Riding The Wave, Carefully

Back to Contents of Issue: October 2001

For a young CEO of a cellphone-content venture, Cybird's Kazutomo Hori's approach to expansion and new ideas is refreshingly cautious.

We've been following Kazutomo "Robert" Hori, the president and CEO of three-year-old Cybird, from the beginning. In our second issue back in December `99, we listed him as one of seven "Tokyo e-preneurs on the rise." In our September 2000 cover story on "five hot startups," we listed Cybird as a likely winner. So far, Hori hasn't left us disappointed. Cybird IPO'd last December, went from incurring operating losses on the order of JPY100 million to profiting JPY10 million in the April to June quarter, and is part of rapidly expanding sector of content providers for cellphones. In August, the Nikkei ranked the projected revenue growth rates among companies listed on Japan's three startup markets. Cybird ranked tenth. But there's competition. Fast-growing Index, for example, ranked fifth on the same chart. Other competitors include Mobilephone Telecommunications International (MTI) and Nihon Enterprise (run by a Toyota veteran who believes "losing money is a sin," even for a startup). The field, then, has become crowded and fierce, and Cybird's lead could be short-lived. We asked Hori about Cybird's international expansion, latest services, and feisty competitors. -- The Editors

What opportunities do you see in overseas markets?

Our concept is that as this is a very new industry in each country, there has got to be a strong leader. For us, that leader has always been the operator, so our activity toward the operator -- European or Asian -- has always been trying to help them obtain more power. We've started with an operator called New World Mobility. It's the third or fourth operator in Hong Kong. The second project is Bouygue, a French operator that was originally a construction company but has been shifting into media.

And how will you help them?

We have three different steps. Some of the operators take only one step 1; some take 2 and 3. Step 1 is to study the Japanese mobile Internet environment in terms of technology and marketing. What precisely is the difference between J-Phone, KDDI, and DoCoMo? We are right in the middle of these operators, and there's no one else providing our kind of analysis. There are analysts from institutions, but I think our analysis has got more relevance. So that's the first phase, and it's a kind of two- or three-day workshop.

So you're a consultant ...

It's just a workshop! I know the consulting business is not really a good one: one-time revenue, time-consuming, labor-oriented. So, in step 2 we do the whole consultation needed for this particular operator: This is the Japanese environment, now tell me yours. And we look at the differences, which we divide into two categories. One is the cultural differences. These are the things that are better left untouched -- we have to respect each region's customs. But the other category are points that are missing or being done in the wrong way, so we are going to point those out. So step 2 is problem-solving. For step 3, one condition for Cybird providing consultation is that some particular service has to be done jointly by the operator and Cybird. We can't do everything, but there are some things that we can help the operator carry out.

That's a whole new evolution for Cybird. Did you target New World Mobility and Bouygue because they're small?

Yes. They're not No. 1. They're just like J-Phone three years ago: very ambitious, including the top management, and very keen on doing something different. Mobile operators in general are very bureaucratic: AT&T, KPN -- probably DoCoMo is very annoyed dealing with them. We want to show the rest of the world that we are good in this territory, not by working with No. 1, but with No. 2, No. 3, et cetera. Then, after the world realizes Cybird is good, it should be easier for us. I don't see the market opportunities in Europe for only one year. We're looking forward five years.

How else does your model change for overseas markets?

Content. I don't think it's a money-making project for us in overseas markets.

For the operator services you just described, how big is the market?

Well, if we compare the size of Cybird with that of the operators -- even if they're from small countries like Indonesia, Israel, or whatever -- the operators themselves are more than a thousand times bigger than Cybird. For now, then, they can bring us enough revenue. But one has to be clever enough to pick the right market, the right country.

Hong Kong we think is going to be a good country for B2B solutions. Entertainment content is always interesting, but it's a business market. You know, the tendency of the overseas operators is that they want to act also as a mobile business solution company, using the platform. So there is going to be a big challenge. The main project for us is to help the operators provide a mobile business solution, because that's what we do in Japan.

And I needed someone from Europe. The big guys -- Telefonica, KPN, Deutsche Telecom, France Telecom, BT -- are willing to place an order with Cybird; of course, they try to bargain and try to be as tough as possible. I don't like that way. We don't sell things cheap. Actually my background and education is not IT or diplomacy, but negotiation.

