Why do Cybirds Suddenly Appear?

Back to Contents of Issue: August 2003

The Migration Path of a Mobile Internet Company.

by Alex Stewart

CYBIRD LISTED ON THE JASDAQ over-the-counter market in December 2000, just as the Internet bubble was deflating heavily in Japan. It was probably one of the last Internet startups to catch the wave before it crashed. It began life in the prehistoric Internet year of 1994, with the suitably Edenesque name of Paradise Web. As the moniker suggests, it was started by youthful idealists, not long out of college. The Internet was just starting to enter mainstream consciousness, but outside the US it was still more of a "student happening" than a business tool. It was a post-hippy period when anything seemed possible. In Hori's words the Internet was "too convenient." From the beginning, he and his co-founder, Yosuke Iwai, were convinced that users would swarm to it when they discovered the convenience.

The founders of Paradise Web -- Kazutomo Hori (known as "Robert" in the gaijin community) and Yosuke Iwai -- both graduated in 1989 from the School of Law, Kwansei Gakuin University, a prestigious private university on the outskirts of Osaka. Hori left to continue studies in marketing, social welfare and other subjects, first at the University of London, and then City Polytechnic. It added an interesting overlay of "global cred" to his more earthy Osaka roots. Iwai went straight from college into Recruit.

Initially Paradise Web provided an AOL-type service. "We had an incredible number of subscribers, but they couldn't find a payment model," says Hori. It was the need to find a way to get paid which helped position Cybird as one of the most important Internet pioneers. As Hori explains, they badgered the operators incessantly to charge users a billing fee, which the operators could share with the content providers. It seems an obvious business model now, but it was revolutionary back then. At that time mobile phones were not an obvious medium for the Internet: Handsets were large, battery life limited, screens were small and there was no content.

It was on the streets of Osaka that the company developed what Hori considers its key advantage over softer companies in Tokyo -- its ability to maintain tough financial controls, and to negotiate on price. This was highlighted in a previous interview with J@pan Inc (October 2001) when Hori was speaking of his contacts with the major European mobile operators.

Negotiation over intellect is the key
distinguishing point between the Osaka
business mind-set and Tokyo's

"The big guys are willing to place an order with Cybird; of course they try to bargain and try to be as tough as possible. But we don't sell things cheap. It's establishing mutual relationships that is important. Actually my background and education is not IT or diplomacy, but negotiation."

The emphasis on negotiation rather than intellect is a key feature and distinguishing point of the Osaka business mind-set versus the Tokyo one. Hori speaks enthusiastically about how all of his directors worked their way up. Tetsuya Sanada, the CTO, was in considerable debt, working it off in another technology company in Tokyo when he met Hori again. Shinichiro Yamashita, the director currently responsible for sales, was a friend of Sanada's from university days and hit hard times when the company he joined failed. Kenichiro Nakajima, who runs marketing, ran a student business at university, like Iwai. He went on to become one of Recruit's star salesmen in Osaka before he joined Cybird in 2000. Tomosada Yoshikawa, in charge of corporate plannning, was a high school classmate of Hori's and in the same faculty of law at Kwansei Gakuin; he earned an MBA in the US, which later ran into trouble. He was persuaded to lend his more professional business knowledge in the run-up to IPO. The only non-Kansai director, Mikio Inari, was born in Fukuoka, but attended university in Tokyo. He joined via an executive placement agency.

The board is extremely careful about managing money. As Hori explains, "None of the board want to pay money up front; they want to see it and touch it. I call it Kansai management style. It is the unique feature of Cybird." He credits it with helping them to steer through the Internet bubble.

"During the Internet boom there was always talk about M&A. It was very easy in the bubble to do this, but we were very careful and didn't follow the bankers' advice. We need to make a realistic assessment of everything. We ask 'Does it really bring out the synergies they claim?' We do a triple check when we assess any company."

Due to this management style, and despite raising a lot of money at IPO, Cybird invested in only two companies, both of them strategic stakes. "We did not participate in WAP when it was the fashion [in GSM mobile countries]," Hori says. "A lot of companies seemed to fear they would miss the boat, but that kind of thinking doesn't bother us."

Could this be called a Kansai trait? It could certainly be called the "Kyoto way," where a spirit of independence bordering at times on eccentricity has characterized the ventures that have now become global companies -- Murata, Rohm, Kyocera, Horiba and Omron. There are fewer such illustrations in Osaka, which is noted as the home of akindo tamashii (the spirit of the Osaka merchant). Companies that exemplified it, like Matsushita, are now the stuff mainly of folklore.

Hori draws a distinction in his conversation between businessmen and merchants. The businessman is a foreign concept, an English idea, he ventures. It suggests a business method or system. "I'm a merchant," he explains. "The merchant is more down-to-earth. Merchants sell the basic stuff of life -- not commodities or big things -- but everyday things, in the market. Merchants trade on their wits. Even when they have nothing to sell, they can still find something."

Businessmen, on the other hand, Hori believes, are notable for their ability to delegate. "Big companies don't know every detail of their business, but they know how to use the power of money to make things happen for them." Hori would like to delegate more but acknowledges that it is difficult. "In reality when there is something to decide at Cybird, we all get together to work out what to do. If we buy a company in Europe, for example, it will be hard to keep out of (the management of) it -- we can't quite trust another company to do it alone."

