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| Japan Internet Report No. 9 October 1996 ********************************************************** In this month's issue: - Shakeout in Japan's ISP sector - Interview with BNT President Kiyomi Saito - Industry news briefs - Demographics of JIR subscribers/editor comments ********************************************************** Shakeout in Japan's ISP sector The next four months will be exciting (and turbulent) times for the Japanese Internet. NTT will launch its OCN service, a move that will have even greater impact in Japan than did AT&T's entry into the US dialup market. That's because NTT will offer both "retail" dialup services to individual users and "wholesale" dedicated line services for other ISPs. As a result, smaller ISPs will have a tougher time competing (see our interview with BNT President Kiyomi Saito below). Even now, the provider industry is showing signs of a shakeout. Smaller ISPs are banding together and struggling to develop new sources of revenue through value-added non-access services. Yet nearly 60% of the top providers are losing money and 35% are barely breaking even, according to a survey by Daiwa Research Institute (another survey by Nikkei had similar results). Clearly, it will be increasingly difficult for any ISPs to survive by offering access services alone. The solution for many will be to merge with other providers or be bought out by major players. For suppliers to Japan's ISPs. This means fewer and fewer people will be controlling larger and larger purchase decisions. ********************************************************** This month we're pleased to present an interview with Kiyomi Saito, President of Tokyo-based Internet access provider Business Network Telecom (BNT). - Please tell us a little bit about your stint at Harvard Business school and how you came to be working at BNT. After graduating from the Harvard Business School with an MBA degree, l decided to work in the financial industry. I worked very hard at Morgan Stanley both in Tokyo and New York and was promoted to principal. Being a Japanese woman, I knew that was probably as far as I could advance at Morgan Stanley. Even though it was an American firm, there was strong discrimination against women in the Tokyo Office. I left the firm and set up my own company to do some consulting work. My expertise was mainly in finance but I was involved in management strategy related projects, too. In February '95, one of my friends who is a successful venture capitalist called me and asked me to help a startup company. It was an Internet provider established by a Canadian who does not speak Japanese. He was struggling to establish the business with his wife and an engineer. Although I did not know anything about the Internet at that time, I thought I could help them as a Japanese manager. I was made president of the company in April. Since then, I've worked day and night - it wasn't unusual for me to get back home after midnight. Most of the weekends were spent at the office. Luckily, the company, Global Online Japan (GOL) took off OK and the business grew exponentially. Very soon after joining the company, I had difficulty working with the founder. It was not a personality issue - more management-related issues. I won't go into the details, but in any case I decided to leave the firm. I had a contact with BNT, which was established this March. I liked Mr. Otsuki, president of the firm. He is only 26 years old, but is very mature for his age and he has a nice personality. I decided to join BNT and help them to start up their Internet business. Luckily, other engineers who had the same problem as mine at GOL joined me to move to BNT. We started working for BNT this summer. BNT has its own problems and difficulties, which are common for venture companies, but so far we are enjoying working together. - Could you briefly describe your position at BNT and the company's activities/strategy for the Japan market? I am Executive Vice President. We do not use the COO title, but my responsibilities are very similar to those of a COO. BNT's major stockholders are Onkyo (a company known as a high-end stereo manufacturer) and Teleway Japan (TWJ, a long distance telephone carrier that is a joint venture between Toyota and Japan Highway (a government entity). It's a great advantage to have a telco as a stockholder. We would like to make full use of this relationship and utilize the telephone network to develop a nationwide Internet business. - Japan's Internet market is poised for a new round of growth with the introduction of NTT's OCN services. Now the TTNet/KDD/WIDE/IIJ/Tokyo Internet alliance called CNS is forming as a rival to OCN. How do you see this affecting Japan's Internet market? OCN opposes a big threat to providers in Japan. We saw what happened after AT&T announced their entry into the Internet access provider business. The same will happen in Japan with OCN. However, it's great news for users. Telephone costs are much higher in Japan compared to the U.S. Many Internet users complain that their monthly telephone bill exceeds easily 200 dollars. Leased lines are also expensive. For 64K, monthly charges are more than $500. And to install a leased line, you have to pay a facility charge of more than $1,400. OCN will provide low-cost access to the Internet. Many Japanese are hesitant to get onto the Internet due to the high cost. OCN will help expand the Internet market, which will expedite the development of electronic commerce and other Internet-related businesses. In this respect, we will benefit from OCN. - What effects do you foresee OCN and CNS having on BNT? Needless to say, our survival is at risk. Small providers could be wiped out easily unless they have something to differentiate themselves. Our hope is that we manage to survive by fully leveraging the relationship with Onkyo and TWJ. Onkyo has strong interest in the Internet from the standpoint of sound/music. We will probably create karaoke-related services to differentiate ourselves. TWJ is considering a service similar to OCN, and BNT will cooperate with TWJ as much as we can in this regard. Also we will try to develop some unique services by ourselves. We have something to differentiate ourselves from other providers: Our engineers. Our engineers are experienced and very capable. Not only that, they are Americans. They can get the latest technology and information from the U.S. Most Japanese companies are still in very local when it comes to language and conceptual thinking. I believe our engineers providers with the strong competitive edge. Kiyomi Saito Executive Vice President Business Network Telecom (BNT) Tokyo, Japan TEL: 03-3239-0607 FAX 03-3239-2609 E-mail: kiyomi@giganet.net ********************************************************** Industry news briefs TOKYO INTERNET to participate in TTNET-led effort to develop service competitive with NTT's OCN Leading Tokyo-based