What about China?

Well, we've already started providing content in China, for the purpose of becoming China's favorite friend. I don't think anyone in this content industry has worked with the big, bureaucratic Chinese companies before. I have. I helped my family when they constructed a hotel in Kansai. The hotel was awarded the world's best construction award, and we bought many different imported materials and invited artists and construction technology people from different countries. One of those was China. During the Tiananmen Square incident, I was the buyer of the same roof tiles as those on the Forbidden Palace. These tiles had never been sold to anyone but the Forbidden Palace itself. We were the first in the history of the world to buy exactly that same roof tile. They sent me to China, Tiananmen Square, on the day of the incident. I had to cross Tiananmen Square with everyone shooting each other. It was really something.

China is a really tough country to deal with. You have to be good at negotiating through politicians, through the bureaucracies or aristocrats or whatever. We Japanese -- I don't really like to say it -- but we're really a naive country. We're easy to handle because we believe in good faith.

The Chinese look down on Japanese or Americans telling them that they don't have culture or education or history. So about 10 years ago I studied Chinese language, poetry, literature, culture. I was able to tell, OK, this vase is from the Xing period. Or when we went out to dinner, I was reading Chinese poems; in exchange, they'd write out the poem, [as did] the Forbidden Palace's museum chief. You have to gain their respect. So I think it is going to be very difficult for content providers to go to China and make satisfactory money.

What about as a consultant?

If we are to go to China, it's going to be my job, but I'm too busy now taking care of Hong Kong, France, and the other European operators. Perhaps next year.

How is your effort in South Korea going?

Well, we still have it, but we're restructuring in Korea. The company is called Cybird Korea, jointly established by Cybird and a Korean local company. We've been working together for a little less than one year. Perhaps we made a mistake in choosing the partner. Venture companies in general are very put upon, and it's sometimes difficult to carry out things. So we rearranged the partnership. Now the share of the company is equally held by NEC, SK Telecom, and Cybird.

Your focus has always been on wireless, but in Korea the big market is fixed-line broadband.

We have no interest in broadband to date. I think our strength is purely wireless. We have in Japan a business helping big enterprises mobilize their services so that it'll be easier for customers to access them. For that, we need systems integration, and Korea does that work for probably half as cheap as Japan. So on that side, Korea is doing well, and at least now they have revenue, which also helps to reduce the cost of Cybird Japan. Also, through a collaboration between NEC and SK Telecom, NEC plans to sell [wireless infrastructure equipment] to operators. When the deal is done, there are going to be some implementation needs. So that sort of revenue will come -- and it's not one-time.

Cybird has strong ties to J-Phone. If UK-based Vodafone, which is the world's biggest cellular operator, takes control of J-Phone, what opportunities would you see in that?

Everybody in Japan thinks that Cybird is like a subsidiary to DoCoMo. But, to tell you the truth, we are even closer to J-Phone. Before establishing this company, we were working with J-Phone to help them start J-Sky Web for three and a half years, and that gave us very good experience. Our first revenue came from J-Phone, and they've always been taking good care of Cybird. So what is going to happen is ... I think there are two different ways. One is that Vodafone considers J-Phone merely as a financial investment, and perhaps brings J-Phone to the market and sells them to do business. That's possible. So in that scenario, there is nothing for us to do. But the second option is that Vodafone wants to get experience and know-how from J-Phone, and bring it back to Europe. Then there's a chance for us. J-Phone can educate Vodafone, but it can't help in executing, like developing something. If you look at DoCoMo's capabilities, they are partly an educational institution for the content providers. J-Phone doesn't have enough human resources or capability for such activities. That's only an example. So if there's any need for implementation or execution or action, then they need help. Of course they can handle maybe half of the requirement by themselves, but they still need help. Cybird can be a good candidate, especially when J-Phone and Cybird are really close, and especially when Vodafone and Cybird have been discussing the opportunities for over one and a half years.

What are your thoughts on your competitor Index?

As far as I understand, the difference is that Index's policy toward content is to go for quantity. We did the same thing. We were telling the world, until the beginning of this year, that we provide X number of offerings: 15, 20, 30, 40, 50. OK, now we have 60, we are the largest. I think that period is over for Cybird. It's like cable TV. Cable TV has got many channels, but the quality of content is not as good as broadcasting. We are planning to be broadcasters. We're not really interested in the number of content offerings we provide, but in the quality. I read an article saying that Index's average cost for developing one content offering is like JPY3 million or something, which is really, really cheap. That worried me a lot! But I visited Index's service and found that the quality and the depth of the contents is really different from ours.

