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Japan Internet Report No. 66 Fall 2002
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In this issue:
- Japan's most profitable Internet business
- Tokyo Mystery Men reveal auction secrets
- Real estate data moving to the Internet
- New book and newsletter are about you
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Japan's most profitable Internet business
What's the most profitable Internet business in Japan today? An
educated guess is Yahoo! Japan Auctions. Industry insiders say the unit
generates a billion yen monthly in revenue (about U.S. $8.2 million),
all from pure, largely self-service online offerings that require a
minimum of human intervention. That's not chump change!
Why has Yahoo! Japan scored such amazing success with its auction
services? One clear reason would seem to be that it meets the vast,
pent-up demand in Japan for a forum through which people can efficiently
sell secondhand items. Traditionally there have not been markets for
secondhand durables in Japan. Purchases of secondhand furniture and
non-fashion clothing are still largely stigmatized, and these items are
sold primarily through "recycle shops" run by community centers.
Consumers actually pay service providers to haul away perfectly usable
"oversized disposables" that would fetch real money in secondhand
markets overseas. And newly-constructed homes comprise a whopping 89%
of the retail housing market, while pre-owned dwellings account for only
11% percent of sales each year (contrast this with the U.S., where sales
of pre-owned homes comprise 76% of the market each year).
Yes, Japan is clearly a nation where the "new" or "unused" is highly
valued and the "old" or "secondhand" is by and large disdained.
But economic reality has a way of reshaping values, and attitudes toward
secondhand goods are changing.
A key challenge has been the lack of economically efficient forums for
displaying used merchandise and transacting with buyers. Physical space
in Japan, whether leased or purchased, is so expensive that it is
generally not feasible to sell secondhand merchandise through
conventional retail channels. One happy exception to this is BookOff,
the used bookstore chain that has grown to nearly 700 outlets in recent
years, thanks in large part to government rules authorizing price
maintenance contracts in the publishing industry (i.e. bookstores do not
sell new books at a discount).
Enter Yahoo! Japan and its online auction services. Voila! A mechanism
for selling used merchandise that 1) doesn't require physical space, 2)
can easily be viewed/used from anywhere in the nation at low cost by
anyone with Internet access, and 3) leverages Japan's highly efficient
and cost-effective personal parcel delivery and fund transfer
infrastructure.
No wonder Yahoo! Japan Auctions has been such a hit. See our Mystery
Man analysis of auction revenues below, then read on to learn about a
real estate related Internet development whose financial impact could
dwarf anything we've seen before in the Internet space.
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" ... Tell me the company you keep,
and I'll tell you who you are ..."
- Proverb
http://www.ion-global.com/clients/index.htm
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Tokyo Mystery Men reveal action secrets
Tokyo Mystery Men reveal auction secrets
In our quest to divine the secrets of Yahoo! Japan's online auction
success we sought the experience of several Tokyo Mystery Men.
Following are their comments:
- How did you come up with the billion yen monthly revenue estimate for
Yahoo! Japan Auctions?
Mystery Man One: The company claims two million registered users and
approximately 2.6 million current "for sale" listings. Based on this,
membership fee revenues alone are 560 million yen per month (280 yen x 2
million members), before any items are even displayed, let alone sold.
Next are the Insertion Fees. It costs a minimum of ten yen to submit
for display and sale ("insert") any item. With approximately one
million items submitted daily, this comes out to 300 million yen in
monthly revenue (10 x 1 million x 30). Of course the sensitivity in
this estimate lies in the one million insertions per day figure, which I
overheard as a "fly on the wall." At the same time, insertion fees for
some items are substantially higher and therefore generate significantly
more revenue. For example, it costs 500 yen to list an automobile or
motorcycle. Moreover, there are "Additional Option" fees to help you
promote your listing - things like bold text, different backgrounds and
so forth. Disregarding this up-sell revenue, they're up to 860 million
yen per month before a single item has actually been sold.
