********************************************************** Japan Internet Report No. 29 August 1998 ********************************************************** In this month's issue: - Special: Breaking into Japan - Roundtable discussion with U.S. Internet technology firms: Whistle Communications, Photo Access, Mercantec - "Deregulating Japan's Soul" - Book of the Month No and Book of the Month Yes ********************************************************** Special: Breaking into Japan This month we're taking a break from our usual format to provide a special look at three up-and-coming U.S. Internet/technology firms that are in the process of breaking into the Japan market. Our three interviewees for this special issue are: Bill Coleman, International Business Development Director at Photo Access, a developer of ground-breaking digital camera technologies Michel Darnaud, Director Business Development, Whistle Communications, developer of small office Internet/communications appliances Sookja Han-You, Director International Sales, MERCANTEC, Inc., developer of retail electronic commerce software ********************************************************** Roundtable discussion with U.S. technology firms In MBAspeak, what's the compelling "value proposition" that Whistle Communications, Photo Access, and MERCANTEC bring to the table? Darnaud (Whistle): Whistle builds small office communications appliances that tear down the barriers preventing non-technical organizations from being full participants in the Internet revolution. Since its inception, Whistle has developed the InterJet product family of affordable all-in-one Internet appliances that give email, Internet and web publishing capabilities to everyone in a small business. The InterJet enables small businesses to have the same Internet capabilities as large companies for a fraction of the cost. Coleman (PhotoAccess): Photo Access' mission is to be the leader in hardware and software for Windows CE based digital cameras. We have two value propositions. We deliver one value proposition to the camera manufacturer and we facilitate the delivery of another value proposition to their customers, the consumers who purchase digital cameras. To the camera manufacturer we have the value proposition of shortening time to market, lowering costs and improving functionality. We deliver this value though component integration, "killer" camera-based applications and a powerful development environment. Utilizing our products, the camera manufacturer can deliver a great value proposition to their customer; an intelligent, standalone digital camera with capabilities far more compelling than those offered by traditional film cameras. When a consumer purchases a Photo Access-enabled camera they can edit pictures, print pictures directly to a printer, send pictures by email or order traditional prints over the Internet, all without requiring a PC. Han-You (MERCANTEC): Mercantec has developed open retail electronic commerce software that enables merchants to expand their geographic reach by marketing and selling goods and services via the World Wide Web. Mercantec focuses on creating a best-of-breed, secure transaction engine with open interfaces that allow a merchant to tie the business systems that they use in their brick-and-mortar business into their Web store. Mercantec's products span a wide range of on-line store applications, from creating simple, one-page catalogs to the creation of complex stores that combine sound, animation, security, and live-feed text with thousands of available items for purchase. Why is Japan such an attractive market? Are there certain aspects of Internet usage in Japan that make Japan a particularly compelling market for your products? Coleman (PhotoAccess): Japan is an attractive market for two primary reasons. First and foremost, the majority of our direct customer prospects, the digital camera manufacturers are located in Japan. Somewhere between 50 and 70% of the digital cameras are manufactured by Japanese companies. Second, Japan is the number one consumer market for digital cameras. In 1997 over one million digital camera units were sold in Japan. The digital camera consumer market in Japan will continue to exceed the U.S. for the next few years. One of the most compelling aspects of cameras enabled with Photo Access components, is that they can connect directly to the Internet. This connection allows the consumer to share pictures with friends via email or request hard copy prints be mailed to friends and families. The power of this feature is that it does not require a PC. The camera is connected directly to a phone line. In Japan, where the penetration of PCs is lower than the U.S., but Internet access and usage is high, these features become even more compelling. Darnaud (Whistle): The Japanese market is the second largest IT market in the world, after the United States. According to IDC, it represents 17% of worldwide IT spending. Germany is a distant third with 8 or 9%. Additionally, Japanese are avid users of new technology, with penetration of some electronic devices far exceeding what it is in the US (for example