The Computer Year 1994: Change, Challenge, and Growth
Janus, the Roman god of gates and doorways, had two faces: one looking forward and one looking back. For our January issue, Computing Japan technology writer John Boyd looks back at significant events of 1994 and makes some conjectures about what lies in store for 1995.by John Boyd
Recession? What recession? As I write this under the clear, blue skies of late November, market researcher IDC Japan projects that, in 1994, PC shipments in Japan will top the three million mark for the first time ever. The "Heiwa Recession" may indeed be one of the longest economic downturns for Japan in the past half-century, but it was short-lived as far as the Japanese PC industry is concerned. The otherwise sluggish 1993 was a good year for PCs, with the market recording 15% growth over the previous year; 1994, though, was a great year, almost doubling 1993's growth rate. If IDC Japan's forecast proves accurate, 1994 will have registered a beefy 27 percent increase in PC sales.
The foreign invaders
Growth has been the common trait for all the major segments of the PC industry in 1994. Shipments of microprocessors (CPUs), memory chips, multimedia hardware and software, and DOS/V machines all expanded significantly. Even many of those pesky foreign computer companies put on weight as they solidified their position here.In fact, it can be argued that it is largely due to the foreign invaders that the Japanese PC industry has been so upbeat during this extended run of the economic blahs. The "Compaq shock" ó that company's announcement of low-price PCs in the fall of 1992 ó started a rumbling and shaking that has all but toppled Japan's hokey high-pricing structure: a framework of low competition and high margins that long supported an industry overly secure in its proprietary isolation, protected from the rest of the cut-throat computing world. The result of initiatives by companies like Dell and Compaq is that PCs are now affordable. With prices falling, sales are climbing ó and there's more to come. Witness Fujitsu's recent announcement that it is teaming up with hot new distributor Sofmap to develop a PC with a price tag of under ·100,000.
Knocking down the PC wall
NEC, sensing the beginning of the end to its premium pricing and perennial 50% domination of the market, still curses and cries that Compaq KK's ·128,000 PC gambit was nothing more than a ruse to grab the spotlight. After all, the wretched thing didn't even have a hard disk and other basic features. NEC, of course, is perfectly correct. Yet it entirely misses the point that that was the whole point: a compact pygmy flinging his pebble at a Goliath. And it hit home, harder and faster than even Compaq KK could have hoped.Then again, the market was ripe for an upheaval. If the citizens of Eastern Europe during the days of the Berlin Wall were able to keep in touch with reality in the outside world through computer bulletin boards, TV and radio, and word of mouth, Japanese PC users were no less informed about their own hoary situation. To various degrees, the proletariat understood they were computing in a fossilized environment: a Shogun island of patriarchal manufacturers dispensing stunted, closed systems that were so obviously losing ground to a supremely competitive, open, global industry, one moving far ahead of Japan in networking, multimedia, and (especially) cost efficiency.
To add further insult to their intelligence, Japanese computer users were being asked to pay through the nose for the privilege of being so cosseted. According to the slick marketing propaganda, Japanese consumers demanded nothing less than the highest quality and pampering, no matter what the cost and limitations in choice. And amazingly, for a long time, consumers believed the hype. Who doesn't like to be told that they are special and deserving of only the very best?
The DOS/V hammer
It might have continued in the same vein for a few more years, had not DOS/V (an extension of the global PC/AT standard architecture providing two-byte support for the Japanese language) been so successfully sold to the industry by IBM Japan. Sensing a viable alternative to the ubiquitous NEC-DOS standard, Compaq and other overseas vendors, unhampered by legacy systems, seized on DOS/V to knock a hole in the proprietary dike that had kept them out of the Japanese market.DOS/V machines began to trickle onto the scene in 1992; in 1993, the trickle swelled to a stream. The stream grew larger still as more vendors, including Dell Japan, Fujitsu, and even NEC-clone maker Seiko Epson, boarded the DOS/V riverboat. In 1994, DOS/V entered the mainstream, competing with Apple Japan's Macintosh and NEC's 9801 and 9821 in legitimacy, and in ever growing numbers.
