Strategies for the Japanese OS Market

Microsoft, IBM, and Apple Make Their Cases

The Japanese PC market is growing by leaps and bounds, creating a
potentially lucrative market for operating system (OS) sales. This month,
Computing Japan takes a look at the current and future OS products and
marketing strategies of Microsoft KK, IBM Ja pan, and Apple Japan.

by Steven Myers and R. A. Lemos

Only on the rarest of occasions do personal computer hardware or software
products become phenomenally successful based solely on their technical
merits. Usually, shrewd sales strategies and marketing techniques will
separate products that go on to become household names from those that
are relegated to the back pages of software discount catalogs.

The efforts of IBM in the 1960s and 1970s illustrate this point
well. IBM was able to rise to the top of the computer industry by superbly
marketing a rather mediocre mainframe machine, the IBM System/360.
Software giant Microsoft, too, in the 1980s was able to sell MS-DOS (even
then, hardly a marvel of technical sophistication) to millions of PC
users, eventually achieving domination of the home and small business
markets for PC operating systems. Along the way, scores of other,
technologically superior products - both hardware and software - fell
by the wayside as a result of poor salesmanship and marketing.

Japan's burgeoning operating system (OS) market presents an
attractive new window of opportunity for the major vendors (most notably
Microsoft, IBM Japan, and Apple). While sales of NEC's PC-98 computers
still account for nearly 50% of the PC market, it is widely acknowledged
(by everyone but intransigent NEC) that the company's proprietary hardware
and OS have little long-term future. NEC will eventually be forced to
shift to the "open" DOS/V standard in order to maintain a dominant share
of the market for machine sales.

With sales of PCs expected to grow by over 20% annually for the
next five years, it is obvious that there is great room for growth in the
Japanese OS market. The company that is able to establish its product as
the OS of choice will find that, as the mar ket steadily expands, its
share of the OS market will be leveragable into even stronger and tighter
control (a tactic that Microsoft has used effectively in the US PC

Given the high stakes, what exactly are the players in this market
doing to get their respective messages out to potential customers?
Computing Japan met with sales and marketing representatives at IBM Japan
(OS/2 Warp), Microsoft (MS-DOS and Windows), a nd Apple (MacOS) to discuss
their OS products and marketing strategies. In particular, we were able to
see how each responded to questions and criticisms about the sales,
support, and marketing of their products.

The Microsoft juggernaut rolls on

The introduction of Microsoft Windows 3.0 in Japan four years ago gave
software developers the ability to concentrate on writing a single version
of their program for the Japanese market, without having to understand and
deal with the individual proprieta ry architectures of large Japanese
makers like NEC (who had theretofore dominated the PC market with its
PC-98 series), Fujitsu, and Hitachi. In a similar fashion, the spread of
DOS/V (standard English-language DOS with Japanese-capable extensions) has
en abled foreign PC makers to enter the Japanese market without altering
their basic hardware. The DOS/V and Windows tandem has thus been able to
quickly secure a commanding position in the Japanese OS market. Windows
3.1J, released in 1993, took the Japanes e market by storm, much as the
release of 3.0 had done in the US three years earlier. With DOS/V, a
bilingual user can put both Japanese and English versions of Windows 3.1
on his or her machine; this arrangement has become commonplace in
multi-national offices.

Microsoft followed its success in the home and small-business
markets with releases of Windows NT 3.1J for the office market in February
1994, and then NT version 3.5J in December. Microsoft positions Windows NT
at the high end of the market, and it cons ciously targeted the financial
industry right from the beginning. Sales representatives and system
engineers from the top systems integrators in the financial sector, such
as NTT-Data, Fujitsu, and Nomura Research Institute, were invited in the
summer of 1994 to form a joint sales team with Microsoft representatives
to go out and sell Windows NT to Japanese financial institutions.

