Toru Arakawa: Small-Time Visionary

Back to Contents of Issue: May 2001


When he launched Access about two decades ago, CEO Toru Arakawa knew that today we'd be living, working, and playing through small, Net-connected devices. Now he's a star of the small screen.

by Kyoko Fujimoto

Toru ArakawaIt's official: we're living in small times. Portability and miniaturization are the word when it comes to the devices we use to live, work, and play. The days when Sony CEO Akio Morita had difficulty selling the idea that portable, personal music devices would be popular are long gone. More and more functionality is being crammed into ever smaller machines, and it's accepted wisdom that this is what people want (see also "Convergence Emergence," page 36).

In 1979, Access began as a two-man startup developing software for industrial devices. The founders, Toru Arakawa (president and CEO) and Tomihisa Kamada (vice president and CTO) were unusually entrepreneurial and, as time has proven, visionary. An excerpt from their Web site (www.access.co.jp) follows:

"By the mid-1980s, we were confident that the time would soon come when the Internet would be accessible to everyone. We also predicted that the tools used to access the Internet would not be PCs, but dedicated Internet terminal devices, including small, easy-to-operate home appliances that would be both compact and simple to use. We focused on the development of standard software for these dedicated Internet terminal devices ..."

Talk about long-term planning. Remember, this was the early '80s -- not '90s. The Internet was not on that many radar screens back then. Today, the company's main products, the NetFront and Compact NetFront browsers, are found in Internet cellphones, wireless Web surfing boards, email pocket devices, game consoles, car navigation systems, et cetera. If it's an appliance that can connect to the Internet -- particularly a small one -- there's a strong possibility a product from Access is embedded in it.

For manufacturers, Access provides nearly everything needed to turn a stand-alone device into a Net terminal. This includes the browsers, a real-time OS based on iTRON, a Java virtual machine, and, for making other embedded applications, a TCP/IP protocol stack, a file system, a Web server, and an encryption module. Compact NetFront Plus, the latest version of the browser, is notable in that it can read almost any site format: cHTML, WML, xHTML Basic.

Access is in the red. About 90 percent of its earnings comes from the development work behind bundling the browsers into devices and from royalties it receives from each device sold. But now that its systems are in so many devices, the company has "access" to all sorts of leveraging opportunities. And as this interview shows, the company has some very innovative, compelling plans that should lead to profitability in the next few years.

Access IPOd on the Tokyo Stock Exchange's Mothers market in late February. For investor H&Q Asia Pacific, it was a particularly exciting moment: Access was its first portfolio company in Japan to go public.

Associate Editor Kyoko Fujimoto interviewed Access CEO Toru Arakawa and H&Q Asia Pacific Vice President Pierre Suhandinata (also a board member of Access) at the Four Seasons Hotel in Tokyo.

Last year it seems I saw press releases about your company almost every day. Among all that news, what would you consider to be the top five news items?
Arakawa: Well, each has its own importance. One would be the announcement of the tie-up with Motorola. A tie-up with a company like Motorola, which provides sales of keitai worldwide, means a lot to us, because we're also planning to go worldwide. In the same way, the tie-up with Intel, in which it will provide CPUs for next-generation keitai, meant a lot to us.

Also, regarding account settlements, there was an announcement that we'll make a system together with a number of credit card companies. The idea is to put an account settlement setup in devices like cellphones and televisions. Their sponsoring of the settlement step was for Access an extremely important thing.

Establishing an ASP company for non-PCs with Justsystem and Mets was also very important. We're just now developing that platform, and we expect it to become very important.

Anything else?
Suhandinata: I think one key event, actually, was back in January 2000. H&Q and Access worked together to set up a venture with strategic investors. And what that does is establish Access as a mainstream, strong technology company. Basically, NTT DoCoMo invested, Motorola invested, Sony invested, and Tokyo Electric Power invested. There are a lot of big Japanese companies that basically believe in Access and its future. And that's one, I think, important event.

Another important event that we played a part in was creating the joint venture Mobile Business Communi-cations. The company is a new venture that has Access as a partner, CTC as a partner, and BroadVision as a partner, and it's funded by H&Q Asia Pacific. The goal of the business is basically to create mobile applications for corporate customers.

Up till now, everything has been consumer-based [i-mode, et cetera]. In the future, there will be big applications for businesses. And I think what that does for Access is, first, it's an additional partner that is very strong. BroadVision is known worldwide as the No. 1 e-commerce solution. And they believe that Access is the best partner to launch mobile business applications.

In what way will you move toward the business side?
Arakawa: We can divide our strategies into three types. One is to strengthen the business that's already there. It's for that reason we tied up with a semiconductor vendor. Also, I didn't mention them earlier, but we tied up with Inotech to establish a company. [Inotech is the distributor of Access products. The joint venture provides software sales and support.] So we're working hard on how to enlarge and strengthen our existing business and make it profitable.