Last year, Compaq Computer, the world's newly anointed number one PC manufacturer, rose to number seven in the local rankings. In 1994, Compaq almost tripled its 1993 shipments here. And in 1995 ó the year of the boar in the Oriental Zodiac ó Compaq will be roaring and breathing hard down the necks of Toshiba and Seiko Epson, poised to charge pass them if either falters.
IBM Japan, too, has reaped the rewards of its close association with DOS/V. IBM Japan was projected to have almost doubled its 1993 shipments in 1994, according to early figures gathered by IDC Japan. If this data proves correct when sales in the last three months of 1994 are factored in, IBM Japan will find itself firmly ensconced in third place, behind NEC and Apple Japan, and ahead of Fujitsu. This would be a welcome pat on the back for Big Blue ó and a kick in the pants to Fujitsu for its sluggishness in recognizing the inevitability of DOS/V and the AT architecture.
A new window on the world
Vying with DOS/V in impact during 1994 was Microsoft's Windows 3.1J. Launched in May 1993, Windows is the GUI (graphical user interface) that turns a character-based DOS machine into something that looks and behaves like a Macintosh. Even better for users in Japan, it more-or-less offers cross-platform Windows application compatibility on Windows-based PCs, including NEC's PC 9800 series. The previously released version, the murky Windows 3.0J, had disappointed both vendors and users alike in speed, functionality, and sales. The market therefore waited to see if Bill Gates, Microsoft's cofounder and chairman, would be correct in his prediction that the new version of Windows would sell a million copies in its first 12 months.Microsoft may get it wrong the first time, and only partly right the second and third times, but the market has confidence that Microsoft will achieve its goal in the end. There are enough of these believers willing to put their money where their faith is and purchase Microsoft products, even while they are still in low-grade mode (a tribute to the company's marketing prowess, if not its programming skills). Windows 3.0J may have been clogged code, but Windows 3.1J has sparkled brightly ó though with more than a little help from Intel and its faster 486 and Pentium chips.
The result was that Microsoft Japan reached its first-year goal in only nine months, and almost 2.5 million copies of Windows were shipped during 1994. It is important to note, however, that this figure does not represent only direct sales to users. A great deal of Windows' success is due to the massive effort that Microsoft first put in persuading DOS vendors to pre-install Windows on the PCs they ship. Microsoft's premarketing helped everyone win (with the exception of Apple Japan, that is). End-users don't have to go through the cumbersome loading of Windows; hardware vendors can advertise their machines as being Windows-ready; and Microsoft has been able to change focus, from marketing its GUI to concentrating instead on localizing and marketing Windows applications.
Successful localization
In the area of localizing Windows applications, Microsoft has achieved extraordinary success. And not only Microsoft; other US software developer have been able to take advantage of the Windows boom to speed ahead of their Japanese competitors. The local subsidiaries of US software companies like Lotus, Novell/WordPerfect, and Borland have been able to tap the experience of their parent companies' Windows expertise, and thus localize Windows programs faster and more cheaply than domestic Japanese companies were able to get up to speed in developing new Windows programs.The result? According to publisher Software Japan, which keeps tabs on such matters, of the top ten best-selling Windows programs in August 1994, six were from Microsoft and three were from Lotus Japan. The single Japanese entry was JustSystems' word processor, Ichitaro Version 5.0 for Windows (at number three on the list). But even Ichitaro, the best-selling non-game Japanese software ever, was being outsold by mighty Microsoft's MS Word 6.0 in the number two spot. (Microsoft Office was number one.) If this profound US domination of the application and operating system markets continues unchallenged, it may parallel the Japanese takeover of the US consumer electronics market in the 1960s and '70s, but in reverse. Which poses the question: How long it will be before US software is raised as a political issue by the Japanese side in the US-Japan trade wars?