Finally, there are the Final Value Fees. This is where Yahoo! Japan
Auctions takes a minimum three percent cut of the winning bid. Again,
the fee is higher (3,000 yen) for automobiles or motorcycles. What I
overheard was that they are generating 30 million yen per day in such
fees. That strikes me as puffery. But if their claim of a 40-50%
sales-to-insertion success rate is true and the daily insertion rate is
accurate, they are generating a of 360 million yen per month
from Final Value Fees. In any case, I reckon that the total revenue
figure of one billion yen per month is quite plausible.
- What have you actually sold through Yahoo! Japan Auctions?
Mystery Man One: I sold some office furniture. I also sold for 4,500
yen a home-use telephone that I bought just over a year earlier for
nearly 10,000 yen.
Mystery Man Four: A buddy of mine has been successfully selling old
shoes, among other things, if you can believe that.
- How does the company keep unscrupulous sellers from cheating naEe and
first-time bidders?
Mystery Man One: Successful bidders subsequently rate their
transactions, naming the sellers, in a forum that is viewable by any
auction user. This encourages sellers to deal fairly and expeditiously
with bidders Eit's a clever "honor" mechanism that is quite effective
in keeping unscrupulous sellers out of the market.
- Why didn't eBay Japan clean up in this market? After all, they were
dedicated to auctions from the very beginning.
Mystery Man Two: When Yahoo U.S. caught wind that eBay was planning to
go into Japan, the order came down to stop all development on new
projects and roll out auctions as soon as possible. They did that, got
it up before eBay Japan, and the rest is history.
Mystery Man Three: I think a key factor is simply brand awareness.
Yahoo! Japan has by far the most powerful online brand in Japan, while
eBay was not well-known to those outside the small auction enthusiast
community. People in Japan trust and rely on brands more than any other
consumer group in the world, so a brand awareness/recognition advantage
here can be overwhelming.
Mystery Man One: Ken Belson covered this in detail more than a year
ago. See
http://www.businessweek.com/magazine/content/01_23/b3735139.htm.
The
key point is that Yahoo! Japan had an overwhelmingly larger number of
both sellers and bidders. From the standpoint of either party, the
advantage of selling through Yahoo! Japan Auctions was, as they say in
Japanese, "as clear as seeing fire," since they were far more likely to
conclude a successful transaction via Yahoo! Japan than over eBay, even
if they had to pay a small fee to do so.
Mystery Man Four: In any case, why the hell are we debating this? eBay
Japan is out of the market.
JIR: Indeed. 'Nuff said about auctions.
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Can we let you in on a little secret?
How about a number of secrets?
http://www.ion-global.com/case/index.htm
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Real estate data moving to the Internet
As an amateur investor in U.S. real estate and someone who still aspires
to secure a permanent dwelling here in Japan, I've been monitoring
residential housing prices in Tokyo for years. But I've been frustrated
by the almost complete lack of transparency in the retail housing
market.
In the U.S., any consumer who has Internet access can go to a site such
as http://www.portlandmaps.com, enter a residential address, and find
out 1) how much a particular house sold for, 2) tax bills for prior
years, and 3) official plat or Tax Map Key information such as lot size,
zoning, and so forth. It is therefore easy to investigate the actual
sales prices and other critical information about properties comparable
to ones under consideration for purchase or lease.
The Japanese counterpart to this system for consumers is paper-based,
contains no transaction value or tax information, requires the inquirer
to pay fees (not cheap - I've done it), and can only be accomplished
through in-person visits to government offices. This means consumers
are at a severe disadvantage when buying real estate; they have no way
of investigating sales prices themselves, and must rely on
advertisements or statements by real estate salespeople, who do have
access to Multiple Listing Services (which are far less comprehensive
than those available in the U.S.).
Now comes what in my view could be one of the most significant
developments ever in the Japanese Internet space - something that if
fully implemented could have stunning impact on the nation over time.
