TT-402 -- SourceNext, ebiz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, December 3, 2006 Issue No. 402

+++ INDEX

- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

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===========================================================

+++ WHAT'S NEW

If someone asked you to guess which company in Japan sells
the most software in this country, most people would
probably think Microsoft, Softbank, or Symantec. But the
fact is that the seller of the most packages in this
country for at least the last 2 years is a company that
you've probably never heard of -- SourceNext, a firm
located at Roppongi Hills.

According to global store POS data research firm GfK Japan,
in their 2005 survey of 3,000 electronics stores
nationwide, SourceNext had 20.3% of all unit sales,
followed by Symantec with 16.3%, Trend Micro with 9.2%,
Microsoft with 6.6%, Creo 5.6%, and everyone else with 42%.

You might argue that you can't compare unit sales of stacks
of cheap utility software with the high-end applications of
a company like Microsoft. But when you find out that
SourceNext managed to sell more than 200,000 copies of the
Japanese version of Star Office for a yearly subscription
of JPY1,980, even though users could download the Open
Office version for free, clearly SourceNext has some
impressive marketing capabilities.

Established in 1996, SourceNext is due to go public on
Mothers on December 20th. It is expected to have a market
cap of about JPY12.29bn (US$106.8m), giving it a notional
PER of 32. The company has been growing steadily over the
last few years, recording sales of JPY8.2bn in 2003,
JPY9.2bn in 2004, and JPY10.36bn in 2005. Net profit for
last year was JPY351m (US$3m) and is expected to climb to
JPY526m (US$4.57m) by the end of its fiscal year in March
2007. All-in-all a solid performance.

We first met the CEO of SourceNext, Noriyuki Matsuda, back
in 2001, after being introduced by a mutual friend.
SourceNext had just posted a sales record that temporarily
put them ahead of Symantec in terms of packages sold for
that month -- a feat that has been repeated on a more
regular basis in subsequent years.

We visited Matsuda at his then-office in Kanda, and after
hearing how he personally created many of the titles he
sells (great profit margins if you can do it!), we soon
realized that he is not just your average businessman. In
just 5 short years he had taken the company from being the
publisher of a single PC acceleration utility software
program, Kyousoku95, to shipping 200 titles and recording
sales of JPY6bn+ (US$52m). We covered him in Terrie's Take
188 in that year.

[Continued below...]

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===========================================================

[...Article continues]

Now, another 5 years later, Matsuda has millions of
registered users buying over US$100m of software both
through stores and online annually. One product, a mega-hit
series called Tokuuchi, which teaches typing, has
apparently sold more than 6.08m copies in the 9 years since
it was first released. So it is fair to say that SourceNext
has become a major force in the industry.

One of the milestones in getting to this impressive sales
achievement was SourceNext's commoditization of
applications software in 2003 by setting the basic price of
most titles at JPY1,980. Prior to this the company sold
software at a variety of prices in competition with many
other publishers. The one-price strategy has allowed the
company to create its own market category, which is well
received and well recognized by consumers.

Matsuda now seems to increase his lead by trying to cram
more and more value into his sub-JPY2,000 boxes and thus
make it harder for others to follow. As an example, his
English<->Japanese translation product, "Honkaku Honyaku"
(Authentic Translation) has an advanced translation engine
from NEC and a 3.13m-word dictionary, yet it only costs
JPY1,980 for the base version. That's a pretty good deal.

Consumer software is a highly competitive field and not one
in which Japanese companies are well recognized. However,
Matsuda appears to have a highly honed talent for picking
the next big thing that the buying public wants. Indeed, we
think he has four core talents: firstly he is an inventor
in his own right (for example he holds US and Japanese
patents for a USB phone recharging device) and is able to
create titles which become 100,000+ unit best sellers. One
of these, Mekisuu, which he showed us in Beta version back
in 2001, is a math drill for 12-year old boys. Matsuda very
intelligently wrapped the math into a soccer game and let
the players "score" goals if they got their sums right.

Matsuda's second talent is his ability to scour the earth
to draw in new cool applications before anyone else. No
doubt this process has gotten easier over time as
SourceNext has gained "underground" fame in the consumer
software industry as THE distributor of choice in Japan.

Matsuda has indeed had many hits since his acceleration
product. He now has more than 300 titles in 25,000 stores
around the nation. Most notable among these have been some
McAfee products and Sun's Star Office Japanese version
(called StarSuite in Japan for trademark reasons). Matsuda
created a memorable TV ad to promote the StarSuite product,
involving a famous actress giving birth to a foal (yes, you
read that right) in a convenience store after she sees the
product. The ad created a sensation and ever since Japanese
bloggers have been going crazy trying to figure out the
symbolism. Matsuda just slyly says he wanted to create a
memorable image...!

A press release just last week by a Cyprus-based software
company called XemiComputers is typical of SourceNext's
international haul. XemiComputers produces a low-cost
meeting notes recorder package which allows a corporate
user to append a summary, indexing, and notes, so that the
minutes can be filed for safekeeping. The introduction of
this product is great timing for the coming introduction of
J-SOX (Japanese-style corporate compliance) rules due in
2008, and is typical of how Matsuda is thinking ahead of
the curve.