Apple's slice of the pie
Windows also presents a threat to Apple Japan. Apple was long the lone foreign player in Japan, able to take a big bite out of the market with its proprietary Macintosh because proprietary systems were the only game in town. But at least Apple had something special worth protecting. When Apple finally shipped localized Macintoshes able to compete in power and speed with domestic PCs in 1990, it achieved outstanding growth; it has continued to do so every year since then, until today it sits pretty and tight in the number two spot.Apple Japan's Macintosh shipments reached about 500,000 in fiscal 1994 (which ended in September). That represents a 30% increase over 1993 ó not as good as the percentage hikes in some previous years, but respectable, nevertheless.
The reason for the Macintosh's outstanding success in Japan is its user-friendly interface, so appealing in a country not overly enamored with traditional personal computers and foreign keyboards. But while the Mac still holds a clear edge in ease-of-use, Windows and the evolving AT architecture are inching ever closer. As is often the case with Apple, it could have made life rosier for itself if it had read the market better. In April, Apple launched the new RISC (reduced-instruction set computer) Power Macintoshes in Japan, a new architecture that represents a momentous change for the company. While the new Macintoshes can run all current software at reasonable speeds in emulation mode, though, they become boxes worth buying at premium prices only when native software óapplications written specifically for the 64-bit RISC PowerPC chips designed by Apple, IBM, and Motorola ó are available to knock everyone's socks off. As anyone with a sense of history could have predicted, such native applications have been slow in arriving on the market here. So, too, customers for Power Macs. The situation finally improved in the autumn, when new applications began to trickle out; as a result, sales of the new Macs perked up in September and October, and should continue to do better with each consecutive month.
Apple also failed to predict the brisk demand for its new 500 series PowerBook Macintoshes, and so lost the chance to make up in sales of notebook computers what it lost in initial sluggish sales of the Power Macs. At least at the entry level, though, Apple Japan has played a couple of aces (maybe three, if we include the autumn launch of its low-cost 630 multimedia Macintosh). Apple's updated LC series, incorporating an all-in-one monitor, CPU, and CD-ROM design, was a big hit during 1994. Likewise the Performa series ó LCs customized for the consumer market, and sold through mass-market channels ó have proved particularly attractive to non-techie buyers.
Entering the multimedia era
Apple wasn't the first to market PCs incorporating a CD-ROM drive, of course. That honor belongs to Fujitsu, with its FM Towns PC launched way back in March 1989. Yet while the proprietary Towns has slowly dug itself a deep niche in the education market, it never made it into the big time. Now that NEC, the DOS/V bunch, and Apple are all churning out similar multimedia computers, the FM Towns (and the same for its sidekick, the expensive Marty CD-ROM player) has lost the advantage of its early start. The FM Towns is unlikely now to gain a significant market share, despite Fujitsu's efforts to broaden interest with the addition of Windows compatibility and recent price cuts. All this industry activity in pushing multimedia hardware has at last paid off for software makers, though. After years of frustration, waiting for a multimedia market Godot to arrive, it finally did show up in 1994 ó to the surprise of many.Multimedia covers a number of concepts, but is most often associated with CD-ROM technology. Through clever use of tiny laser burns representing the digital alphabet of zeros and ones, a single compact disk is able to store some 650MB of stereo sound, computer graphics, animation, text, and video with which the user can interact via the computer.
No reliable figures are in yet for 1994. We do know, however, that some 2,000 domestic titles and 1,000 imported titles were available in 1993, according to IDC Japan. It's safe to guesstimate a large double-digit percentage increase in CD-ROM software for 1994.
