********************************************************** Japan Internet Report No. 53 - December 2000 ********************************************************** In this month's issue: - "Reference spending" huge - Is music really killer content for wireless? - SIPS attain buzzword status but lose momentum - Japanese government allows online gambling - L-mode: just silly, or downright illegal? - New record? $1.3 million online in 60 seconds ********************************************************** - "Reference spending" huge "Reference spending," the term for offline purchases of products or services based on information that consumers find online, is huge in Japan. Real estate, automotive, and finance are three areas where consumers are increasingly referring to Web-based material in preparation for purchases. In many cases, the purchase decision is made exclusively based on Internet research. The potential value of reference spending is made clear by the results from Andersen Consulting's joint study of Japanese e-commerce with the Electronic Commerce Promotion Council of Japan. Released earlier this year, these results showed that real estate and automotive were the two most important sectors in terms of online-driven consumer spending. We see growing evidence of this kind of spending. For example, Daikyo, Japan's largest condominium builder, says that online marketing drove sales of more than 1,000 of its condominiums in fiscal 1999, a figure that accounts for about 10% of total unit sales. Daikyo President Hasegawa says the company will soon have 30% of its sales force of 700 dedicated to Internet sales, and that it expects to boost the number of condominiums "sold" annually through the Internet channel to 5,000 within the next several years. As a side note, Mr. Hasegawa sees condominiums taking on the "service depot" role fulfilled by convenience stores in Japan (see JIR #40, July/August 1999). Hasegawa believes Internet access should be as standard a feature as flush toilets in a condominium, and as of January of this year, every unit that Daikyo sells offers built-in dedicated Internet connectivity. The company is also considering putting ATMs in condominium lobbies, making in-building mailboxes available to non-residents, and offering home delivery of merchandise and services ordered via online channels, all aimed at creating revenue streams that continue long after what is now a one-time purchase... *********************************************************** - Is music really killer content for wireless? Could digital music downloading be the killer application for Internet-enabled cellular telephones? Based in part on the spectacular success of Napster (38 million users worldwide), many see digital music downloads as the holy grail of wireless applications. It sounds compelling, and certainly fits the "lifestyle electronics" orientation and young demographic of Japan's Internet-enabled mobile telephone users. Eyeing this potential, DDI launched an MP3 music data download service late last month for its PHS subscribers (PHS is simplified cellular service, known as PCS in United States). NTT DoCoMo enlisted 24 different record companies to experiment with a similar PHS-based service between May and October of this year, and hopes to move to commercial operations by the end of this month. Both companies have targeted PHS users because of the fast download speeds delivered by PHS transmission technology: up to 64 kbps, compared to i-mode's 9.6 kbps. But roadblocks remain. To download tunes from DDI's service, for example, subscribers need to purchase a special handset that costs about U.S. $136. But to listen, they need to buy a separate, dedicated player priced at around U.S. $180. Meanwhile, NTT DoCoMo's integrated telephone handset/player is expected to be priced between U.S. $270 and $360, which isn't exactly chump change for young users. Existing handsets simply can't be used for the service, meaning marketers have to work with an installed base of exactly zero. Moreover, in addition to the service fee of approximately $2.70 that is paid to the content provider for each song, users of either DDI's or DoCoMo's service will incur about $0.90 in airtime charges for the approximately eight minutes it takes to download the data, say industry watchers. That raises the actual cost per tune to the shy side of $4. Until recently I've been skeptical of the whole notion of fee-for-service music downloads. But in spite of the drawbacks of NTT and DDI's PHS-based services, the potential market appears more and more intriguing these days. As an amateur musician and former dabbler in electronic music (I own more drum machines, mixers, effect devices, sequencers, guitars, and other paraphernalia than I care to admit), I'm hopeful that this sector will develop in a way that benefits artists, consumers, and music companies alike. The PHS effort probably isn't the shape of things to come, but it's a start, and it's certainly providing some clues