreign media. So the question is: “Is i-mode dead?”

The short answer is “No.” Not at all. And you may be amazed to learn that in the face of the smart phone assault, i-mode and related services are still major players in Japan. Here are some examples why.

In Japan, social networking has long been done mainly on cell phones. Among the top three social-networking sites (each with over 21 million members) all of Mobage’s members, 99 percent of Gree’s and over 80 percent of Mixi’s members use i-mode or similar cell phone-based services to log on. Mobage owner DeNA claimed it earns 30 times more money than Facebook on a per user basis, and most of the payment for content is controlled via i-mode-like cell phone integrated-payment systems; that is, anything you buy is simply added to your monthly bill.

Not having to have a credit card to make purchases means that pretty much anyone, young or old can buy on the mobile-Web. As such there are many i-mode sites that target Japanese youth, and one area in particular that is a huge business is music. In 2008, 19 percent of all music legally downloaded worldwide was in Japan — and 90 percent of that was sold on cell phone.

Sales of e-books are also quite advanced in Japan. The e-book markets in the United States and Japan are ¥80 billion and ¥67 billion respectively. But when you consider Japan’s population is less than half that of the U.S., Japan’s e-book market is simply huge. And again in Japan most e-books are bought, sold and read on cell phones, because gadgets popular in the U.S., such as Amazon’s Kindle, do not yet support Japanese books.

People in Japan are also very accustomed to using their keitai to help them get around. Japanese addresses are quite complicated and the number of small streets means that finding your destination can be difficult. Because of this perhaps, Navitime, a Japanese cell phone map and navigation service, boasts over 4 million subscribers, all of whom pay ¥210 to ¥315 every month. The service also offers many Japan-specific features not available on free Web services such as Google Maps, so making a subscription worth paying for.

Other subscription-based sites include: weather forecast services Weather News and Otenki Yohou, both of which have over a million paid users; Luna Luna, a service for women to manage their menstrual cycle and contraception, has 2 million paid users, (which means about 3 percent of Japan’s female population pay about ¥200 every month); and countless other services which have 100,000 and up monthly-paid subscribers.

This is a major difference from the payment systems on the Apple and Android app stores — in Japan, charging users on a subscription basis is common. Although Apple has upgraded to enable subscription service lately, the majority of apps sold via their app store are through a one-time payment.

The best-selling iPhone game Angry Birds, is often cited as an example of a success story in the smart phone world. The $0.99 paid version has been downloaded around 12 million times, which means, their sales are roughly ¥1 billion. They can expect some more income from selling extra items and advertising, but it is basically a one-time fee.

Navitime, on the other hand, earns at least ¥0.84 billion every month from subscriptions.

However, even with such a highly successful business ecosystem, Japanese carriers and vendors are shifting to smart phones, all of which are (at this point) i-mode incapable.

As yet, no smart phone has an i-mode-like system, so users cannot take advantage of the cell phone-integrated-payment systems, which have become such a normal part of life here. People who do not regularly use those mobile services find it easy to migrate to smart phones. But there are many users who keep their i-mode style phone and purchase a smart phone to use as well.

It is understandable that people think that porting an i-mode browser on smart phones will give smart phones those functions. But that is actually quite difficult. If it was so easy, companies would have released many i-mode-supported Androids already. The payment security of i-mode services is secure, and people expect this. Smart phones are too easy to hack, which makes them more risky.

Many of the mobile web services listed above have tried to make iPhone or Android versions, but could not find a way to securely implement a monthly fee. Although the major carriers are, as of March, starting to test the waters with smart phone apps that are paid for on users’ phone bills.

The Japanese financial newspaper Nikkei Shimbun reported that Docomo merged their i-mode and smart phone departments in March. But the company says they are only planning to transplant their i-concier and i-channel contents services onto Android, not the i-mode system itself.

I-mode-like systems are still huge and profitable. But there is the possibility that use of i-mode handsets could decrease with the rush to smart phones, on which no i-mode-like monetization model has been established. Companies face a problem as mobile users may become torn between highly-profitable-but-stale i-mode and less-profitable-but-modern smart phone ecosystems.

Once upon a time, there was a network service called Minitel in France. French people enjoyed its advanced services and better payment security long before the Internet. Some people, however, believe that the widespread use of Minitel actually delayed the adoption of the Internet in France.

This may be what we are seeing with the slow adoption of smart phones in Japan. I-mode, the world’s most advanced mobile ecosystem with a solid business model is still huge, but because it is only local to Japan it could eventually vanish.

Akky Akimoto writes for Asiajin.com. A Japanese version of this article is available on his blog at akimoto.jp. You can follow him @akky on Twitter.

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