According to a Microsoft representative, by the time NT 3.5 actually
shipped in December, there were already a considerable nu mber of
companies using NT 3.1 and ready to upgrade to 3.5. A good deal of NT's
initial success in the financial sector, notes Microsoft, is now spilling
over into other industries, such as retail, transportation, and

The version of Windows that is currently generating the most media
attention, though, is easily the "will-it-ever-be-released" Windows 95.
According to James LaLonde, manager of business system sales, Microsoft
Co., Ltd., Windows 95 will finally be avail able in the US in August
(1995), and the Japanese version will ship within 90 days of that release,
sometime in October or November. The focus with Windows 95, LaLonde says,
is on ease-of-use and compatibility: the ability to run 16-bit
applications as well as 32-bit programs.

The target market for Windows 95 will be current users of Windows
3.1 - predominantly home users who do not need the high-end security and
fault-tolerant features of Windows NT. Regarding the Japanese release of
Windows 95, Microsoft localization develop ers reportedly have focused on
ensuring that not only Japanese, but also English applications, will run
well on the system. There will be no more of the "quit Japanese Windows
and exit to DOS/V, change to the English environment, and start English
Windows " that has been the bane of bilingual users in the past.

In any case, from a marketing perspective, Microsoft has made an
extremely heavy push to get Windows NT installed in the Japanese corporate
sector, with special emphasis on the financial industry. The upcoming
Windows 95 will be positioned more toward th e mainstream market, as an
upgrade from Windows 3.1 for home users and businesses who need 16-bit

IBM Japan goes to warp speed

IBM and Microsoft jointly released version 1.0 of the OS/2 16-bit
multitasking operating system in the US in 1987, and followed with a
Japanese market release in March 1988. The two computer behemoths worked
together on the development of that operating system until 1991, when
relations soured and each went its separate way.

Microsoft thereafter concentrated on upgrading DOS and Windows,
while IBM confidently announced that its redesigned 32-bit OS/2 version
2.0 would be "a better Windows than Windows" (by running Windows
applications faster) and "a better DOS than DOS" (by enabling multitasking
of DOS applications). This version of OS/2 was released in 1992, and for
the most part lived up to IBM's claims, though it never took firm hold in
the marketplace. Version 2.0 also introduced several new features as well
as a new interface (the Workplace Shell). OS/2 version 2.1, which
followed in 1993, provided improved support for Windows 3.1 applications.
For PC users who already had Windows running on their machines, IBM
released a version dubbed OS/2 2.1 for Windows, which could
be installed over an existing copy of Windows 3.1 (so that IBM didn't
have to pay licensing fees for incorporating the Windows code) and allowed
the user to take advantage of OS/2's multitasking and multithreading

OS/2 Warp version 3 was released in the US in November 1994, and
the Japanese Warp followed in March 1995. IBM is aiming at the large home
market for the first time ever, and OS/2 Warp version 3 offers an
assortment of advanced features as well as one-bu tton Internet access and
a full suite of BonusPak applications. Furthermore, Warp can
simultaneously run not only OS/2 applications, but also Windows and DOS
programs in a multitasking environment.

In Japan, a series of television ads heralded the arrival of Warp,
and IBM Japan made it crystal clear from the beginning that the company
was trying to capture a piece of the home user market (evident in the
heavy emphasis on the multimedia and Internet-connectivity features in
OS/2 Warp). By focusing on the individual user sector of the Japanese PC
market, though, IBM Japan has found itself faced with questions about the
company's commitment to its large corporate customers. In response,
Tomohiko Suets ugu, director of brand marketing for the IBM Japan's Asia
Pacific Personal Software Products Division, counters that IBM has
traditionally been strong at marketing to the corporate sector and needed
to expand its OS/2 customer base into the home user mark et. In May, says
Suetsugu, Japan will see the release of OS/2 Warp V3 with WIN-OS/2, and in
July IBM Japan will release OS/2 Warp Connect (currently distributed in a
beta version), which will directly address the needs of corporate PC

At that time,IBM Japan will shift the focus of its media relations
activities toward the large corporations. Regarding IBM Japan's immediate
goals for OS/2 Warp, Suetsugu says that the company hopes to "sell at
least 500,000 copies of OS/2 in Japan this year." Beyond that, he says, it
is difficult to make projections about the percentage of the OS market that
IBM hopes to secure. This difficulty is due in part to the fact that OS/2
can be installed on top of Windows; users are not forced to choose one over
the other.

