*********************************************************** Japan Internet Report No. 55 - February 2001 A monthly publication by Web Connection, Ltd. *********************************************************** In this issue: - i-mode's chances in Europe - Paying to get spammed - Credit card is top online payment mechanism - Japanese e-commerce by the numbers - "First-rate source for criticizing" - Five full years for JIR *********************************************************** i-mode's chances in Europe Earlier this month I had the opportunity to meet with a number of U.S., Latin, and European cellular operators at Lucent Technologies' LINC2001 conference in Miami. The firms attending included one in which NTT DoCoMo has recently taken a capital stake. On the whole, these operators are excited about the potential for i-mode-like services in their home countries, so they are keenly interested in how the market is developing here in Japan. At the same time, they are cautious about some very real challenges that the i-mode model will face overseas, particularly in Europe. For example, in Germany more than half of all cellular telephone subscribers are "prepaid" users. This means that telephone companies do not send these subscribers monthly bills, and therefore these companies lose the opportunity - which DoCoMo has used so shrewdly - to create annuities by "bundling" data service charges with their invoices or providing cooperative settlement services. Moreover, consumers in the U.S. and Europe are far more price sensitive than Japan's generally docile subscribers, who are used to paying high prices for nearly every domestic service they purchase, including mobile telephone air time. Cellular and PHS voice transmission charges here in Japan are still extremely high by international standards (at my desk I have a phone that shows per-minute and total charges for calls in progress, and when I call a colleague's cellular or PHS handset, the expense of even a short conversation can be startling). Young people in Europe are also far more PC and Internet-savvy than their counterparts in Japan. They generally have their own rooms at home with sufficient space for PCs, and many have e-mail accounts at home, at school, and at work. Therefore they are far less interested in alternative mechanisms (e.g. cellular handsets) that simplify the process of getting an e-mail account. In contrast, obtaining one's first e-mail account is a key driver of Internet-enabled cellular handset usage here in Japan. I do believe that there will be substantial growth in Internet-enabled mobile telephone usage overseas, and particularly in Europe. But in order to make it happen, carriers will need to develop an original approach, and get a lot of help from those with "non-telecom" mindsets. *********************************************************** Paying to get spammed I recently bought a new i-mode handset and got a new cellular telephone number from NTT DoCoMo. But I was surprised when the new handset rang shortly thereafter, since I hadn't memorized the new number myself, let alone given it out to friends and family. It turned out to be an e-mail message -- spam inviting me to apply for a part-time job at a call center selling long-distance services (no dress code or rules about how you have to wear your hair!). The sender is clearly quite savvy about transmitting e-mails to i-mode users who haven't yet changed their default e-mail addresses, which consist of the telephone number followed by <@docomo.ne.jp>. Since I didn't need the extra work, I instead pondered the broader implications of this message, and the other unsolicited messages that arrived in the same way over the next few days. Finally it came to me: I'm paying NTT DoCoMo to receive spam. Now that's one heckuva business model! *********************************************************** Credit card is top online payment mechanism The credit card is now the most popular online payment mechanism for business-to-consumer online commerce in Japan. A recent study by Nikkei (sample size = 15,573) found the credit card to be the most-preferred payment mechanism among those with online shopping experience. This result is substantiated by The Web Connection's (TWC) own Japanese survey completed earlier this month (sample size = 17,531). We also had exactly the same results as Nikkei in terms of the next three most popular payment mechanisms, which, together with credit cards, account for more than 97% of all b-to-c online payments. These alternate payment methods are as follows (in descending order of popularity): 2. Electronic (offline) bank or postal savings funds transfer 3. COD (cash on delivery) 4. Convenience store settlement (offline) Our survey found that less than 1% of respondents used prepaid cards or other electronic payment mechanisms. The Nikkei study phrased its response somewhat differently, but found that only 1.1% of respondents used ISP-sponsored electronic settlement mechanisms (such as So-net's "Smash" service). It is worth noting that in spite of all the hoopla about convenience store commerce, fewer than one in 14 respondents with Internet shopping experience have actually settled transactions through convenience stores, while nearly one in three have made purchases online using credit cards. Moreover, the average value of convenience store transactions initiated online is extremely low compared to credit cards, with the lion's share of transactions worth 5,000 yen or less. My guess is that convenience store settlements account for far less than one percent of the total value of business-to-consumer online commerce in Japan. JIR has commented for almost three years about how the credit card will emerge as the predominant online payment scheme here in Japan, and now research results support this view. See "Credit cards rule Japan's online payment sector" and "Bleak future in Japan for electronic money". *********************************************************** Japanese e-commerce by the numbers Here are some fun e-commerce numbers to know and tell: - Honda attributes sales of some 6,000 of its S2000 sports car to direct e-mail marketing, for revenue exceeding U.S. $208 million between April 1999 and April 2000 - Apparel dynamo Fast Retailing expects to achieve sales of U.S. $13 million in its first five months online - Publishing giant Recruit forecasts sales of about U.S. $174 million from its ISIZE operations in the year through March 2001 - Computer products retailer Sofmap sold about U.S. $10.4 million online in December 2000 - Consumer electronics retailer Murauchi and computer products retailer LAOX each expect online revenues of more than U.S. $17 million in the year through March 2000 (through March 2001) - Video rental/retailer Tsutaya foresees sales of U.S. $6.1 million for the year through March 2001 *********************************************************** "First-rate source for criticizing" Our friend and colleague Frank Yu recently sent us a draft of the upcoming issue of the Asia Internet Report, in which he discusses Altavista/Babelfish's new Asian-language-to-English (and vice-versa) online translation feature. You'll be able to read his commentary in its entirety when the newsletter comes out in the next few days - if you're not subscribed now, you can view the current issue or subscribe online at http://www.asiainternetreport.com. Curiosity piqued, we surfed over to Altavista to check it out. We typed in this simple English phrase: "JIR is the leading source for Japanese Internet news and commentary," and selected "English to Japanese." The resulting Japanese was not only accurate, but grammatically correct as well - very impressive. Just out of curiosity, we took that sentence and this time had the software translate back into English. This resulted in: "The JIR is news of Japanese Internet and first-rate source for criticizing." Just goes to show that you can't please everyone... *********************************************************** Five full years for JIR This month's issue marks five full years since I first launched Japan Internet Report (JIR) back in February of 1996. I'd like to thank readers for their continuing support. Over the past year, my work responsibilities changed significantly, and as a result I gave some thought to retiring from writing this newsletter as of this issue. Now I feel like I'm starting to get a second wind. What I really need is simply more time to spend on JIR and the activities related to it. So I'm going to try to rearrange my schedule a bit so I can continue to regale readers with the mix of self-promotion and tales from the front you have come to know and love over the past five years. Cheers! *********************************************************** Tim Clark Strategy Director, Japan tim.clark@twc-jp.com Please use the online forms to subscribe to or unsubscribe from JIR. Copyright 2002 by Web Connection. All rights reserved. Tel: +81 3 5777-3810 Fax: +81 3 5777-3814 Web Connection http://www.twc-asia.com Winning Solutions in the Digital Economy