Japan’s KDDI Smart Pass App Subscription Service Is A Hit

In the world of wireless carriers, “differentiation” is the holy grail when it comes to selling what appears like a commodity: wireless communications. Since this is one of the largest industries in the world (the top 10 carriers generate $202B annually), wireless carriers enjoy revenues and margins that are relatively comfortable, and one of their biggest fear is to be turned into a “dumb pipe” with prices eternally going down and with bandwidth speed and data caps being the sole focus of the customer.

They are fighting hard to prevent this from ever happening, but unfortunately, most of the “differentiation” attempts are not all that great for you and I: changing the names of handsets throws consumers into utter confusion and carrier apps and services are often not really popular, and that’s natural: why would you invest in something that you won’t be able to use if you switch to another network?

Carrier “app stores” usually fail

In a quest to find high-margin revenue sources, carriers have also attempted to build and market their own “app stores”.  After all, this is more or less a “download” business and it seemed like a good idea since carriers (somewhat) control the handset, so it seems easy enough to “plug” their own stores. Maybe so, but the competition from Google Play and Apple’s app store has proven to be extremely difficult to deal with… until KDDI came up with an old-school business idea: what about bringing “real added value” to the app eco-system? The question is “how”.

Smart Pass is an “all you can download” apps subscription

To achieve this goal, and make good money at the same time, KDDI has brought KDDI Smart Pass to market. It is effectively an app subscription service in which users pay a small monthly fee (390 Yens, or $4 USD) and in return, they have unlimited access to a library of apps or app upgrades that would otherwise have to be paid in the Android Market.  Note that the difference between an “app store” and an “app subscription service” is that you don’t “own” the apps. Instead, you “rent” them and have access as long as you pay the monthly fee. This is very similar to what music subscription services are today. Not everyone likes the idea, but those who do typically love it.

Of course, some apps can still sell in-app items and upgrades to further monetize their work, but basically, the idea is that KDDI subscribers feel like they immediately get their money’s worth. The app selection is currently limited to 500 “popular apps” (that come and go), and developers are competing to get in because KDDI can provide additional exposure, new users, and ultimately… incremental revenues.

The idea is very compelling, and for those who spend more than $4 dollars a month in apps, something like this would allow them to explore a this universe of curated apps, without having to worry about the initial cost. In terms of “exploration”, this is a radical advantage over the Apple Store or Android’s Google Play, which do not have “trial periods” (unlike Windows Phone) during which users can check and app and discard it if they are unhappy. The “all purchases are final” rule seems to deter users from trying apps that may otherwise be interesting.

Others are starting to replicate it

As of late, KDDI announced that they had 5M subscribers. In fact, this works so well that DoCoMo, Japan’s largest wireless carrier, has a project that looks exactly like it. But what works in Japan doesn’t always work in the rest of the world, so there’s no telling if the concept will function in America or Europe. I personally find it to be sound, and for a few dollars, I may jump on board with something like this. What’s your take? Would you go for an “all you can eat” app subscription model? Should U.S carriers do something like Smart Pass?

Hubert Nguyen
Categories: Cellphones
Tags: Apps, Japan, kddi