********************************************************** Japan Internet Report No. 37 April 1999 ********************************************************** In this month's issue: - Looks like 1999 is "international" year for U.S. companies - Japan Internet Report now in fourth year - SPECIAL REPORT: Mobile phone as 'Net platform - Finance folks: Note this quote - Industry Briefs - Why are we not surprised? - Department of Redundancy Department - Note to readers requesting information - Confession and redemption ********************************************************** Looks like 1999 is "international" year for U.S. companies Looks like 1999 is the year that U.S. companies discovered that - by gosh - there are Internet users outside of the United States! And they're actually using it to make purchase decisions! It's always amusing to read about U.S. firms announcing their initial international online initiatives in Europe, Latin America, Hong Kong, and elsewhere - everywhere but Japan, the world's second-largest Internet user market and second-largest economy... That's changing. TKAI is now so busy that we're turning down work. Another exciting development: activity elsewhere in Asia, especially Korea, is really picking up. In one case, we've seen online sales to Korea grow elevenfold over the past year. TKAI has been active online in Korea and greater China for more than two years, but 1999 is shaping up to be a blockbuster... ********************************************************** Japan Internet Report now in fourth year Where does the time go? Japan Internet Report (JIR) began its fourth year of publication last month. Readers who have just signed up may be interested in looking over back issues at <www.jir.net>. You'll get a sense of the flow of events over the last several years, and have the chance to evaluate our track record of articulating and anticipating trends. Some great interviews, too - still hard-hitting in spite of the passage of time. ********************************************************** SPECIAL REPORT: Mobile phone as 'Net platform The cellular telephone's emergence as a key platform for accessing the Internet in Japan is now undeniable. Some industry observers even say mobile telephones will overtake personal computers to become the dominant means by which people in Japan go online. NTT DoCoMo's i-Mode service, which offers mobile telephone-based Internet access and e-mail services, is a runaway success. DoCoMo alone has nearly 24 million of Japan's 47 million subscribers (it picked up 599,000 new accounts last month). The company reckons it can convert 2-3 million of these subscribers into i-Mode users by February of next year, and build its i-Mode user base to 10 million three years from now. Other evidence: a growing number of Tokyo-based venture firms are using cellular and PHS telephones to provide subscribers with text-based information services. Cellular phone reseller MTI of Tokyo, for example,is providing subscribers with stock price data, while content firm CYBYTE, also of Tokyo, is offering e-mail pen pal, bulletin board, and other services. Meanwhile, Softbank plans to team up with telecom venture IMD to launch a new e-mail content/advertising service targeting users of Internet-enabled cellular handsets. Users will be able to send and receive e-mail at a charge of one yen ($0.008) per message, while receiving a variety of free content, including advertising. The partners hope to acquire one million subscribers and take in upwards of one billion yen ($8.5 mil) in sales by 2001. The bottom line is that there are far more mobile telephone users than Internet service subscribers - not only in Japan, but throughout Asia. This makes the mobile telephone handset an increasingly attractive platform for providing information services, both on and off the Internet. Moreover, compared to the general Internet space, fewer large companies have moved into the mobile phone-based information services sector. This makes the fledgling market an attractive arena for nimble venture firms... ********************************************************** Finance folks: Note this quote While we're on the subject of mobile access to the Internet: a manager at Nikko Securities predicts that "the number of (retail securities) transactions executed over i-Mode terminals will probably exceed the number conducted over the Internet (using PCs) by a factor of five to ten." ********************************************************** Industry Briefs MATSUI jammin' in online retail securities sector MATSUI SECURITIES will soon open a customer service call center. A staff of 60-70 will help customers with Internet orders, which have been booming recently, according to a spokesman. MATSUI started offering its online trading service, including margin and options trading, in May of 1998, and last month the company's online trading commissions reached 100 million yen ($826,446), more than 20% of total operating revenues, the spokesman said. The securities firm expects the volume of online trades to really take off when commissions are fully deregulated in October. In a separate development, MATSUI struck a deal with DELL JAPAN to provide customers with PCs already set up with online trading software. Elsewhere in online financial news... DAIWA SECURITIES will later this month completely revamp its online