The third talent is his ability to spot niche opportunities
created by more famous software titles and extract just
enough functionality out of them to create a series of his
own focused utilities. Thus we now have JPY1,980 map
navigation, PDF creation, English-language learning, and
other utilities that capture the essence if not the bells
and whistles of the much more expensive titles.

But it's not just the choice of products that is fueling
Matsuda's success. His fourth talent is a very deliberate
and capable business operation. For example, on most
JPY1,980 introductory packages, you'll find a series of
incremental upgrades for more serious users. This approach
overcomes the Japanese penchant to study every major
software purchase they make to death and subsequently wind
up not buying anything.

Instead, people can make an impulse buy while shopping for
a refrigerator in BIC Camera, and if they find the software
useful, they can come back for more. Sourcenext also has a
highly developed online community, help desk operation, and
discount program to encourage loyal repeat buyers. With
such a broad range of products, they must by now have an
interesting slice of user demographics ready for the
promotion of future products and services. It will be
interesting to see if the company uses its marketing
knowhow to expand its product reach beyond IT, or whether
it will start producing products by surveying its customers
first. It is certainly flexible enough to take such a radical
approach...

...The information janitors/

-------------------------------------------------

========== Logistics: The So-Fast Corporation =============

Why Choose the So-Fast Corporation?

Failed logistics is a frequent reason why foreign import
and retail companies in Japan eventually pull out. In the
start-up phase, management is focused on just getting the
business up and running, and so it is tempting to abdicate
the logistics to a large trading or transportation firm.
But the reality is that the convenience is soon replaced by
frustration -- as any change request, any problem
resolution takes forever and becomes "muzukashii desu ne".

Now, So-Fast Corporation offers its "Start Logistics
Package" which includes:
1. A reasonable and set price,
2. Simple distribution, and
3. Quick, customer-oriented service to satisfy end-users

Email: info@so-fast.co.jp
http://www.so-fast.co.jp/en/index.html
===========================================================

+++ NEWS

- Horie holds out
- Murakami pleads not guilty
- Fragrance to prevent drowsiness
- Underwater IPOs increase to highest since 2003
- Household spending drops 2.9%

-> Horie holds out

The ex-CEO of Livedoor, Takafumi Horie, continues his court
hearing and over the weekend accused his former CFO, Ryoji
Miyauchi, of being the mastermind for the alleged window
dressing and false accounting that the company undertook
during 2004 and 2005. Miyauchi has already testified
against Horie. Horie says that Miyauchi simply "Wants to
get this over as soon as possible and is coming up with
false statements." ***Ed: While Horie isn't winning any
friends with his earlier antics in court, there are many
who believe that the prosecutor's key witness, Miyauchi, is
not exactly a credible witness. This trial was supposed to
be over in November, but the word is that it will now be
next year.** (Source: TT commentary from iht.com, Dec 2,
2006)

http://tinyurl.com/yhapt6

-> Murakami pleads not guilty

In what seems to be an about-turn, the boss of MAC Asset
Management fund, Yoshiaki Murakami, now says that he is not
guilty of insider trading over Nippon Broadcasting System
(NBS) shares. Murakami got caught up in the Livedoor/Horie
scandal after it was alleged that he gained confidential
information from Horie prior to Livedoor's bid for control
of the parent of Fuji TV. MAC reportedly made JPY3bn on the
trades. ***Ed: This is a rather strange turn of events,
given that Murakami has already said in a press conference
that he knew about the move on Fuji TV by Livedoor before
it became public. Murakami is apparently saying that yes,
he heard Horie boast about such a move, but "didn't
believe it." Is this the Japanese version of Clinton's
"Well, it depends on what the meaning of the word 'is'
is"?** (Source: TT commentary from japantimes.co.jp, Dec 1,
2006)

http://search.japantimes.co.jp/cgi-bin/nn20061201a1.html

-> Fragrance to prevent drowsiness

Fuji Heavy and the Advanced Telecommunications Research
Institute International have created a product that
delivers fragrance shots of lemon and mint into the car if
the driver is drowsy. Sensors in the dash detect the driver
level of alertness. The company says that certain types of
fragrance are just as effective as downing a nicotine
drink, and scents are both more convenient and healthier.
A commercial version of the fragrance pump will be ready
sometime in the next 2 years and will cost around
JPY20,000. **Ed: We need some of this stuff for those long
late nights in the office...!** (Source: TT commentary from
nikkei.co.jp, Nov 30, 2006)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20061130D30JSN01.htm