cell phones, digital cameras, etc.) Small to medium sized businesses in Japan tend to use the Internet for the same reasons as U.S. businesses do: electronic mail, to share information with their employees, suppliers and customers, and access to the web. Han-You (MERCANTEC): The market for electronic commerce is just beginning to open in Japan, which makes Japan an attractive market for Mercantec. We are looking forward to working with Japanese Internet Service Providers, telcos, Web hosting companies and other direct resellers who will bring Mercantec SoftCart to merchants in Japan. In addition, the potential for electronic commerce to help reduce overall costs for retailers should be very attractive to Japanese retailers who are looking for ways to improve their company's bottom line. What is the key challenge you facing getting your technology acceptedin Japan? Darnaud (Whistle): The first challenge was to determine to what degree we should localize our product for the Japanese market. Given the importance of this market for Whistle Communications and our desire to answer the needs to our Japanese partners and end-users, we decided early on to fully localize the product. As a result of this effort, the InterJet is gaining rapid acceptance in Japan, and initial market research we recently conducted shows a very high degree of satisfaction with the product. Having two strong partners distributing our product certainly helped us a lot. As in the US, the market for Internet products is just developing. Small businesses are beginning to realize the importance of Internet connectivity as a necessary business communications tool. Coleman (PhotoAccess): There are several challenges faced when entering the Japanese market.First, of all quality is extremely important and many Japanese companies feel they have not received the quality of goods they require from U.S. companies. Photo Access committed to quality from the start and has formed a partnership with the world's largest supplier of high quality ASICs, NEC, to manufacture our PhotoChip digital camera ASIC and supply the MIPS processor for our hardware platform. Second, digital camera manufacturers expect excellent support in integrating new components into their solutions. Again, Photo Access committed early to installing a support structure in Japan and will be opening an office in Japan in the coming months. We have been working very closely with JETRO, the Japanese External Trade Organization. They are facilitating temporary office space, as well as, space for meeting with the major press contacts in Tokyo. Furthermore, we are the first and as of today, the only authorized Windows CE systems integrator focused on digital cameras. Third, Photo Access faced the challenge of identifying the right customer contacts. Based on past experience, we turned to JETRO, which was extremely helpful in both the identification of and communication with the correct contacts at all of the major camera manufacturers. Finally, there are the cultural differences in doing business in Japan. Here Photo Access hired employees with direct experience and continues to correspond with agencies such as JETRO to ensure our success. Han-You (MERCANTEC): SoftCart is simple to use, yet it has many built-in features that make it very customizable. Our challenge is to help our resellers understand the all SoftCart's features so that their customers can use it to its fullestpotential. Can you share any late-breaking news regarding Japan-specific agreements/partners/activities? Coleman (PhotoAccess): We have formed a critical partnership with NEC on our ASIC and on the MIPS processor for our hardware platform. In addition, Photo Access co-sponsored two sessions of Windows CE based digital cameras with Microsoft on June 23rd. These sessions were part of the Microsoft Windows CE Technical Briefing in Tokyo. The digital camera sessions were well attended by the major digital camera manufacturers. We are in active discussions with many customer prospects, but nothing I can talk about at this time. Darnaud (Whistle): Less than six months ago Whistle announced major partnerships with both NTT and Ricoh to resell the InterJet in Japan. During the 2nd quarter of 1998 both companies took inventory of units and began selling the product. Initial customer feedback has been excellent. In order to demonstrate Whistle's commitment to the market we have recently hired a Director of Sales in Japan, also temporarily using office space kindly provided by JETRO, and will be undertaking significant press and marketing activities with our partners throughout the remainder of 1998 and into next year. Han-You (MERCANTEC): I will be in Osaka at the Global Venture Forum hosted by the Osaka Chamber of Commerce on October 22-23 to talk to more potential business partners. Michel, how do you see SOHO Internet access evolving? What kind of products can we expect to see from Whistle five years from now? Small businesses won't be able to sit by the sidelines or they will be left behind. E-mail is likely to be the one "killer" application that drives the business to install a network and connect everyone on