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********************************************************** Japan Internet Report No. 40 July/August 1999 ********************************************************** In this month's issue: - Japan gets hip to venture model - $1.4 billion e-commerce figure for Japan makes sense - What's the difference between e-tailing and mail order? - Conbini wars: 7-Eleven Japan vs. Lawson - Impressions from the mobile show - Palo Alto, Seattle seminars on Japan and Internet ********************************************************** Japan, TKAI get hip to venture model Trends in the U.S. tend to be repeated in Japan, and it looks like the venture capital model of business is no exception. Softbank recently launched a venture capital firm that will fund Internet companies, and Apax Partners has penned a deal with entrepreneur Yoshito Hori. More recently, Netyear Group of California set up a Japanese subsidiary to invest in and incubate early-stage Japanese Internet startups. Now TKAI is going to get into the act, in our own modest way. Stay tuned for details... ********************************************************** $1.4 billion e-commerce figure for Japan makes sense Some skeptics scoffed at a recent MPT estimate that put total business- to-consumer e-commerce transactions in Japan at approximately U.S. $1.4 billion in fiscal 1998. Hah! I say. My reasoning? A recent poll conducted by Mitsubishi Research Institute and NTT-X, which operates the popular "goo" search engine, found that the average transaction value on the part of respondents with online securities purchasing experience was a little more than U.S. $5,250. Let's see what that means: More than 50,000 Japanese consumers have online brokerage accounts, and it is reasonable to assume that each has executed at least one transaction. That alone comes to U.S. $262.5 million, or nearly one-fifth the total $1.4 billion figure. If we assume each of those consumers has executed two transactions to date - not too hard to imagine - the figure jumps to $525 million, or three-eights of the b-to-c total. Assuming each of those 50,000 + online brokerage accountholders has executed between three and four transactions on average, the number jumps to almost one billion dollars. That's just the finance sector. We haven't even started to count retail, travel, insurance, and a host of other services. I reckon that TKAI's retail customers alone took in close to U.S. $100 million in combined online sales last fiscal year in Japan. So $1.4 billion sure doesn't seem out of line from this industry observer's perspective. ********************************************************** What's the difference between e-tailing and mail order? When U.S. online retailers were swamped with orders last Christmas, the question of whether the Internet is a viable retail channel was answered with a resounding, permanent "yes." As a result, industry attention started to turn away from electronic marketing and Web front- end issues and toward much more mundane problems - such as distribution, fulfillment and post-purchase service. This, in turn, brought about a growing realization that business-to-consumer e-commerce is, for the most part, essentially traditional mail order with a snazzy front end. But in Japan, a new model of e-commerce is emerging that fundamentally changes two key processes in the traditional mail order model: payment settlement and distribution. This is the model whereby consumers order products online, but pay for and receive merchandise at convenience stores ("conbini") rather than at the home or work. As we noted the last month, this is actually more convenient for many consumers who aren't home during the day and don't want to accept deliveries at the workplace (as a rule, Japanese parcel delivery firms won't leave packages unattended on residential doorsteps). But the benefits don't stop there. Delivering parcels to the final destination in Japan is akin to the "last mile" problem in telecommunications. Stringing that copper to each house is very expensive - and so is delivering each parcel to each individual residence. Consolidating packages at central locations significantly reduces costs. This is essentially what Softbank is planning under its partnership with 7-Eleven. The companies will essentially train consumers to pick up their orders at nearby convenience stores, much in the same way that fast food operators have trained customers to bus their trays after eating. Pickup at convenience stores eliminates another critical bottleneck in the Japanese e-commerce chain: payment settlement. When consumers pick up their orders, they will simply pay in cash. No credit card, bank transfer, or convoluted e-cash schemes are needed. What's more, consumers will be able to make purchases not only from any Web-enabled PC, but from dedicated kiosks at the convenience stores themselves. This gives people without personal computers in their homes the opportunity to order 24 hours a day at convenient locations - and without incurring telephone or online charges. What's exciting about this retail e-commerce model is that it fundamentally changes two key processes that the U.S. approach leaves untouched: distribution and payment settlement. In this sense, I consider it more revolutionary than the U.S. model, where back-end processes are essentially unchanged from traditional mail order processes. Now Digital Garage (which managed Infoseek Japan until the Disney buyout) and Lawson (a convenience store chain and 7-Eleven rival) are teaming up to sell music online under this model. The appearance of a formidable challenger to the Softbank/7-Eleven partnership in the emerging "convenience store e-business" space suggests that this is a channel that is here to stay. In the U.S., the new question is: Can Internet retailers survive as traditional mail order merchants? In Japan, the answer seems to be: The traditional mail order model can be tweaked sufficiently to make e-commerce successful. Postscript: Consumer electronics retailer Circuit City is now offering a variation on the "conbini" model with its Express Pickup service, whereby consumers can place orders online, then pick up the merchandise at their store of choice... ********************************************************** Conbini wars: 7-Eleven Japan vs. Lawson Indulge me one more paragraph while I'm on my conbini kick. Since Lawson and 7-Eleven are squaring off in the new "convenience store e- commerce" sector, I thought it would be interesting to take a look at their respective market positions. The following is from sources available via the Internet: Stores Employees Sales ($U.S. @ 116 yen) 7-Eleven Japan 7,780 3,350 15.93 billion Lawson 7,016 4,126 9.98 billion 7-Eleven Japan outstrips Lawson by 70% in annual per-store sales. In terms of annual revenues per employee, 7-Eleven Japan is nearly twice as productive as Lawson, at $4,755,790 per employee per year, compared to $2,417,805. In terms of geographic coverage, 7-Eleven Japan would also seem to have a clear advantage. But Lawson has stores in every prefecture in Japan, while 7-Eleven has no stores in Shikoku, Aomori, or the Chubu area. Moreover, the 7-Eleven figure includes stores in Hawaii. Nevertheless, 7-Eleven Japan is extremely strong in the Kanto (greater Tokyo metropolitan) area, the clear center of e-commerce in Japan, whereas Lawson is more focused on the Kansai (greater Osaka metropolitan) market. Finally, with Internet powerhouse Softbank as its partner, the odds are favoring 7-Eleven Japan. Keep your eyes peeled... ********************************************************** Impressions from the mobile communications show Following through on my mobile phone fixation of the last few months, last month I attended the mobile communications show at Tokyo's Big Sight. What struck me most were not the new cellular, PHS, and PDA- related product offerings, but the handset accessory vendors who were hawking everything from "character" straps and cases to devices that light up or play music in response to incoming calls. That and seeing hundreds of young women throughout the city busily punching their cell phone buttons reminded me how crucial the 16-25 year-old women segment is to Japan's mobile telephone industry... ********************************************************** Palo Alto, Seattle seminars on Japanese Internet Did you know that TKAI offers customized seminars? We have two coming up - in Palo Alto and Seattle - this month and next. I'm looking forward to meeting a number of Japan Internet Report readers in person for the first time. For details, take a look at: http://www.tkai.com/services/sharing-expertise/ If you find Japan Internet Report (www.jir.net) helpful, you might want to take a look at some related articles on the TKAI Web site, including a recent piece that appeared in the Wall Street Journal: http://www.tkai.com/press/index.html ********************************************************** Tim Clark Editor To subscribe or unsubscribe to JIR, send any message to: subscribejir@tkai.com unsubscribejir@tkai.com Copyright 2002 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 ------------------------------------------------------------ |
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