The system described below would provide incredible benefits to both
buyers and sellers of real estate. On the other hand, some observers
say that if the transparency promised by this system were to be quickly
and thoroughly achieved, the market would immediately discover that "the
emperor truly has no clothes," and we would see a crash in real estate
prices that could destabilize the entire economy.
JIR correspondent Jay Johannesen (jay@jayjohannesen.net) is well
qualified to comment. He co-founded a real estate technology company in
the U.S., and has acquired and developed residential, mixed-use, and
commercial real estate on behalf of Japanese clients. Here is Jay's
report:
Start looking for increased transparency in real estate information,
arguably the darkest of black holes in Japan's information-hoarding
society. Over the past few months, the companies that compile
information for residential and commercial real estate brokers have
begun to team up with technology providers to digitize sales transaction
history, rental data, and related information, and transfer this
information to the Internet. Initially this will allow brokers and
lenders to better access and analyze data, lowering the cost and amount
of time it takes to finance, or buy and sell a property.
This initiative comes on top of the announcement this past May 8 that
the National Land and Transport Ministry (Kokudo Kotsu-sho) was teaming
up with industry groups to create a nationwide Web site to publish the
real estate listing data (both rental and sales) of the 130,000 real
estate brokers in Japan, and make available the majority of the real
estate listings to the public by January next year. These projects put
Japan in a position to ultimately leapfrog the U.S. in providing
comprehensive real estate information directly to the public over the
Internet. In the U.S., real estate agents have succeeded in keeping
home listings data off the Internet, fearing that access to the data
would somehow lead to the public bypassing brokers altogether.
According to Michael Korver (Michael@aruke.com), co-founder of
Alchemedia Inc., a Tokyo-based real estate technology provider, the
impetus for the disclosure of more sophisticated information has come
from foreign financial institutions seeking information for real estate
acquisitions and for the financing of commercial properties. These
foreign investors have come to expect comprehensive cash flow history,
vacancy rates, tenant information, and relevant sales comparables, and
they want this information delivered over the Internet in a form they
can analyze. Traditionally in Japan, real estate information has been
limited to proprietary paper based data with properties valued based on
artificial government-mandated values.
Aggregating and digitizing real estate information is the first and most
difficult step in enabling an important array of technologies. These
technologies will allow faster and cheaper mortgage loan origination,
securitization, and the ability to research vast amounts of real estate
information on the Internet rather than having to depend entirely on a
broker. Real estate agents who are providing value to their clients
have nothing to fear from the distribution of information over the
Internet. When individuals or institutions are buying and selling real
estate, be it a family home or an office building, they will still seek
the assistance of an expert.
When real estate information is accessible to all, and not dependent on
a network of school connections, or nights of cultivating relationships
singing karaoke, property prices will move to levels that truly reflect
supply and demand. In the case of Japan, that almost certainly means a
further downward trend in pricing, exacerbating the challenges of
deflation and financial institutions' troubled loan portfolios.
Nevertheless, even if "the emperor has no clothes," and supply far
exceeds demand, it is unlikely that prices will plummet. Real estate
prices tend to be "sticky," meaning they adjust to market equilibrium
much more slowly than other investment vehicles such as stocks, and home
sellers are particularly reluctant to take losses. Moreover, most
people would agree that more affordable property prices in Japan are a
desirable long-term goal.
Jay Johannesen
Voice: 090-9156-4963
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New book and newsletter are about you
Together with buddy Carl Kay, I am writing a book inspired by a subset
of the Japan Internet Report readership. Stay tuned for details... Also,
be prepared to review your first issue of the Japan Entrepreneur Report,
my new newsletter debuting next month. If it doesn't turn your crank,
simply hit the single-click unsubscribe URL prominently featured in the
first (and every subsequent) issue.
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Tim Clark
Editor
Japan Internet Report
tim@jir.net
Japan Internet Report is a publication of Ion Global. Entire contents
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Copyright 2002 by Ion Global. All rights reserved.
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