Bullish on Japan.com

Back to Contents of Issue: January 2000

by Rolf Boone

When one writes on foreign companies in Japan, it is easy to invoke that popular metaphor of "Black Ships" out on the horizon, thwarting long-standing trade barriers, real or imagined. When one writes on the American securities and brokerage firm Merrill Lynch, with assets totaling more than $1.5 trillion, one might as well skip the "black ship" idea and consider it an armada. However, this is not a takeover. Indeed, Merrill Lynch has done well in expanding its position for future investment strategies in a weakened Japanese economy, but this is also a company wholly supportive of the Net commerce market in Japan, a fact expressed in a September 1999, 123-page Merrill Lynch report entitled, "The Internet Tsunami." Ever seen a bull tap dance in a china shop? Read on.

Obviously, there is no shortage of enthusiasm on the potential value of the market here, and the numbers come fast and furious: "Internet content market could be worth ¥800 billion by 2003;" and "We estimate the online business-to-consumer commerce market to be worth around ¥2.4 trillion by 2003;" or "At an estimated ¥1.2 trillion, we believe Internet access is the biggest revenue generator in the Internet space."

All fine and well and no doubt on target, in a report that tackles everything from valuing Internet companies to access, content, commerce, software, regulatory issues, and privacy. Part 3 of the report voices support for five of the movers and shakers in Japan's IT world: Yahoo! Japan (accumulate), Softbank (buy), Hikari Tsushin (accumulate), Oracle Japan (accumulate), and Bellsystem 24 (neutral). (Don't be surprised; of course they'd be targeting investors.) The report offers its opinions and suggestions for improvements, primarily based on the American Net commerce model. Surprisingly, although the American model is generally emulated worldwide, the ML report takes note of certain exceptions between the Net in Japan and the Net as it is known stateside. And if you're looking for a crystal ball to guess the near future, try mobile handset Internet devices and related services-such as NTT DoCoMo's i-mode or Hikari Tsushin's PHS subscriptions.

The report notes: "One way Japan may be able to (close Japan's Internet gap) is by moving to mobile Internet access much faster than the U.S. Mobile handset diffusion in Japan is higher than in the U.S., and if this user group becomes connected to the Internet, the U.S.-Japan gap would narrow significantly in a very short period."

Even that may be putting it lightly. Since February 1999, NTT DoCoMo has been adding 80,000-100,000 new subscribers a week, climbing to 2 million to date, with another 2 million expected to sign up by March 2000. Couple this with a joint venture between NTT and Microsoft to form Mobimagic Co.-offering Internet services to mobile handsets-and Hikari Tsushin's existing service and subscribers, and you too would come to the conclusion that the mobile phone is king. It's easy to see why, with the expense of connecting to the Internet, continuing credit card phobia (driving people to the wildly popular 7-11 convenience store "Loppi" machines), PC prices that have yet to fall dramatically, and the lack of broadband connection speeds at 1Mbps or above. Author of the Merrill Lynch report, Mahendra Negri, adds his two cents as well: "The one single thing that I am waiting for desperately is the beginning of discounting on the Internet-it is raging in the U.S.-but here it is still an exception. The other ingredient would be broadband-waiting five minutes for a webpage to download will limit the Internet to only the otaku (diehards). If these two things happen, then everything will follow."

As if that wasn't enough incentive for mobile handset use, the report ends with an admission that the development of third generation (3G) and wireless application protocol (WAP) technology "will allow the transmission of data of up to 2Mbps, challenging cable broadband because of its cheaper solution." The kids are all right-they've got their phones.

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