securities trading site, dubbed Daiwa Direct. The company plans to make the site easier to navigate, and will start providing value-added investor information such as overseas market updates and other economic news. Although the company claims it now holds the top spot in the Japanese online securities market, SONY, which plans to launch a similar service later this spring, and other companies are beginning to pose a serious challenge to DAIWA's leadership, say industry watchers. The company currently claims 23,000 online subscriber accounts. COMNET ENTERPRISE to start selling air tickets online Tokyo-based online travel information provider COMNET ENTERPRISE will from April 14 start selling international discount air tickets online. The company will provide the service through its online travel site, Travel Square, where visitors will soon be able to reserve, search, and pay for air tickets. The site is located at: <http://travel.gsquare.or.jp/travel/index.htm>. FUJITSU getting with the Internet sales program FUJITSU will restructure its U.S. PC sales organization starting in May. The company will begin by eliminating two-thirds of its dealers, and will begin selling PCs to consumers directly online. FUJITSU wants to make the shift from retail to direct online sales because of poor PC sales performance among retail outlets. The company hopes to make its PC sales division profitable, then expand operations sometime after 2000. Telephone being transformed into vehicle for advertising... KDD CREATIVE, a wholly-owned subsidiary of KDD, will from May 1 start offering a new telephone service dubbed "UHA!" that allows users to make free three-minute domestic long-distance calls in exchange for listening to two recorded advertisements before placing the call. Advertisers will foot the bill for each three minutes of calling time accrued after users listen to their respective ten-second advertisements. KDD CREATIVE will collect advertising and calling fees from advertisers, then reimburse KDD for actual calling charges. The company hopes to start taking in annual sales of 1.5 billion yen ($12.6 mil) two years from now. Separately, SOFTBANK will team up with Tokyo-based telecom venture IMD on May 10 to launch MoCo Mail, an advertising-driven e-mail service for users of Internet-enabled mobile telephone handsets (see SPECIAL REPORT above). AMERICAN MALLS INTERNATIONAL JAPAN to create online mall Tokyo-based AMERICAN MALLS INTERNATIONAL (AMI) JAPAN, a subsidiary of the Washington, D.C.-based commercial development firm, will this fall create an online mall that will sell overseas name-brand goods. The company has not yet revealed details concerning the Web site, but has indicated that it plans to sell a wide variety of products at low cost, and link the online shopping experience to an actual brick-and-mortar shopping mall that it developed in Japan. VOLKSWAGEN, RECRUIT to launch online car buyer's guide One hundred and fifty-one Japanese VOLKSWAGEN dealerships will soon team up with RECRUIT to create an online buyer's guide aimed at potential buyers of new VOLKSWAGEN and AUDI cars. The service will reside on Car Life, a feature of RECRUIT's "ISIZE" online shopping site, located at <http://www.isize.com>. The service will offer information on cars being sold by the VOLKSWAGEN GROUP's 51 FAHREN and 100 DUO subsidiaries, and will enable site users to obtain online estimates and dealer references. VOLKSWAGEN FINANCE JAPAN will handle customer loans. The VOLKSWAGEN GROUP estimates that in five years it will sell 25% of its cars over the Internet. Corporate Internet usage grew sevenfold in three years, says survey Use of the Internet by Japanese corporations with annual sales exceeding 10 billion yen ($84.0 mil) grew by a factor of seven over the past three years, according to a survey done by MULTIMEDIA RESEARCH INSTITUTE of Tokyo. The telephone survey of 1,232 companies found that 89% are using the Internet, compared to only 12% in 1996. MULTIMEDIA RESEARCH INSTITUTE says that extrapolation of the survey results suggest that 95% of all such corporations will be using the Internet by 2000. Dial-up connections were used by 47% of the respondents, while only 38% used dedicated connections. CWC's Tokyo-Nagoya dedicated line rates to be less than half NTT's Tokyo-based CROSS WAVE COMMUNICATIONS (CWC), a joint venture of INTERNET INITIATIVE JAPAN, SONY, and TOYOTA, announced rates for its Tokyo-Nagoya dedicated lines services, slated to start up the end of this month. CWC says it will offer 1.5Mbps, 45Mbps, and 150Mbps at rates less than half of what NTT offers. For example, a 1.5Mbps line linking Tokyo and Osaka will be priced at 624,000 yen ($5,157) per month, compared to NTT's price of 1,532,000 yen ($12,661) per month. CWC is Japan's first dedicated data communications corporation, according to a spokesman. Internet-based commerce to soar, says MITI MITI forecasts that Internet-based commerce will soar from 8.7 trillion yen ($71.90 bil) in 1998 to 70 trillion yen ($578.51 bil) in 2003. The value of transactions made by consumers using PCs will grow from 65 billion yen ($537.2 mil) last year to 3.16 trillion yen ($26.12 bil) in 2003. Travel package purchases will be the leading consumer category, according to the forecast. Online purchases of PCs, books and automobiles are also expected to grow significantly, MITI says. Purchases