There is therefore a tension between the financial approach, which more and more characterizes the method of working in Tokyo, and the older Japanese method, which was always rooted in Osaka (or Kansai, because this applies as much to Kyoto), of building business through negotiation and relationships. In the global economy, naturally things go more smoothly in Tokyo, as many foreign entrepreneurs find out. But on the other hand, if you can sell in Kansai, you can sell anywhere in Japan.

Hori's merchant background is almost too classical to seem believable in today's Japan, with its synthetic combini shopping lifestyle and sanitized manshon box living. He was brought up in an old-fashioned ie or household, which accommodated 25 family members and had a large garden to boot. It was presided over by his grandfather, with whom Hori spent more time than anyone else in his family.

His grandfather's life was hard to the point of Dickensian. At birth he was abandoned at the gates of Todaiji temple in what was still the Meiji era. The priests brought him up, but kicked him out when he was old enough to fend for himself, since he was considered a trouble-maker. He made his way on the streets of Osaka, finally saving money to buy a small hotel. From there on his business grew and became quite successful. Certainly he made enough to support a large family in a large house. "Most of my business sense comes from him," Hori says.

His favorite way to illustrate this is how his grandfather made the children sweep the garden every Sunday before going out. The grandfather called it niwa soji no tetsugaku -- or the philosophy of sweeping leaves. Visitors to a Zen temple in Japan will recognize the source of it -- the endless sweeping and raking. His grandfather pointed out that when the wind blows against the broom, the leaves fly up in all directions. The only solution then is to squat down and pick up the leaves by hand, which is slow but reliable. On the other hand, when the wind is behind the broom, it is quick because the leaves all fly together.

This applies in business, says Hori, who explains how it helps him to sense the direction of the market. The Internet boom was a strong following wind, "so we raised as much as money as we possibly could" -- JPY2.5 billion. When the downturn came, he told his employees to squat down and protect their assets. From that point they put more emphasis on strengthening the organization and the system of governance, and building "more muscle."

Now he thinks the wind is changing again. "I can't say exactly why, but it feels like it could be time to move forward," and in his New Year pep talk he told employees, "This year we are going to be aggressive." This year 3G-like services are rolling out, not only in Japan, but, more importantly in Europe, which has been a laggard. Cybird could be well positioned to benefit.

Ultimately though, the Osaka spirit, the advantages of working in Kansai and family ties could not prevail over the pull of Tokyo. The point of reckoning came when they were negotiating with a phone operator in Osaka. Talks had been going very well; everyone in the operator's Osaka office was keen to support them, but just when all looked set to go, the head office in Tokyo turned down the idea. The realization struck that if they were going to persuade the decision makers, they had to be up in Tokyo. Three months later, in July 1998, Paradise Web moved its HQ to Tokyo, and in September it changed its name to Cybird.

The Kansai connection is not especially strong now; that is, in the sense of Cybird continuing to source either personnel or business specifically from the Osaka area. However, there is one more unexpected Kansai spin still. Hori is a member of several study groups in Tokyo -- benkyo kai as they are called. We discussed some of the companies which participate, usually at a shacho level, and discovered that many originated from Kansai. Is this a deliberate sort of regional networking, I wondered? Not, it seems. "Just that many venture companies are from Kansai," in Hori's view. In fact, he thinks as many as half the IPOs have Kansai roots. Personally I think it is more like 10 percent to 20 percent. Instead his view may indicate how much his circle comes into contact with Kansai-based companies. I have noted in other situations that the Kansai connection remains strong. For example, the founders of several of the established venture companies in Tokyo, like Orix, H.I.S. and Ushio, which began in Osaka, tend to congregate to support new business activities in Tokyo; they will also give some of their time to help new business initiatives in Kansai.

The Osaka government asked Hori once for his advice on how to attract more companies in the IT field. He advised not to compete in information-intensive activities because Tokyo has such a strong lead. Instead he thought Kansai should focus on the quality of its people. It may not have been the solution the region wanted to hear, since it is more interested in restoring its commercial power rather than making itself a more efficient feeder for Tokyo. But from a national point of view, the quality of Osaka people linked to the know-how in Tokyo is a powerful combination. Osakan creativity is vibrant, independent and adventurous. "Fifty percent of the successful business people in Tokyo have Kansai roots," Hori says. Is this just Kansai pride asserting itself? Or is there a kernel of truth, which could spark a new direction for Osaka's plans to rebuild its industrial image? @

Paradise Web?

In a piece entitled "Five Hot Start Ups" featured in the September 2000 issue of J@pan Inc, this is what we said: "Cybird is the premier (and first mover) content provider for NTT's DoCoMo i-mode and other operator services. Cybird is also a trusted source from DoCoMo's point of view, which means other content providers wanting a prize spot on the small screen are well served by going through Cybird."

This was still pre-IPO, when latest reported sales were only JPY375 million. At fiscal year end in March of 2002, the company posted JPY6.9 billion sales. Now we understand why there was a bubble. Growth is coming from mobile commerce services, overseas expansion and business alliances.

A key factor in Cybird's success is its ability to secure license rights to popular characters and brands. Since the beginning of 2002, it has completed a flurry of such agreements. These include the mobile content rights to such popular characters as Spiderman. It also has an agreement with Lucasfilm for the exclusive rights to create and manage the distribution of Star Wars content to mobile devices in Japan. It can develop content based on such popular series characters as Yoda, Darth Vader and C-3PO, as well as theme songs, dialog and sound effects. That sounds pretty galactic. Change the name back to "Paradise Web?"

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