Bento-Box Infotech

ipTrend sees a big market in wiring Japan's small-time shops. Simplicity, it knows, is key.

ipTrend is no ordinary ASP, though. Customers don't just download software; the company actually provides clients with the entire network, or at least a complete server, together with software, services, and security, for a set monthly fee (presently ¥28,800 per month).

The company was founded in February 2000 when its parent, data security leader Trend Micro (Nasdaq: TMIC), acquired Nippon Unisoft, a Unix software development company. Its mission is to close Japan's digital divide, a national IT disparity directly correlating to business size. Many of Japan's estimated 3.5 million small and medium-size enterprises (SMEs) are still spectators in the IT revolution because they lack the financial or human capital necessary to acquire and maintain an IT infrastructure; even a simple peer-to-peer network is beyond many SMEs.

ipTrend's data shows Internet diffusion to be around 95 percent for companies with more than 300 employees, but just 40 percent for companies with less than 300 employees. The company believes, however, that latent demand is high and that if it can package the right product, the revenue should start to flow. Says Negi, "The challenge is connecting these two. We're doing demos for distributors, trying to show them there is user demand for this, while also trying to create some success stories."

Negi: from Merrill Lynch to new venture

One of ipTrend's first potential success stories is an ongoing project linking small, technically primitive bento (lunchbox) production shops to their convenience chain store customers. The chains generally use virtual private networks (VPNs) to communicate sales, stock, and ordering data between the local franchisees, head office, and suppliers, but this requires that the suppliers have dependable and secure networks on site. Meanwhile, for the small shops like the bento makers, only an affordable and easy-to-use solution will work, and ipTrend hopes to fulfill that need. In at least one chain, orders and production data are presently being swapped via fax, so adoption of ipTrend's SME solution would represent a quantum leap into the digital age.

ipTrend's main advantage may be its technical antecedents. The firm bundles Trend Micro's security software with the SME solution and boasts 60-plus Unix/Linux engineers inherited from Unisoft (which perhaps influenced the choice of Linux for the solution OS), who are experienced in providing enterprise e-commerce solutions to major Japanese companies (including NEC and Mitsubishi). "Trend Micro's security products are well known to IT people in Japan, and because security is very important, so is brand name. Their overall strength is their technology," says Akihiko Igarashi, senior manager at NTT.

The business model may also be a key differentiator. A comprehensive solution that avoids a big, up-front cost should be attractive to many SMEs, as should ipTrend's low monthly fees. But this may be a hard sell to ipTrend's other key customers -- partner distributors (they're currently working with about a dozen), who tend to be very revenue-focused. Their salespeople may have the coveted channel relationships, but they prefer big-ticket sales they can book upfront. Igarashi points to the need to develop channel partners, an important consideration in relationship-focused Japanese business. "Their weakness is few relationships in the channel," he says.

Also, ipTrend's monthly fee doesn't include ISP costs, due to their variability. This leaves some observers concerned that the firm's "usage fee on a dedicated line is not included" disclaimer may be inadequate. "I'm concerned about hidden costs. They shouldn't lead with that ¥28,800 figure if it does not include the equipment, installation, and ISP costs necessary for Net connection," says Yoshikazu Iba of Aja Ventures, an IT-related venture investment and consulting company.

Another potential concern is the hyper-competitiveness of the channel. Some large manufacturers have SME products as well, though ipTrend would argue that its comprehensive services and market focus set it apart. "Despite the recent entries to the market, like Bit-Drive by Sony, ipTrend seems to have established expertise, and is clearly ahead of Sun Microsystems, which only has the Cobalt Server Appliances product line, which lacks the service side of ipTrend's product," says Iba.

Integrated data centers that also host client application software may be quasi-competitors for ipTrend (see "Host Nation," page 22, January 2001). Small businesses that use these centers typically have simple requirements, like email and dialup Net access. Although these basic services (typically ¥3,000 to ¥5,000 per month) are fine for simple needs, if clients need to swap files between applications, such as with groupware, there is a security risk at the customer site. "Data centers don't take responsibility for the security of that outside traffic flow. Using our solution, the client can store data on his own secure server, eliminating the huge security hole created by traffic flow between data center and client," says Negi.

ipTrend is clearly in the beginning stages of its business. For the fiscal year ended last October, their SME solution accounted for just ¥50 million of ¥1.3 billion total revenue; the balance was holdover business inherited from Unisoft. Negi, a former investment banker, says it's too early to think about an IPO. "One thing I know: Never call an investment banker. Wait for them to call you," he says. ipTrend hasn't released formal revenue forecasts (parent Trend Micro reported record earnings of ¥4.7 billion for FY2000 in February), but he foresees the SME business eventually comprising around 90 percent of sales. When that will happen is, of course, a key question for potential investors.

But Negi should be able to rely on some help from several trends, such as decreasing connectivity and hardware costs, to push the SME IT revolution along. If ipTrend can grab a slice of that revolution, sales could skyrocket. He says just a single convenience store chain, for example, has over 2,000 bento suppliers. Whatever happens, ipTrend will likely profit: "It may just come down to their suppliers or partners scaring them into getting updated," Negi says wryly.