-> Underwater IPOs increase to highest since 2003

Ten of the 14 companies to go public in November had
closing prices by the end of the month that were lower than
the initial IPO price. In addition, four companies had
initial first-trade prices that were below the IPO price --
indicating that the prices set during book-building were
too high. One of these was Goldman Sachs' Accordia Golf
subsidiary. The companies to lose the most in value after
listing were those on the Centrex section of the Nagoya
Stock Exchange. Electronic parts manufacturer KFE Japan
saw its stock price tumble 42% below its offering price.
(Source: TT commentary from nikkei.co.jp, Dec 1, 2006)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20061201D30JFA02.htm

-> Household spending drops 2.9%

Perhaps a reflection of the fact that companies are holding
on to their profits rather than sharing them with their
employees, the household spending for workers fell 2.9% in
October from the previous year. This was the 10th straight
month of decline and contributes to a combined drop of
about 4.6%. Overall household spending, not just for
wage-earners, also dropped by 2.4% in October. (Source: TT
commentary from nikkei.co.jp, Dec 1, 2006)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20061201D01JF753.htm

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

-------------------------------------------------

================= You're Vending What? ====================

Japan is home to the highest density of vending machines in
the world, with about 5.6m machines, or one for every 23
people. You can buy almost anything, and the Japanese do,
with about JPY6.67trn (US$56bn) being spent every year.

Yet, apart from the obvious players such as major soft
drinks companies, there have been no foreign owners of this
massive direct sales medium - until now.

Market Pioneer Japan is proud to announce that as of
October, 2006, it has built a network of 1,000 vending
machines placed nationwide, selling stickers and print
logos. We invite owners of licenceable characters to
contact us with a view to distributing your IP assets into
the Japanese market.

Web: www.japaninc.com/mpj, email: mpj@japaninc.com.

===========================================================

+++ CANDIDATE ROUND UP/VACANCIES

=> The following position is for LINC Media's BiOS Division.
Interested parties should contact: jobs@biosjp.com

-> Desk-side engineers
Large multinational bank looking for Desk-side support
engineers to work in their Tokyo office. Must have
experience in Desk-side support, be flexible, and have
strong work ethic. All candidates must have strong command
of written Japanese. Successful applicants will enjoy very
competitive salary and benefits.

Responsibilities will include:
- Level One Support - Troubleshooting PC-desktop problems
- Problem management
- Escalation POC for the Help Desk.
- Installation, troubleshooting, configuring, support of
Win2000/XP desktops
- Testing and evaluation of automated desktop builds
- Software deployments, upgrades, etc.

Required Skills/Experience:
- English/Japanese language ability (Fluent: candidate MUST
have superior written Japanese ability)
- 1+ Years working experience in NT/XP/Windows 2000
- Knowledge of the Microsoft Office product range
- MCSE (Microsoft Certified Systems Engineer) Preferred
- Good communication and organizational skills
- Ability to work well under pressure in large foreign firm

For more information or to submit your resume, please email
jobs@biosjp.com
--------------------------------------------------------

+++ UPCOMING EVENTS/ANNOUNCEMENTS

================ Tokyo PC Users Group =====================

Dec 7, 2006
Using Technology to Improve Personal and Business
Productivity

Technology tools improve efficiency but it's difficult to
keep up with it. Gonzague-Alexandre Gay of Akihabara News
shares technology tips and secrets.
Thursday, Dec 7 Tokyo Union Church
Doors open at 6:30, meeting starts at 7 PM

Click http://www.tokyopc.org/faxmessage/index.html#about
for a map to the TUC.
===========================================================

================ ICA Events - Dec 6 =======================
EVENT JOINT BONENKAI PARTY WITH RBA

Details: http://www.icajapan.jp/(RSVP Required)

Date: Thursday, Dec 6, 2006
Time: 18:30 - 20:30 (finger food to start from 19:30)
Cost: Free entrance,happy hour bar, finger food, RSVP
mandatory for entrance
Location: The Baron in Roppongi
MAP: http://www.thebaron.jp/mainframe.htm
===========================================================

============= Entrepreneur Association of Tokyo ===========

Tuesday, December 5th

Speaker: Noboru Takano, Regional Director of Sales of Tokyo
International Sales Office, Ritz-Carlton Hotels, Japan

Title: "Legendary Service at the Ritz-Carlton Hotel"

Would you like your business to have Ritz-Carlton level
service? If so, than don't miss Noboru Takano, Regional
Director of Sales of the Ritz, and author of the
best-selling book, 'Ritz-Carlton ga Taisetsu ni Suru
Service wo Koeru Shunkan', sharing some of Ritz-Carlton's
secret formula.

Date/Time: Tuesday, December 5, 7:00 pm
Location: City Club of Tokyo - Maple Room, Canadian Embassy
Language: English
Website: http://www.ea-tokyo.com
Email: info@ea-tokyo.com

===========================================================

______________________________________________________
IT events announcements are priced at JPY50,000 per week.
For more information, contact sales at japaninc.com

------------------------------------------------

+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors@terrie.com.

-> No feedback this week.

...The information janitors/

-------------------------------------------------

***********************************************************
END

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+++ ABOUT US

STAFF
Written by: Terrie Lloyd (terrie@lincmedia.co.jp)

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