TT-594 -- Online Crowd Sourcing Gets Crowded, e-biz 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 12, 2010, Issue No. 594

+++ INDEX

- What's New
- Short Takes
- News
- Candidate Roundup/Vacancies
- Upcoming Events
- Corrections/Feedback
- News Credits

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+++ WHAT'S NEW

We've been following with some interest the current boom in
"crowd sourcing" (also known as group buying) companies,
such as Groupon, who are either starting up domestically or
are coming in and buying up local firms. Crowd sourcing is
a whole new Internet business model, whereby the operator
negotiates highly attractive offers with consumer services
companies such as restaurants, bars, sports centers, and
massage and relaxation studios, under the condition that
the crowd sourcing operator sends a minimum number of
people -- a "crowd," to the facility.

The theory being that if a company is guaranteed, say, 50
or 100 customers, with no upfront advertising costs and
only a modest fee for successfully sourcing that many
customers, then their costs are much lower per person than
they might normally be, thus allowing them to rationalize
the need to provide the crowd sourcing operator and their
members (the crowd) with a big discount.

Now, whether this really works in Japan is yet to be
confirmed, because this is the land of little operators,
where the emphasis is generally on quality of
experience and not on quantity. Indeed, as a publisher we
know that many smaller operators detest the idea of
discounts under any circumstances. However, for chain
store operators and larger tourist attractions, as well as
high-end product sales organizations that are hurting
because of reduced consumer spending, crowd sourcing could
be a god-send.

On the consumer side, there appears to be interest in
discounted services based on volume purchase/attendance.
Research company NetMile did a report in August that
establishes both the fact that the crowd sourcing business
is a recent and as-yet untested phenomenon in Japan, but at
the same time is of high interest to the 20,000 people who
were interviewed. NetMile found that just 3.6% of the
respondents were registered on one of the crowd sourcing
sites (Piku.jp, Qpod.com, Kaupon.com, etc.), 30% were
actively watching sites, and 50% are interested in joining
a site in the future.

[Continued below...]

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[...Article continues]

The 800 lb gorilla in the crowd sourcing business globally
is Groupon. This company started just 2 1/2 years ago and
has raised a massive US$170m in funding, most recently
US$135m in April this year, in three separate rounds. It
has grown tremendously over this period by going out and
buying competitors firstly in the USA and then more
recently around the world.

As a result, globally Groupon now operates in 200 cities in
29 countries, has a workforce of around 2,000, and has
annual sales of US$300m. Apparently they plan to expand to
two new countries every month -- nothing like being
ambitious...!

Here in Japan Groupon bought Qpod in August for a reported
US$10m, which wasn't bad going for Qpod's own investors
given that Qpod had only started posting its first deals
just 3 months before... This type of action is heady stuff,
and is no doubt propelling the scores (up to a reported 150
players here in Japan) of competitors in the market.

Interestingly, though, Qpon wasn't the first of the current
batch of crowd sourcing companies in the Japan market nor
(from the look of the various competing website stats) is
it the market leader. First off the block was another
recent start-up, called Piku.jp. This company is run by
expat Dave Mori, and is an investment of J-Seed's Jeff
Char. The best funded and most publicised appears to be
Ponpare (Recruit).

We contacted Dave Moir and asked him how Piku.jp is going,
especially given the fact that not only Groupon but also
Recruit are major competitors with substantially larger
resources than Piku.jp:

TT-1: What is the estimated overall size of the group
buying/flash marketing market in Japan for next year and
2012, 2013?

DM: It is growing so rapidly I would also like to know...!
We are working towards a billion dollar plus market for
Piku.

TT-2: Will Group-buying/flash marketing be really popular
in Japan?

DM: I believe Group-buying/flash marketing already is quite
popular judging by the number of people who visit our site,
purchase the products, and engage with us through social
media. However, there is still room for growth. After
selling to restaurants, beauty salons, etc. for years, I
believe that what restaurants and service businesses in
general dislike is paying a fixed fee for a promotion AND
providing a discount while never knowing how customers will
visit. [Ed: Think Gurunavi.] However, with Piku, service
business owners can now calculate very clearly the cost of
acquiring a new customer.

TT-3: What does Piku.jp do that is different from Groupon?

DM: Firstly, at Piku.jp we focus on creating a brand as
opposed to just a discount website. Piku is derived from
the Japanese anime description to someone's reaction to being
surprised, as in, "Here's an amazing deal for pizza, Piku!"
We strive to provide surprising deals on a daily basis that
will make our users lives better.

Secondly, we have a very large and dedicated Piku
community. Community is the key word here. We have put a
lot of energy and time into developing real two-way
communication relationships with many of our 55,000+
twitter followers. We have the most in the industry and I
believe it is because we don't just push deals, we try and
engage and get to know our users.

Thirdly, we don't focus on the discount, instead we focus
on getting surprising deals of value from bungy jumping to
five-star hotel spa treatments. You truly never know what
you are going to see in your inbox in morning. Many people
say that they look forward to their daily morning Piku
mail magazine like they do their first cup of coffee.