IBM Japan is also working on the promotion of greater applications
development for OS/2. In addition to Lotus 1-2-3 and Justsystem's
Ichitaro, which currently have OS/2 versions on the market, IBM claims
that a considerable number of other software vendo rs are refocusing their
efforts toward the OS/2 platform.

IBM Japan has positioned OS/2 Warp version 3 to sell primarily to
home users, where it will compete with (or complement) Windows 3.1 and
Windows 95. The upcoming OS/2 Warp V3 with WIN-OS/2 and OS/2 Warp Connect
will take on Windows NT in the battle for t he corporate customers. The
release of these systems, along with the recent release of LAN Server J4.0
(December) and OS/2 for SMP (scheduled for May) will round out the OS/2

Apple hopes new markets will bear fruit

Apple Computer has always been a marketing enigma. The popular view of the
company has been one of technology evangelists who lack a coherent
marketing strategy. With all the advantages claimed for Apple's OS over
its competitors, the company should have been able to breeze into the
Japanese market. Instead, the company has had to settle for a 15% market
share - significant, but hardly a dominating segment for an OS platform.
Yet, Apple's detractors can hardly criticize the company's
technical approach to the Japanese market. Apple's OS has had built-in
support for Japanese since as far back as 1986, when KanjiTalk was first
released. Today, the first implementation of the MacOS that will be
licensed to other companies continues the policy of global support by
incorporating such functions as vertical scripting (as commonly found in
Japanese books and letters).

The upcoming OS release from Apple, called Copland, promises
preemptive multitasking and memory protection (though limited to low-level
OS and application-level processes). This next generation of the MacOS
will also include integrated OpenDoc capability , an Open Transport
network abstraction layer, and mostly native RISC code. Considering that
its release is not scheduled until the latter half of 1996, however -
delayed because of rewrites to accomodate the common reference platform
specifications - it may come too late to affect market development.

Apple's Gershwin release, currently scheduled for 1997, will
enable full preemptive multitasking and is expected to integrate 3-D
graphics processing power. This incarnation of the MacOS will also have
the ability to run the Taligent Application Services , part of the
Taligent concept being developed by IBM, Apple, and Hewlett-Packard.

Apple Japan's current strategy targets areas that have great
potential for growth - markets that are quickly moving into the
mainstream. In Japan, the two prime candidates for development seem to be
the networking and multimedia markets.

While its new allies are forging ahead in new markets, Apple Japan
is renewing its attack on the mainstream business market. The company
realizes that the Mac's reputation in the US as a non-business computer
unfortunately came to Japan with them. But Ap ple Japan has been able to
sell to businesses here despite that. As independent Mac consultant and
system integrator Victor Shkawrytko puts it, "The Mac has always come into
companies via the back door. First, as a machine for desk-top publishing,
or beca use a fanatic user brings the platform with them." Considering
that NTT has contracted to purchase 200,000 computers and Apple Japan
classifies over 60% of their sales as business, this backdoor approach
seems to be working for them.

In the business market, Apple Japan plans to address the "solitary
Mac syndrome." As Masaya Miyamoto, system software product line manager of
Apple Japan, notes, "in the past, Mac systems were isolated from other
systems - used exclusively for DTP or graphics work." In an attempt to
end this corporate mindset, Apple Japan has released more advanced
collaborative functions with KanjiTalk 7.5J. The company hopes that this,
along with its all-in-one hardware configuration, will boost multisystem
sales. Since November 1994, under its Apple Solution Partners (ASP)
Network, the company has also been providing more support for system
integrators and the company's workgroup server platform. To further aid
systems integrators and VARs (value-added resellers), App le has started
an Apple Technical Program.

The MacOS licensing program is aimed at the over-hyped and
ready-to-grow multimedia market, while Apple Japan intends to target the
networking market in an attempt to expand its business presence. The
company's hope is that the licensees will take a comp etitive approach to
the new markets, and invest considerable effort in them.