of information technology products and automobiles and automotive parts accounted for 80% of business-to-business transactions, which reached 8.6 trillion yen ($71.07 bil) in 1998. Inter-company transactions are expected to hit 68.4 trillion yen ($565.29 bil) in 2003, the ministry predicts. Wholesale version of Drugstore.com to debut in Japan? MEDICAL PRODUCTS will in July start up a Web-based pharmaceutical auction system whereby participating pharmacies and pharmaceutical wholesalers auction off excess inventory of medicines and related products. The auction site is expected to help pharmacies run their businesses more efficiently, given the tough operating environment they face amid reductions in government reimbursements for prescription medications. The fee for pharmacies to participate in the auction service will be 12,000 yen ($99) per year, with an additional processing fee of 300 yen ($2.50) per completed transaction. To prevent unauthorized drug sales, participation in the auctions will be limited to pharmacies and pharmaceutical wholesalers. ********************************************************** Why are we not surprised? International long-distance carrier IDC announced that it will agree to a buyout by NTT, in spite of protests from stakeholder Cable & Wireless of the U.K. While there is still some hoopla over the issue, does anyone really believe C&W will prevail? TKAI research associate and Webmeister Kevin Schaer notes that "I guess they draw the market entry line at foreign sumo wrestlers..." ********************************************************** Department of Redundancy Department Japan's Fair Trade Commission, that fearless watchdog organization, has cited NTT DoCoMo for restrictive trade practices - namely, requiring that its handset suppliers not sell new models to other carriers until DoCoMo can capture, on an exclusive basis, the substantial (and time- sensitive) subscriber-attracting advantages of new models (does this give us all a hint as to why NTT and Microsoft are such close partners?). So the FTC, a 100% Japanese government organization, is finally dealing with NTT, a company 65%-owned by the Ministry of Finance, for abusive practices in a sector where an NTT subsidiary enjoys a majority market share. No doubt DoCoMo will be "severely reprimanded..." ********************************************************** Note to readers requesting information We get quite a few inquiries from JIR readers that start like this: "Do you have information on..." The answer is "yes and no." Yes, we do have or can get that information, and no, we don't work for free. Japan Internet Report is the extent of the free services we offer. Also, if you send me mail, please include a signature that has your company name and telephone number. I'm inclined to ignore mail that doesn't include conventional contact information, especially when it's sent through through free Web-based accounts. ********************************************************** Confession and redemption Four years ago, when I started this business (of which Japan Internet Report is a small part), I didn't anticipate that TKAI would turn into the rockin' little company it has. At the time, I just wanted to 1) focus 100% on what interested me most - the Japanese Internet, 2) leverage my skill set and MBA training in the most interesting possible way, and 3) work happily and with the freedom to experiment and blunder, without getting naysayed by those who are underinformed about the Japanese market. It wasn't easy. The salary was far below what I previously earned as a junior bureaucrat at a blue chip company, and the first year I had to hold off on cashing my own paycheck a couple of times. The low point was probably when a key employee's paycheck bounced. We made good on it immediately, but it was humbling. I resolved never to disappoint anyone like that again. I remember how annoying it was to receive a pointed e-mail from someone openly doubting our business plan and informing me that "almost no one is online in Japan." Later it was gratifying to see that same person attending one of our standing-room-only seminars and asking about work at TKAI (she didn't get the job). In spite of the hard times, we managed to squeeze out a small profit even in the first year. Now I feel redeemed. TKAI is actually turning away some work - something which is done, believe me, with a tremendous feeling of gratitude, not pride. Because the company is profitable and enjoys excellent cash flow, we are now accepting project-based engagements compensated with stock. Earlier this month we signed the first of these stock-for-services agreements, and are proposing more. We are extremely grateful for the privilege to work selectively, align our interests 100% with our clients, and remain focused on what interests us most in the business world - the Japanese Internet. ********************************************************** Tim Clark Main Guy To subscribe or unsubscribe to JIR, send any message to: subscribejir@tkai.com unsubscribejir@tkai.com Copyright 1999 by Ion Global and Digitized Information, Inc. All rights reserved ------------------------------------------------------------ Ion Global (USA) Japanese e-business specialists http://www.tkai.com/ Tel. (503) 235-4433 Fax (503) 235-4422 ------------------------------------------------------------