The second is to move overseas, via tie-ups or by establishing subsidiaries.

The third is to apply that: to prioritize various services and contents, to get wide-ranging opportunities for earnings. At the same time, if we're supported by services and by content, it strengthens our browser's position even more. So by handling these combinations well, the opportunities for earnings increase, and the value of our browser goes up.

You're not going to provide content yourself, are you?
Arakawa: Yes, we will. Well, actually there are two options. One is to join up with content sources and aggregate them, and thus provide content for keitai or TVs or game machines. We're making a system for that.

The other is for us to plan and provide our own content. This is something we're preparing for to a degree, but at this point ... it's not good for us to antagonize content and service providers. What we're working on is finding a way to use well the other things that we do have and figuring out what we can do to create earnings opportunities in those areas.

You have something like a portal site, Gaburi. Is that part of the overall strategy?
Arakawa: Yes. There are various companies involved -- about 100 want to participate. There's great desire from everyone to provide one content offering to a lot of different devices. Our portal site enables that. For device makers or telecom service companies, it's good because they can get a lot of content at once to sell the devices or to provide services. Many companies want to bundle this portal site as a standard feature. The site is just sowing the seeds to increase earnings later.

Investor and investee
Investor and investee: H&Q Asia Pacific Vice President Pierre Suhandinata and Access CEO Toru Arakawa
So for now you're not really thinking of this portal as a way to increase earnings.
Arakawa: Well, we do think that earnings will eventually rise as a result of it, but in order to do that, we need an online payment system. With devices other than the PC, we can't really use the system that we usually use. That's why we're making the system with the credit card companies. If that is used in the devices, content providers will have an opportunity to charge users, and we'll get commissions from that.

Another one is the ad broadcast system for which we're tying up with DoubleClick. By doing that, we also gain revenues through advertisements, so that's another earnings opportunity. In order for Gaburi to be active, we have to set up the system so that the content providers also have increased opportunities for earnings. That's what our company is working on now.

How about the overall earnings of Access? You have several businesses, but is the browser your major source of earnings?
Arakawa: Yes. We license our NetFront, and Compact NetFront, to manufacturers. That's one. Another is to bundle them into devices, and we get fees for that development. After that we also receive royalties on each device sold.

About how much of your earnings does that make up?
Arakawa: At this point, it's about 90 percent or so, so nearly all.

But you're also doing all these other things ...
Arakawa: Yes. If we have this portal bundled in our browser and software -- or if we include an account settlement system or an ad-transmittal system -- and license it to manufacturers, more people will use those systems for various services, and then that's when we expect to start earning some money. If we try at the beginning to just make money, we can't expect to have it bundled as a standard feature.

You just went public. Can you tell me about your future business developments?
Arakawa: We need to expand overseas. DoCoMo is also in the critical period of moving its i-mode operation overseas, so it will be important for us to not fall behind that. For overseas carriers, the current infrastructure for keitais is 2G, but that will be replaced with 2.5G and 3G. In light of that, there are more and more places that want to provide services using our solution. We'd like to firmly support them and work to make the browser we've developed into a global standard. I think that will be our No. 1 priority.

Does this mean you expect keitai Internet access overseas to expand?
Arakawa: Yes, I think it'll be very big. In the same way as Japan's i-mode, people will come to take it for granted.

There have been some complaints by foreigners that keitais are too small. Foreigners generally prefer large products.
Arakawa: For a while, big and durable things were considered good, but now that's shifting to a preference for compact and usable things. I think what was considered the standard can change. You know, they talk about how everybody uses their thumbs to input messages [on cellphones] in Japan, but actually in Europe there are already a lot of people sending messages around like that as well, via a short message service. People use Game Boy all over the world.

Will you pour your energy into keitais?
Arakawa: Keitais are the priority for overseas. But for Access there are three areas in addition to keitais that are important. One is the digital television area, including set-top boxes and browsers for digital broadcasts, which I think will be very important. It will be some time still before it gets underway, but the era in which all televisions will be digital is not so far away.

Also, the market for home-use gaming devices. Although these days it's sort of down, we expect there to be quite a large number of users, so this is also an area we can't miss.

Another one is cars: car navigation with Internet functions as a standard feature. There are some already being sold, but those are still in a transition stage, and the real boom won't come until after the 3G cellphones come out. Otherwise, data transmission takes too much time, and you wouldn't really be in a position to search for information while driving. Also, the act of connecting the cellphone is very cumbersome, so if we have Bluetooth, used for short-distance exchanges, that can become the gateway to the communication access point.