as to how successful fee-based music download services might develop. *********************************************************** - SIPS attain buzzword status but lose momentum Just as the "SIPS" acronym (Strategic Internet Professional Services) is gaining currency in Japan, most of the SIPS companies themselves are losing momentum. A recent issue of one Japanese-language Internet industry magazine featured an overview of the key U.S. players moving into the Japan market, but between the time the article was written and the magazine was published, one of the firms most prominently featured in the story had closed its Tokyo office, and all had announced substantial layoffs. The tough new climate for SIPS companies is going to sorely test their commitment to international markets, especially those in Asia. Most SIPS open their first overseas offices in Europe, where they can get by in English and enjoy transparent business practices. Over here, it's a different story altogether... *********************************************************** - Japanese government allows online gambling The Japanese government is firmly opposed to Internet-based gambling, except, apparently, when it comes to enriching its own coffers. I'm referring to the Takarakuji, or national lottery - Japan's only legal cash payout lottery. Dai-ichi Kangyo Bank, the bank authorized by the Japanese government to operate and manage the Takarakuji, is now selling lottery tickets online and through NTT DoCoMo's i-mode service. What gets me is that the only way consumers can purchase lottery tickets is by first establishing an online bank account with Dai-ichi Kangyo, a service that costs 1,575 yen per year. So in essence, Dai-ichi Kangyo is using its exclusive, government-granted Takarakuji franchise as a marketing tool to attract consumers to its online banking service. Pretty slick. But heck, it's tough being a bank in Japan these days. The competition is ferocious, and getting worse with the entrance of Internet-only banks, such as Japan Net Bank (www.japannetbank.co.jp), which launched October 12. Exactly two weeks later, Sanwa Bank announced that it had canceled its plans to open an Internet-only bank next spring, citing greater-than-expected system investment and customer acquisition costs. *********************************************************** - L-mode: just silly, or downright illegal? NTT East and NTT West announced plans for their so-called L-mode service in October to generally negative responses. Industry watchers and Japanese Internet users questioned the utility of the service, which would allow consumers to access Web sites written in cHTML (the same markup language used by i-mode phones) from specially built fixed-line telephones, and criticized the decision not to allow access to the sites on the official i-mode menu (see JIR #51, October 2000 ). But the most negative response was from competing telco KDDI, which promptly filed a complaint with the Ministry of Posts and Telecommunications. The substance of the beef? KDDI claims that by providing access to e-mail and Web sites, the L-mode service constitutes long-distance services, a violation of the limitations on NTT's business scope that were imposed in order to foster competition when the company was privatized. In response, NTT East and West claim that because the inter-prefecture part of the transmission would be handled by other companies (Internet service providers, apparently), L-mode is within the letter of the law. The Ministry of Posts and Telecommunications will release its final decision on the matter in mid-January. Given that the Japanese government is still a major NTT shareholder, it's not too hard to guess which way this decision will go... *********************************************************** - New record? $1.3 million online in 60 seconds Tokyo-based Power-buy.com may have set a new record of sorts for online sales. At 12 noon on October 25 the company started taking orders for 32 used Nissan Skyline GT-R automobiles manufactured between 1989 and 1993, and sold out the entire lot within one minute, racking up sales of approximately U.S. $1.3 million. The secret? The cars had been specially tuned up by auto engineering ace Shinichiro Sakurai, a hero to hard-core Japanese sports car enthusiasts. So it was really the power of the offline Sakurai "brand" that made the successful sale possible. Another reminder that in the b-to-c sector, it is those with offline brand power who are poised to benefit most from online channels. ********************************************************** Tim Clark Editor Please use the online forms to subscribe or unsubscribe to JIR. Copyright 2002 by Ion Global All rights reserved ---------------------------------------------------------- Ion Global a chinadotcom company http://www.ion-global.com / http://www.jir.net/ Tokyo Tel. (813) 5464-0384 Fax 5464-0387 U.S. Tel. (503) 235-4433 Fax 235-4422 ----------------------------------------------------------