Convenience stores may hold key to online sales

Softbank's recent announcement that it will team up with Seven-Eleven Japan and book wholesaling giant Tohan to sell books, CDs, and videos online makes a lot of sense. In an approach that's similar to the way fast food operators have trained customers to bus their own trays, Softbank will ask consumers to pick up their orders at the local Seven- Eleven, rather than receive them at home or work.

This approach actually offers some substantial benefits to the consumer. First, most people who order online work during the day, and many don't have anybody at home to receive packages (Japanese parcel delivery services generally will not leave packages unattended at a residence). Moreover, many of these people understandably prefer not to have personal parcels delivered to them at work. This can make mail order purchasing a knotty problem.

But almost everyone in non-rural Japan either lives within a two-minute walk of a convenience store, or passes one on the way to or from work. It's a simple matter to stop in and pick up a package - far more convenient than the local post office, for example. Moreover, convenience stores are located and set up to accept frequent deliveries of merchandise. This significantly reduces distribution costs on the part of the vendor, because in Japan, the lack of street names and gridded platting can make individual addresses difficult to locate (delivering individual parcels to specific residences is kind of like the "last mile" problem in the telecom industry - it's darned expensive to lay copper from the local telephone office to each house). Having consumers come to a convenient, central location is a brilliant solution.

Shibuya Ward's Shoto neighborhood is one of the snazziest in Tokyo. More than ten years ago I house-sat an IBM expat's digs there for about ten days - a place that rented for more than U.S. $10,000 per month at the time. I always wondered if that guy ever discovered how ordinary Japanese people live...

Now Shoto is getting a reputation as more than a tony residential area. It's at the center of a new movement aimed at establishing in Japan the equivalent of New York's Silicon Alley or California's Silicon Valley - a place where Internet startups and venture capitalists can rub shoulders, and IPO dreams can come true.

The movement/location is dubbed "Bit Valley," a name derived from Shibuya's literal translation as "bitter valley." Areas around Shibuya have become favored locations for Internet startups - companies such as NetAge, InterQ, Horizon Digital, NewsBase and others - and proponents of the "Bit Valley" concept say they feel a strong sense of camaraderie that comes not only from their commitment to Internet-based businesses, but from their commitment to the neighborhoods themselves.

If you're thinking of launching a start-up in Japan, it might be worth locating in Shoto - if you can afford the rent.

Interview with Sharon Barnett of Prestige International

This month we enjoyed telephone and e-mail chats with Sharon Barnett, Senior Vice President, Global Solutions at Prestige International, a leading international call center service headquartered in Japan.

- Tell us the Sharon Barnett story - how did you come to be involved in business in Japan, and in the call center business in particular?

Although I have been to Japan 33 times, I've never lived there. I joined Prestige without really knowing what I was getting myself into - at first handling calls on our insurance hotlines from Japanese travelers in distress. But I quickly got bored and went into business development.

- Give us a brief overview of where Prestige has call centers, what languages you handle, etc.

Prestige is the only Japanese call center company with a global presence: We have four major hubs located in Japan, Australia, the U.K. and the U.S., and we have a cluster of satellite centers in Singapore, Hong Kong and Paris, to name a few. We service 12 major Asian and European languages: English, Japanese, Mandarin, Cantonese, Korean, Thai, French, German, Spanish, Portuguese, Arabic, and Russian.

- How do you see the call center business in Japan being impacted by the Internet?

The Internet has impacted our industry so much that we are actually re-defining the business arena in which we operate. Rather than just handling calls, outsourcers such as Prestige International are handling a growing number of e-mail transactions, so in fact we think of ourselves more as a "contact center" or, to use the latest industry buzzword, CRM center (CRM = Customer Relationship Management). We regard the Internet as an immense opportunity, as opposed to a threat to our traditional phone-based services. Further, Prestige is a very client-centric company, and we are very driven by what the marketplace is telling us they need/want. Our clients are saying very clearly they want us to provide Internet-based services, and therefore we are directing a lot of our energies and financial resources to building this aspect of our business.

- Online shopping has augmented the traditional mail order business - how has that affected operations for traditional catalogers who are now on-line?

We represent five major U.S. catalogers in the Japanese market, and we have recently contracted with two U.S. e-commerce start-ups. Surprisingly, only one of the five traditional catalogers has a Japanese Web site. Needless to say, the start-ups both do. The other companies are all in the research phase, working out their approach. Some Japanese customers track down the catalogers' English Web sites, and we get calls when they're stuck - like what does this word or that word mean, how to confirm availability, what screen should they go to to open an account·We occasionally receive calls from customers who use the Internet as an information tool but for security reasons (especially credit card security) prefer to place their order over the phone rather than through the 'Net.

- With your catalog customers, approximately what portion of all inquiries are made by e-mail these days? How has this changed over the last year or two?

The number of e-mail inquiries we receive for our catalog clients is still small, for the simple reason that the catalogers have not really promoted e-mail as a customer service channel. Once they do this, we expect to see a huge lift in e-mail transactions. While I couldn't give figures of volumes we handle today, the number two years ago was zero!

- With respect to consumers who purchase from traditional catalogers, what do you see as the most compelling reasons for ordering or inquiring on-line as opposed to over the telephone?