TT-4: How has growth in the market been?

DM: One word... insane. We launched as the first operator in
April, then there were two of us in May, six in June, 30+
in July and 150 competitors as of today. Our guess is that
there will soon be a rapid decline in the number of players
as the larger players like Piku grab the majority of the
market.

TT-5: Are you able to say who funded the company and for
how much?

DM: Since establishing in April 2010 we have raised 900
million yen from the following investors:
* Internationally, Rebate Networks
(http://www.rebatenetworks.com/). They have invested in
nearly 30 group-buying businesses worldwide.
* Domestic VC's: Jafco, DIT, GVC

*************
(Back to our commentary...)

So what's our Take on the current crowd sourcing boom? We
think the shakeout will indeed happen as Dave Mori says,
with many of the current players either getting bought out
by Groupon's international competitors, or simply running
out of cash. With the two biggest players (Groupon and
Recruit) now active in the market, you can also expect
Yahoo and Gurunavi very quickly either unveil their own
offerings or buy someone out. This should all happen within
the next 6 months, and will make for interesting spectator
sport...

...The information janitors/

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+++ SHORT TAKES

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

+++ NEWS

- Field of Spears gets a movie adaptation
- Missile deployments expand
- GE to start cloud computing business
- Power outage damages Toshiba chip business
- Card loans become cheaper and easier to get

-> Field of Spears gets a movie adaptation

The true story of a B-29 aircrew who crash landed in
war-torn Japan in 1945 and which ended badly for the crew
(we won't say more -- at least read the book by Gregory
Hadley), is about to be adapted and produced as a movie by
Japan-based boutique entertainment consultancy, Winery
Productions. No word yet as to when the movie will be
released. The same company has also announced plans to
produce a celebrity talk show that will target
international as well as Japanese talent. Hosting the show
will be none other than "local" foreign talent Janica
Southwick Sims. (Source: TT commentary from press release
from wineryproductions.com, Dec 9, 2010)

http://w-p.biz/eng/home.htm

-> Missile deployments expand

In what has to be good business for Raytheon Corporation
of the USA, the Japanese military is stepping up its
deployment of Patriot Advanced Capability-3 (PAC-3)
missiles, installing them at all six Air Self-Defense Force
(SDF) bases, up from three now. In case you and North
Korea were wondering, the currently deployed missiles
are at Iruma base in Saitama, protecting Tokyo, Kasuga base
in Fukuoka to protect most of Kyushu, and Gifu base to
protect Nagoya and Osaka. The three new bases will be in
Hokkaido, Aomori, and Okinawa. (Source: TT commentary from
japantimes.co.jp, Dec 12, 2010)

http://search.japantimes.co.jp/mail/nn20101212a1.html

-> GE to start cloud computing business

GE Healthcare has said that it will start a global medical
cloud computing business next year, investing around US$2bn
through to 2015. The new business will extend to Japan and
will include setting up a data center to manage patient
medical records and CT and MRI data, and within 3 years
will have the ability for hospitals to share such data in real
time. GE Healthcare currently does about JPY120bn in
business annually in Japan. (Source: TT commentary from
e.nikkei.com, Dec 12, 2010)

http://e.nikkei.com/e/ac/tnks/Nni20101211D11JFF01.htm

-> Power outage damages Toshiba chip business

A 70ms power outage by Chubu Electric Power may have
severely damaged machines and silicon blanks at a Toshiba
memory chip factory in Yokkaichi. The company is saying
that it expects memory shipments to fall by as much as 20%
over the next two months. Toshiba manufactures in
partnership with SanDisk and together the pair account for
30% of the global market for NAND memory, typically used in
Apple devices and others. Samsung is the world's largest
supplier of NAND memory, followed by Toshiba/SanDisk.
(Source: TT commentary from wsj.com, Dec 11, 2010)

http://on.wsj.com/f6rZBm

-> Card loans become cheaper and easier to get

Consumer finance firms such as Takefuji may be in big
trouble, but consumers now have another source of loans --
from the online banks. Apparently the moneylending law
changes in June about restricting personal loans to 30% of
a person's annual salary, exempt loans by commercial banks
-- thus opening the way for more unsecured card loans.
Sumishin Net Bank is offering account holders JPY6m-JPY7m
at just 4% annual interest, while Jibun Bank is lending up
to JPY5m per customer at just 5%. As a result, the online
banks now hold consumer loans of JPY158bn. (Source: TT
commentary from e.nikkei.com, Dec 10, 2010)

http://e.nikkei.com/e/ac/tnks/Nni20101210D10EE196.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.

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+++ CANDIDATE ROUND UP/VACANCIES

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

***------------------------****-------------------------***

+++ UPCOMING EVENTS/ANNOUNCEMENTS

*** No announcements this week, but keep an eye open for
the year-end party for Metropolis, on www.metropolis.co.jp.

***------------------------****-------------------------***

+++ 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 comments or feedback this week.

***********************************************************
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+++ ABOUT US

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Written by: Terrie Lloyd (terrie.lloyd@japaninc.com)

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