The present kind of Internet-compatible car navigation provides map and location information, but this alone can't help you when you want to find out about restaurants or something of a specific genre that's nearby. So what we're trying to introduce is a way for [a driver] to connect to the Internet via wireless and get search results -- this is where you are now, here is this kind of restaurant, and here's how you can get to it.

So once the communication system advances, Access will make substantial efforts in the car-navi area, too?
Arakawa: We are working hard on that now. In about two or three years, car makers will include car navigation as a standard feature. For that purpose we have to offer this type of device very inexpensively, so we are developing it together with them.

Also, although I mentioned three areas before, there is one more that is very large: home-use telephones [using services like i-mode]. I think that will be a very big market in Japan. I think this product will be very big this year or next year, and that is one thing we are also looking forward to.

When it comes to embedded-system devices, Access is in quite a strong position, right? Whenever I see that kind of product, I automatically think it must be from Access.
Arakawa: About 80 percent of the market is using our products, so it makes sense that you would say that.

access
"We are a US venture capital company. We look for certain criteria. Arakawa-san and Kamada-san are true entrepreneurs."
[to Suhandinata]: How did your relationship with Access start?
Suhandinata: Well, it started in 1996, with H&Q Asia Pacific chairman Ta-lin Hsu. [A friend of his] was advising Access then. So the relationship started in 1996 through an introduction.

We tried to support Access and keep a good relationship. At the end of 1998, Access was raising a venture capital round. We liked Arakawa-san, and we really liked the vision. Ta-lin Hsu always says that the first thing he liked about Arakawa-san was his vision that Access is going to be the Microsoft of non-PC devices. And that's really what brought us together. So that relationship, in terms of financial support, started in late 1998.

So you've known Arakawa-san since 1998.
Suhandinata: Ta-lin Hsu has known Arakawa-san since 1996. Personally, I've known him since 1998.

And you became a board member at Access after that?
Suhandinata: Yes. I was responsible for the investment.

And do you believe that Access is going to be the Microsoft of non-PC devices?
Suhandinata: I think that times are different nowadays. But if you would like to pick one company that basically is going to be in every single non-PC device all over the world, then I think Access has the best chance to achieve that. Even in Japan today, I think it's, what, 80 percent market share? Microsoft in the OS has about 90 percent, maybe. So it's the same kind of level of strength.

So what do you like about Access' business best?
Suhandinata: That's a difficult question. I think there are various things. First, we are a US venture capital company. We know how to invest a certain way, and we look for certain criteria. I think one of the most important aspects of Access' success is that Arakawa-san and Kamada-san [Tomihisa Kamada, vice president and cofounder of Access] are true entrepreneurs. Very rare in Japan.

If you look at the example of the Internet, there are a lot of people trying to control it, and the way to be successful is to have it be an open standard. And I think in that light, Access is very strong, because they work with so many manufacturers. They work with carriers, they work with content providers. Also very key is that there are standards bodies in the world, all debating about which standard to go to, and Access is a key member of the W3C forum, which basically decides which standard is going to be next for phones. So if you take all those together, I think you will find very, very few Japanese companies as strong as Access.

What kind of business are you developing in America?
Arakawa: Up until now, we've been in the position of setting up our company there and putting our local team together. We are just actively getting started now on our sales, engineering, and other activities.

What is the relationship between your businesses in Japan and America?
Arakawa: As a company, they are a 100 percent subsidiary. Basically we'll decide in headquarters the worldwide strategy, then what area each subsidiary will focus on. Then we will leave it up to the subsidiaries to decide how to put that into action.

It's not decided, then, which area the US will focus on?
Arakawa: No, it's not like that. Basically, we're doing several things already. We will focus on keitai for sure, but we've tied up with several American companies and are providing our software to them, and they are taking care of the management for us.

What about outside of America?
Arakawa: We have an office in Germany. We've hired three local staff there and are in the process of incorporating [making it a company]. The plan is to put together a staff there after we get established and then set up in the same way as the American office. The pace of the cellphone industry in Europe is faster than in the United States, so it's possible that Europe will become big before the US [office] does. Another point is that there are almost no device makers left within the US, so instead, [we are trying to help] Japanese, Taiwanese, and Korean makers, for example -- our customers -- to go to the US and let telecom and broadcast companies use their products. The US has only got PCs, so that's what they instinctively opt for.

Are you yourself also chairman of the US side?
Arakawa: Yes. And the headquarters' vice president, Kamada, is acting as president there now.

Kamada-san is CTO, right?
Arakawa: Yes, within Access that is his job.

So on the technology front Mr. Kamada is doing everything at this point, right?
Arakawa: Yes. But he does sales and planning, too. Not only Kamada, but I also do technology planning sometimes in his absence, so our territories overlap somewhat. But Kamada is basically handling research and development.

When you started out, it was just the two of you, right?
Arakawa: Yes.