Internet connectivity service provider TOKYO INTERNET will participate in an effort led by new common carrier TTNET to develop Computer Network Service (CNS), a new backbone service designed to compete with NTT's Open Computer Network (OCN). TTNET, which is backed by TOKYO ELECTRIC POWER (TEPCO), is driving the CNS initiative, providing its fiber-optic network that loops the greater Kanto region. Its partners include KDD, INTERNET INITIATIVE JAPAN, and the WIDE Project (Widely Integrated Distributed Environment), Japan's default Internet backbone run by Keio University. NTT may start its OCN services within the year, but the TTNET group plans to offer lower rates, though its services may not be commercially available until the fall of 1997. OSAKA MEDIA PORT to launch service competitive with NTT's OCN OSAKA MEDIA PORT (OMP) plans from August of 1997 to launch World Computer Network (WCN), a service competitive with NTT's Open Computer Network (OCN), a comprehensive Internet connectivity service menu slated to become available as early as yearend. OMP plans to offer rates equivalent to or lower than NTT's, but provide a larger menu of services as well as midrange 192 to 768Kbps circuits that won't be available through OCN. WCN is the second service competitive with OCN to be announced this month; new common carrier TTNET already unveiled plans for Computer Network Service (CNS), a similar service concept. The three initiatives signal greater growth and lower costs to users in Japan's already booming Internet market, say observers of the nation's online scene. INFOSEEK to enter Japan's search engine service market California-based Internet search engine service INFOSEEK will enter the Japan market in October. The company plans initially to use search engine software made in Japan, but will switch over to its super high-speed Ultra Seek search engine as soon as localization work is complete. INFOSEEK says it will start with approximately 100,000 listings and solicit advertising primarily from U.S. companies targeting the Japan market. To drive the project, it will establish a joint venture capitalized at about $20 million, with 10% of the funding to be provided by KANEMATSU. AICHI STEEL WORKS starts using Internet for international procurements AICHI STEEL WORKS, a leading specialty steel manufacturer affiliated with TOYOTA, on September 11 unveiled an international procurement section on its Web site designed to attract new overseas suppliers. The company wants to develop new vendors, solicit value analysis proposals from existing vendors, and increase the portion of transactions it conducts without going through trading companies. AICHI STEEL launched its Web site in March and plans to develop the international procurement pages into a key sourcing mechanism. The company's site can be viewed at http://www.aichi-steel.co.jp. NTT to establish first U.S. research center NTT will establish its first U.S. research in California's Silicon Valley at the end of September. The new facility, to be called the Multimedia Research Center, will focus on developing Internet-related multimedia service technologies and conducting market research. NTT also hopes the new presence will help it develop business partnerships with leading-edge local firms. The new facility will be located either in Palo Alto or Mountain View and will initially be staffed by 20 NTT employees to be dispatched from Japan. The company says it plans to boost the center's workforce to about sixty, including local hires, two to three years from now. NTT is reportedly considering establishing similar research facilities in Malaysia and elsewhere in Asia. SEGA forms partnerships with four West Coast Internet companies to expand game business in U.S. market In a bid to expand its game business in U.S., SEGA ENTERPRISES has formed partnerships with ARC INTERFACE of Washington and PLANET WEB, EXCITE, and CONCENTRIC NETWORKS, all of California. ARC will provide Web design services, PLANET WEB and EXCITE will provide browser and search engine software, respectively, and CONCENTRIC NETWORKS will provide hosting services to support Sega Saturn NetLink, an online game product to be released October 31 for approximately yen20,000 ($182). In addition to software, the product will include a 28.8Kbps modem and a month of free online gaming, with subsequent service to be charged at about yen2,000 ($18) per month. SEGA lags SONY COMPUTER ENTERTAINMENT (SCE) in sales of 32-bit video game players, and sees the new service as a way to bolster hardware shipments. It also views the new partnerships as building blocks for future Internet-related businesses. CYBERSPACE JAPAN survey finds nearly 50% interested in trying online shopping Tokyo-based search engine service CYBERSPACE JAPAN completed its fourth Web-based survey, finding that 49% of the 3,003 respondents are interested in "giving online shopping a try soon," according to the company. That figure was up 12 points from the March 1995 survey. The survey also found that 10% of the respondents were women, up six points from a year earlier, and that a growing number of older users are coming online. The results also suggested that NETSCAPE COMMUNICATIONS retains more than an 80% share of Japan's browser market, while MICROSOFT's Explorer lags with less than a 15% share of the market. ********************************************************** Demographics of JIR subscribers/editor comments When we started JIR, we promised to provide subscribers with readership demographics. Following are a few notes based on responses to our Web subscription form at www.tkai.com. This data may not accurately reflect readership today, as more than half our readers are now subscribing by e-mail. - JIR has over 450 subscribers worldwide. More than 30% are located outside the U.S., in Japan, China, Hong Kong, Singapore, Australia, New Zealand, the Netherlands, Israel, Germany, Canada and elsewhere. - About 18% are women. - More than one in six have visited Japan either on business or for pleasure. - Only 17% describe themselves as being in occupations directly related to computer usage.
What's given us the greatest pleasure publishing JIR is hearing from subscribers who have
gotten in touch with each other as a result of the newsletter, sharing information and
sometimes even doing business together. We are especially grateful to the interviewees who
have been so generous sharing their time and expertise with all of us. NOTE: Some JIR industry briefs appear later in Computing Japan magazine under modified titles. JIR is co-sponsored by Digitized Information, Inc. of Tokyo, a leader in providing daily English language coverage of electronics industry developments in Japan. For more information on monitoring electronics industry developments in Japan, or to receive a free e-mail sample of service offerings, please contact Digitized Information at diginfo@gol.com
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