line. We have found that once businesses begin using either email or web browsing capabilities, they then migrate to using additional functionality including intranet capabilities and web publishing. Whistle continues to be committed to developing appliances that aim to improve small business communications. At the present time we are developing both products and services that focus on broadening the ways our customers can use the Internet. Bill, how do you see digital photography evolving? What kind of Internet-related applications can we expect to see five years from now? The digital photography market is exploding with an expected volume of 9 million units per year by 2000. Today, the Internet is already providing such applications as print fulfillment, e-mail, imersive imaging, dynamic image repurposing, and image storage. In the near future, the Internet will also provide image enhancement capabilities where a consumer will be able to request computationally intensive image enhancement be performed on servers connected to the Internet. The possibilities are truly unlimited. Sookja, how about online retailing? As people become more accustomed to shopping on the Web, you'll begin to see more people taking advantage of its convenience. In addition, you can expect to see things like an interactive button that will appear during a movie allowing you to buy the item you are seeing in the movie right then. Non-PC devices like WebTV, kiosks and hand-held Internet devices will contribute to a tremendous growth in online retailing. When's the IPO? Han-You (MERCANTEC): Mercantec is a quickly growing company, and, like any prosperous company, you might expect something like that, but I haveno news to report right now. Darnaud (Whistle): At the present time we have no plans for an initial public offering. Coleman (PhotoAccess): (comment unavailable) Michel Darnaud Director Business Development Whistle Communications Tel: (650) 577 7133 Fax: (650) 372 5907 http://www.whistle.com Bill Coleman VP Business Development Photo Access Corporation 2741 Middlefield Road Palo Alto, CA 94306 1-650-470-1129 (phone) 1-650-470-1179 (fax) bcoleman@photoaccess.com Sookja Han-You, Director International Sales MERCANTEC, Inc.: Web Sales Today shanyou@mercantec.com WWW: www.mercantec.com Tel: (408) 366-1468 Fax: (408) 366-1541 ********************************************************** "Deregulating Japan's Soul" From a great essay entitled "Deregulating Japan's Soul" by Masao Miyamoto in "UnLocking the Bureaucrat's Kingdom," reviewed below: "I pay a lot of attention to a person's choice of words and subtle differences in nuances. Moreover, I know from my ten years of experience in the Japanese government that Japanese bureaucrats attach great importance to words and the nuances they convey. ...Why is it that Japan is trying to achieve 'kisei kanwa' (deregulation), rather than simply promoting 'kisei teppai' (to abolish or repeal regulations) altogether? ...I came to realize that the words 'abolish' (teppai) and 'relax' (kanwa) have meanings as different as night and day. 'Deregulation' means that the status quo will be maintained, but that the parties involved are willing to make concessions so that they can continue to get along. The existing regulations will simply be relaxed. ...Competition will lead to a collapse of bureaucratic control. These officials do not use the term 'kisei teppai' because this is exactly what they want to avoid." ********************************************************** Book of the Month No and Book of the Month Yes NO "The Culture of Japan as Seen through its Leisure" is one of those books that I bought immediately based on the catchy title - and regretted. (I struggled through quite a bit of it, so this review isn't based simply on skimming a few chapters). Reading essays with titles such as "Golf, Organization, and 'Body Projects' - Japanese Business Executives in Singapore," I couldn't help but wonder how these writers manage to acquire so much free time. I came away from this dog with renewed disregard for the field of sociology. Don't buy it, unless you really have trouble getting to sleep at night, in which case it's at: http://www.amazon.com/exec/obidos/ASIN/0791437922/tkai YES "Unlocking the Bureaucrat's Kingdom," by Frank Gibney, on the other hand, is a gem. Gibney is one of the heaviest Japan-meisters in the world (absolutely stunning knowledge), and here he compiles (in English) essays by heavyweight colleagues such as Iwao Nakatani, Yasuhiro Nakasone, Masao Miyamoto (see "Deregulating Japan's Soul" above) and John Stern. Published this year, this book is up-to-date and on target. More detail is at: http://www.amazon.com/exec/obidos/ASIN/0815731256/tkai ********************************************************** Tim Clark Editor To subscribe or unsubscribe to JIR, send any message to: subscribejir@tkai.com unsubscribejir@tkai.com Copyright 2002 by Ion Global ------------------------------------------------------------ Ion Global (USA) Japanese e-business specialists http://www.tkai.com/ Tel. (503) 235-4433 Fax (503) 235-4422 ------------------------------------------------------------