So you had to do everything.
Arakawa: Yes. It's really similar to the early days of Honda or Sony, et cetera, isn't it?

How long was it just the two of you?
Arakawa: Half a year, or one year, with some assistants in along the way. So the period where it was strictly only the two of us was not really that long. In the sense of being the only board members, it was quite long.

How many employees does Access have now?
Arakawa: About 200.

It's that big? You've nearly doubled in size in a year.
Arakawa: Yes, compared to the last time we've met, we are about twice as big. [See profile on page 10 of the June 2000 issue.]

Do engineers make up the bulk of that growth?
Arakawa: Engineers make up about 65 percent, yes, including research.

Companies that have technology are strong.
Arakawa: Yes, it's very difficult at the beginning to develop products and sell them. In the early investment days you really have to just hang in there, so it is hard. But once you get established, it makes a big difference to have engineers/technology.

Compact NetFront is your top product, right?
Arakawa: Yes, Compact NetFront and NetFront are both important products to us, but in terms of the number of shipments, there are more Compact Net-Fronts shipped out. In terms of sales, they nearly balance out. That's because NetFront has relatively more functions and is used for bigger devices, and we can obviously sell it at a higher price.

When do you expect to come out of the red?
Arakawa: In the coming year or the next, we think we'll be able to become profitable. As for the consolidated accounts, now we're still in the process of developing [products], so of course if we stop investing on that we can become profitable fairly easily, but that's like getting things backwards, so I hope you'll allow us time, like three years or so.

When we license software to manufacturers, they ask us to bundle it into their products. We get paid for that, but at the same time we need developers to do the bundling. We need a new development team for each new order. This is getting burdensome. The development period actually takes anywhere from 8 to 12 months to fit it into a particular device. This takes up all of these people's time, and we get paid for that after all the development is done.

That's a tough system for us. Last year we did this for about 40 products, and in the past five years we had a total of 90 products. This year we will have about 100 products, from what we know now.

In a way, our being in the red is not unhealthy. But we can't stay red forever, and we can't get more engineers as our orders increase. The reason why we've been getting orders like this is because there are no software developers at the manufacturers. So we've developed an SDK, or software development kit. It's like an assembler to make development easy. We've been selling this for the past couple of years.

Actually, it's impossible to develop 100 kinds of product a year! We had to outsource this part somehow, and now we are ready. Many have already used the kit, like for the digital-camera keitai from J-Phone, and Sony's air board.

Until now, we've had to spend too much money on development. But now we have this kit, so our profitability will be greater.

Actually, if we do accept more development orders, our sales will increase. But if we become too big, it becomes harder to manage all the people, and it becomes harder to catch up with the speed in this industry. We would like to stay at this size -- 300 people at most -- and we plan to outsource things efficiently to subsidiaries and partners.

Which next step is the most important?
Arakawa: One is to license the Compact NetFront to European cellphone makers. Another is the Internet-capable home telephone. Many manufacturers will release [such] phones at the same time, so it's a big thing for us.

Java-enabled keitai have been released. What's your take on them?
Arakawa: The first Java-enabled keitai didn't have our Java [Access' version of the Java virtual machine] on them; makers developed their own. But they say it was tough and are already asking us to do it for them. The reason why we couldn't do it is because we didn't get licensed from Sun. All we got was authorization from Sun that our Java is compatible [with theirs]. Sun and DoCoMo tried to decide on specifications, and we couldn't get compatibility tests until everything was done. So the Java used in the first products was by officially licensed companies like Applix. But we will be doing it from now.

What is Access' strongest point?
Arakawa: Looking from the device maker side, we're the provider of the browser, Java, the module for TCP/IP, SSL, OS, et cetera. [Access makes an i-TRON--compatible real-time OS for embedded systems called More for mobile. See "I TRON, You TRON, We All TRON," page 6, November 2000.] Virtually everything. We can make it combined in any way our customers like. Usually when we tell them we can provide everything, most ask us to give them everything together. But they usually don't like it if they are told everything has to go together. [Note that the primary competition for Access browsers comes from manufacturers. Matsushita, for example, makes its own browser for its cellphone handsets.]

What's the important thing for keeping Access as strong as it is now?
Arakawa: We have grown too big in such a short period of time, so it's important to keep the company structure organized. Also, this is quite basic, but when we get orders, we definitely need to keep the deadlines. It sounds like a small matter, but this is how we can get trust from manufacturers. If Access were to become weak, it wouldn't be because of competitors, but because we couldn't keep our system organized, or because we couldn't keep up with the trends.

We have usually tried to look ahead, predict the future, and propose to make changes so as to become the market leader. If we can keep doing this, we'll be OK. Since we just went public, more people are watching us. I think it's a good time to straighten ourselves up.

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