If you need convincing that the multimedia era has arrived, stroll around the stores in Akihabara. You will marvel at the shelf space now being devoted to CD-ROM packages, covering the gamut from porno to politics. In chain stores like Hypercraft, more than half the software is now CD-ROM. At least one Tokyo Hypercraft outlet (in Shibuya) has opened an additional floor devoted entirely to DOS/V and Macintosh CD-ROM titles. It's not hard to understand why. Multimedia is helping make self-learning more fun through the addition of speech, video, and a new level of interactivity. Games are more entertaining because of the capability for better graphics, music, and sound. And you can even become more productive with the addition of a CD-ROM encyclopedia and other reference works that can be quickly accessed by key-word searches.
A new wrinkle appeared in multimedia hardware at the May 1994 Business Show: a number of vendors unveiled computers with TV capability. Matsushita demonstrated its Woody DOS/V PC, incorporating both a CD-ROM and a TV tuner that beams all regular VHF and UHF channels onto its 14-inch display. NEC and IBM also introduced PCs with TV tuners, but Matsushita went further by adding more multimedia features and simple controls for still-frame video capture. Matsushita followed up in the autumn by improving on its idea. Upgraded Woody models are now able to capture up to three minutes of video recorded from TV or a camcorder, and play it back in various small screen sizes.
Apple Japan presented a serious challenge to Matsushita when it introduced its low-priced 630 series multimedia Macintoshes, which accept a TV tuner add-in card. Some Apple insiders are betting the 630 will become the best selling Mac in 1995.
Games are serious business
Matsushita's fiercest foe, Sony ó another consumer electronics manufacturer that has long eyed the PC market with lust but little luck ó also threw down the gauntlet at Matsushita's feet when it flung the wraps off its new game machine. The Sony 32-bit RISC PlayStation is a direct challenger to the 3DO CD-ROM game player made by Matsushita (and, more recently, by Sanyo Electric). Armed with a number of processors working in parallel to help take the graphics and sound load off the central RISC chip, Sony is claiming a whopping 500 MIPS (million of instructions per second) power for its game player. With Sega and NEC also releasing powerful 32-bit game machines, the scene is now set for these companies to chip away at Nintendo's market share.Nintendo, of course, has dominated the game market since the 1980s with its 8-bit Famicon and 16-bit successor Super Famicon. And, not to be left behind, it has announced it will ship in April 1995 its own 32-bit machine, Virtual Boy, featuring a binocular-type light-emitting-diode screen that produces monochrome 3-D images. But Virtual Boy is merely a non-compatible stop-gap measure until Nintendo is ready to ship its much-awaited 64-bit player (currently being developed with graphics workstation ace Silicon Graphics), perhaps late in 1995.
To counter Nintendo's gambit, 3DO has announced that it, too (via Matsushita), will notch up to the 64-bit level by initially providing an accelerator add-on card for current machines, featuring a customized IBM/Motorola PowerPC chip. This is also expected late in 1995. However the entertainment market shifts, we're clearly in for some fun and games, and plenty of fireworks in 1995 and beyond.
Back to work
It is no secret that Japanese computing lags in networking. According to IDC Japan, just 1.3% of all Japanese workers used networked PCs in 1993. This compares to over 23% of the total US workforce sitting behind PCs on a network.But here, too, things are changing ó at least in the Japanese white collar sector. Networking in businesses like banking, insurance, and brokerage companies is advancing rapidly. And, according to an IDC Japan survey of large corporations in Tokyo and Osaka conducted in 1994, LAN (local area network) penetration has surged in the past year. Nearly 64% of the companies reported they now operate a PC LAN of one kind or another, compared to just 45% of the companies surveyed in 1993.
Telecom tie-ups
In the long and hesitant courtship between the computer and telecommunications industries, things warmed up considerably in 1994. Here, too, the growing Japanese reliance on US software and trend-setting was apparent.NTT, along with Toshiba and Fujitsu, joined what is now the gaggle of Japanese firms (including Sony and Matsushita) that has invested in General Magic, a privately owned, Silicon Valley-based software developer. General Magic is the creator of the Magic Cap operating system for the promising new category of personal digital assistants (PDAs), Telescript, and networking software.