We already understand the true value of the content, what kind of quality is needed. Senshukai is the biggest catalog shopping company in Japan; we helped them mobilize their service. I can't tell you the exact figures, but their revenue from mobile phones from the first year is going to be several billion yen, which is good. But if you go to DoCoMo and ask, what are the most successful revenue figures for mobile commerce on i-mode, they'll probably say about a million dollars per month. This is much, much bigger. And that's the value of Cybird. We understand the quality, we understand what is essential in mobile phones. And I think Index is going to learn.

Also, I believe that this new industry cannot be driven by only one company. It needs more companies like Cybird and Index. This is my true opinion. Competition-wise, I sometimes hate that. I pray that they don't show up this time. But if you see the whole future of the growth of this industry, we need several big companies.

Is Mobilephone Telecommunications International (MTI) also a competitor?

In a way, yes, content-wise. But the difference is that our competitors have to understand the importance of technology, and I don't think MTI is good at the technology. Index is making some effort to have better technology.

Please explain the Sugu Meru marketing service you're working on with Dentsu [Japan's largest ad agency].

Six years ago, there was a global campaign by Pepsi where winners could get a chance to go to outer space in 2010. I really wanted to apply, and was always talking with my friends about what it would be like in outer space. In the end, however, not one of my friends applied. Why? We were too lazy to go across the street to the Post Office, buy a postcard, fill it in, and send it. But I'm 100 percent positive that your mobile phone is either in your pocket or in a reachable area around you. So what you want is a TV campaign where you can just use Sugu Meru. [Whips out cellphone, navigates to email application.] All you have to do is just send an empty email to "Pepsi" [no "at" symbol or full address needed]. It's easy to remember -- Pepsi, Toyota, whatever. The business model is protected by patent.

With online advertising, they say the good thing is that you can measure it ... and the bad thing is that you can measure it.

Sugu Meru is not a stand-alone service. It has to work with, for example, a magazine ad. It enhances the efficiency of the investment that you made for the existing media.

What is Dentsu's role?

They include Sugu Meru in their existing sales package or planning proposals. We're not very good at selling such things.

What are your thoughts on L-mode [a fixed-line version of i-mode]?

i-mode is so limited. It's got a small screen, a very limited battery, very limited usage. But the good part is its mobility. That's why it's so convenient. L-mode is fixed line. Imagine your house wired by L-mode. There's a screen -- could be a fax machine as well -- but you can't even bring it to another room, or outside the house. What is the purpose, then, of using L-mode? I don't understand.

So you're not going to develop for L-mode?

No. But because the technology used for L-mode is exactly the same as that used for i-mode, if we see -- for some reasons we don't understand -- that L-mode is getting popular, we'll have no difficulty in providing services or contents. But I don't believe in the future of L-mode.

The number of subscribers for i-mode continues to go up, but pretty soon the rate of change will start to come down. For DoCoMo, it's a bit of a challenge because in terms of new offerings they have nothing on their horizon, until 3G next year. Your thoughts?

They have the 504. Java for the 503 and for the 504 is going to be completely different. I can't disclose how, but for the 503 the platform is really, really primitive. I mean, you can't even access the local memory. Why? Because everyone is going to be conservative at the beginning. It's a security reason, just in case some computer nut does something and it's a big problem; DoCoMo is not in a position to take that kind of risk. So the first version of Java is propaganda. It's only for gaming purposes. It's primitive. But the next version is going to be really sophisticated. Very sophisticated.

Will it give DoCoMo that boost in needs?

Depends on the price, but if they keep on the same strategy, perhaps there will be big sales for that. And not to predict the DoCoMo strategy, but it may adversely affect the launch of 3G, because it looks much nicer. But 504 is going to be really, really nice. It's going to be completely different. Anyway, we have a limited population in Japan -- it can't be more than 120 million subscribers. And I don't think DoCoMo is willing to take 70 percent of the market share, because there would be more monopoly regulations and pressure from the government. That's why they're going out to other markets. @

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