I would say two of the most compelling advantages of on-line shopping would have to be 1) time convenience (Web sites are available 24 hours, as opposed to most catalog call centers in Japan, which generally are open during regular business hours), and 2) written confirmation - Japanese love having things confirmed in writing. If a company structures its Web site to automatically send back a confirmation of the customer's order, the customer feels very secure in the transaction.

- What about other indirect effects? Have online banking and retail securities transactions opened up new opportunities for call centers?

With the deregulation last year of the financial industry, a plethora of new opportunities have opened up for call centers. Several major international brokerage houses offering personal investment products are either building or outsourcing large centers in Japan this year. The Internet component will of course be crucial to their strategy - in some cases, it will be the cornerstone. Just today, I read in the Nikkei Financial Times that Ameritrade is launching over the next 12 months in Japan with on-line trades. The sub-heading to the article was, "Merrill also considering"·This can only be a great thing for the Japanese consumer.

- Can you comment on Prestige's Iridium contract?

Prestige is part of the Sprint consortium which operates Iridium's global customer care centers. It is public knowledge that Iridium has been going through some rough times, but we are confident and optimistic about the future of the project.

Sharon Barnett
Senior Vice President, Global Solutions
Prestige International (New York)
sharon@prestigein.com
Phone 212-317-7902

Industry Briefs

Japan's Internet user population exceeds 15 million - or is it 17 million?

The number of Japanese consumers with access to the Internet surpassed the 15 million mark in February of this year, according to the "1999 Internet White Paper," a report compiled jointly by publisher IMPRESS, the Internet Association of Japan, and market research firm ACCESS MEDIA INTERNATIONAL. The study found that Japan's Internet population had grown to 15,084,600 users as of February, up 49.4% compared to a year earlier. Furthermore, the findings suggest that nearly 13% of Japanese households now have access to the Internet, whether it be via PC, cell phone, PDA, or home video game system, and that 44% of all users have made an online purchase. Meanwhile, the MPT published its annual "Communications White Paper," putting the figure at 16.9 million. Both groups found annual subscriber growth rates to be close to 50%.

If only they would implement what they recommend...

An MPT committee has issued a report on next-generation Internet initiatives recommending that a broadband communications network be developed to allow consumers to use the Internet for electronic commerce and other applications. The committee says it is important to provide continuous access to users at fixed rates in order to promote widespread use of the Internet. The report predicts that data speeds on the Internet will increase tenfold every three to four years and that data traffic will surpass voice traffic around 2001.

Another on-line bookselling experiment...

NTT and the Toshokan Ryutsu Center (TRC) will begin selling books over the Internet on an experimental basis this month. A "personalized information distribution system" from NTT that analyzes the Web pages a person has accessed will be incorporated into the "P-hit!" service on TRC's site, which boasts a database of 730,000 publications. The experiment will last through January 2000. NTT wants to investigate the feasibility of electronic commerce, according to a spokesman.

HAMBRECHT moving into Japan

U.S. investment bank W.R. HAMBRECHT will enter the Japanese market in 2000. The company recognizes that Japan is the world's second-largest IPO market after the U.S., and is now in talks with Japanese financial institutions for the purpose of forming a joint venture, according to industry watchers. It reportedly plans to open an office in Tokyo within a year.

NTT, partners to launch online account statement service

NTT, MICROSOFT JAPAN, and NTT DATA announced June 10 that they will launch in fiscal 2000 a new service that will enable users to check credit card, public utility, and bank account statements via the Internet, and make payments into these accounts online. The partners will begin preparing for the launch by forming an Internet Account Statement Information Service Promotional Council to be comprised of various corporations and financial institutions that issue account statements. All Tokyo-based banks and major credit card companies, in addition to KANSAI ELECTRIC POWER COMPANY and OSAKA GAS, have already agreed to participate in the project, according to a spokesman. The partners foresee three to four million system users in five years.

Our favorite monopoly proves us spectacularly wrong

Our favorite monopoly is becoming less predictable: Japan Internet Report was proven spectacularly wrong in its prediction that NTT would win out in its battle with C&W over control of international carrier IDC. I sit humbled before my screen.

This is a good thing. My feeling is that NTT is snapping to attention, not because of pressure from the U.S., but because of rapid and real telecom reform taking place in China. The consumer-unfriendly, government-controlled behemoth may finally be starting to get with the free market program. Can fixed-rate telephone service be far behind? Stay tuned, but make your own predictions...

For those who still doubt that products sell online in Japan...

Dig this: $6 million in online sales in 20 minutes in Japan. No doubt you've heard about Sony's hands-down success in selling its "AIBO" pet robot dog over the Internet. The things costs 250,000 yen, or more than U.S. $2,000. Sony sold its entire initial allotment of 3,000 units in only 20 minutes - all in Japan.

If you read a series of articles about e-commerce in Japan that appeared recently on <www.wired.com> and <www.salon.com>, you'd get the strong impression that e-commerce in Japan is all but nonexistent. I can't reconcile this with the Sony success described above, or with our direct experience over the past four + years viewing millions of dollars of online orders being placed by thousands of Japanese customers with companies such as Amazon.com, Dell Computer Japan, and Outpost.com. The suggestion I gave to the writer of these articles was simple: Ask any leading U.S. e-tailer which country accounts for the largest portion of sales after the U.S. 'Nuff said.