For Nippon Telegraph and Telephone, this was the first time to ally itself with a foreign software developer. To show that it was no aberration, though, NTT quickly followed up by signing an agreement with Microsoft to develop various multimedia services. Microsoft will create an operating system to deliver multimedia offerings from third-party vendors over NTT's phone networks. The idea is that users will first preview information on a CD-ROM, and then download what they want by licensing an encryption key.
Deregulation
The impact of mergers in the US cable TV, wireless, and telecommunications industries ó supposedly bringing the information superhighway closer to reality ó has had an energizing effect on the Japanese government as well as the industry. There's no question that the Japanese see themselves falling behind ó though falling behind what, is not really clear to anyone on either side of the Pacific.Nevertheless, the Ministry of Posts and Telecommunications (MPT) was worried enough to relax the strict regulations that have kept the telecommunications industry and the broadcasting industry apart. About time, too. Over-regulation explains why less than 3% of Japanese households were subscribing to cable TV, compared with over 60% of US households in 1993.
This is particularly important because some analysts note that while Japan already has high-capacity fiber-optic trunk networks in place (the backbone of any future data highway), it still lacks the connection from the trunk lines to households. A costly (and recently speeded-up) government plan calls for such installations to be completed by 2010.
If cable TV companies were unfettered to go about their business as they see fit, however, they could become the providers of a cheap coaxial local hook-up within this decade. That could lead to new businesses and opportunities, as is happening now throughout the US. Such a realization, and MPT's own estimate that Japan's data communications market could jump from 1990's ·16 trillion to ·123 trillion by 2010, has encouraged the MPT to loosen its regulatory hold. Indeed, the Ministry is now actively encouraging domestic and even foreign companies to come in and help speed up the development of cable TV.
Deregulations was also the name of the game in the cellular phone market in 1994. In April, a serious of changes ushered in new digital services (which will compete with current analog systems), new companies, and an end to such costly restrictions as the rent-only handset rule. Heavy-handed government regulatory practices have helped make Japanese cellular phone services the highest priced in the world. Freeing up the industry made it easier for competitors like IDO and DDI to compete with the government-favored NTT DoCoMo (Do Communications Mobile, now split into nine regional groups), the only company to be granted a license to operate nationally.
The competition is doing wonders, not only for bringing down prices, but also for boosting the number of subscribers. According to the Japanese business press, new sales of discounted cellular phones in 1994 could reach as high as 1.5 million, an extraordinary number that almost equals the entire user-base that existed up to 1992.
Leading in the price-cutting is IDO, which markets the internationally popular Motorola cellular system. IDO has by far the lowest-priced handsets on the market. Motorola dominates the international cellular phone market, and consequently is able to out-mass-produce its competitors. So great is the demand for the low-priced Moto phones that IDO actually outsold NTT in the Tokyo area in October, when it signed on 28,000 new subscribers versus 20,100 for NTT.
Personal handy phones
As if all this competition between incompatible cellular systems, new communications companies and NTT, and analog versus digital technologies weren't confusing enough, another portable phone technology is making its debut: the Personal Handyphone System. PHS claims to be the poor person's answer to the business-oriented cellular phones, which still carry high application and monthly subscriber charges. PHS technology utilizes smaller base stations that are easily set up on top of buildings in metropolitan areas. Because the digital technology is cheaper to produce and install, costs for the user should also be considerably cheaper. On the downside, calls cannot be made from moving vehicles; you will have to be close to a particular company's base station, which has a range far shorter than those of current cellular competitors. More than half-a-dozen companies and groups are presently holding PHS field trials, one more reason that 1995 should be another eventful year.Then there's us
There's one more event that shouldn't pass unmentioned in 1994. In March, a trial issue of Computing Japan, the first and only English-language magazine covering the Japanese computer industry, was published and received a warm welcome from potential advertisers and readers. Based on that reception, issue No. 1 appeared in June. With Computing Japan now past the half-year mark, I and several thousand readers look forward to celebrating the magazine's first birthday in June 1995.