For Apple Japan, this decision makes sense, as other companies are
now taking chances in new markets. At the same time, Apple would derive
the benefits of having its OS diversified. Without a doubt, Apple hopes
this strategy will lead to the MacOS becomi ng a standard in several
markets. If those markets eventually move into the mainstream, Apple will
have a head start on the competition. Going head-to-head: Microsoft vs.
IBM Although Microsoft contends that OS/2 Warp version 3 is actually more
suited to comparison with the upcoming Windows 95 (in terms of features
and functionality), recent media attention has centered on comparing OS/2
and Windows NT.

In terms of technology, OS/2 Warp proponents are quick to cite its
advanced object-oriented data management capabilities. IBM's Suetsugu
says that in developing the OS/2 series, IBM has focused consciously on
incorporating object-oriented technology into the Workplace Shell. So
me users have voiced concern over the dearth of native OS/2
applications, but IBM counters by pointing out that OS/2 can run
Windows 3.1x applications and can also be installed on top of Windows.

Microsoft, for its part, stresses the portability of Windows NT,
pointing out that NT supports a broad range of systems other than those
based on Intel processors. Windows NT also boasts impressive networking
capabilities, and NT Server is expected to pr ovide stiff competition for
Novell's NetWare (which has not yet managed to achieve the same kind of
market share in Japan that it has in other countries).

Both IBM and Microsoft are aware that the operating system
market in Japan is at a critical juncture; many large corporations are
moving away from their mainframe systems and looking at the available
options for setting up client/server LAN systems. "These companies have
looked at UNIX, they've looked at OS/2 - and they've found that these
systems don't appeal to them as much as NT," says Microsoft's LaLonde.
"OS/2 has more history, but we think that NT is a technically superior and
more powerful product, and it has more future."

Capturing the corporate market

How far has Windows NT really penetrated into Japan's large corporate
market? It is no secret that Microsoft has targeted this sector, and NT is
so far doing extremely well in Japan - especially compared with its
showing in the US and the rest of the worl d. NT is doing so well in
Japan, in fact, that Steve Ballmer, Microsoft's executive VP of sales and
support, was prompted to come to Japan to ascertain exactly why NT is
selling such a high number of copies here (in hopes of duplicating that
success elsew here). In an interview published in the April 3 issue of
Nikkei Computer, Makoto Naruke, president of Microsoft Co. Ltd. attributes
the success of Windows NT to the company's extremely selective screening
of systems integration partners. Microsoft has cho sen only the top 47
from more than 500 systems integration companies in Japan to work with on
an exclusive basis. Another factor is that the networking scene is just
starting to take off in Japan, and the timing has been very good for NT.

Not everyone agrees with Microsoft's claim that it has captured
the financial sector of the Japanese market. It remains unclear at this
point whether the current sales of NT represent a widespread adoption of
the OS, or simply an extended period of NT trial use. Part of the problem
is that hard numbers on corporate installations of Windows NT are
difficult to come by. LaLonde states that, while Microsoft does not have
permission to release the names of its NT clients, there are nonetheless
"thousands of servers, and tens of thousands of workstations" in Japanese
corporations currently running NT, and that these systems are being used
"not for testing, but for big projects." IBM Japan's Suetsugu, however,
suggests that while Microsoft encourages the impression that NT has
penetrated heavily into the large corporate market, in reality a great
number of those same companies are also using OS/2 Warp.

Microsoft support comes under fire

Doubts continue to plague Microsoft. In a recent article in Nikkei
Computer, an executive of Nomura Research Institute criticizes Microsoft
for withdrawing its support of NT 3.1 after the release of NT 3.5. The
article describes the situation as typical of the "reset culture" that
seems to be so prevalent at Microsoft, and goes on to recount complaints
from systems integrators about Microsoft's current support system. With
most of the technical support operation concentrated in the US, it can be
extremely difficult for customers in Japan to get assistance. One
company president claims that it is not unusual for a technical support
question that is e-mailed to Microsoft's Japan office to be forwarded
to 30 different people, all of whom pass the problem on to someone else
as being outside their area of responsibility.

When confronted with these allegations, Microsoft's LaLonde
acknowledged that NRI had indeed built a large project on NT 3.1 and were
"encouraged" to move this project to NT 3.5. While this sometimes causes a
certain amount of inconvenience, he says, som etimes it is necessary for
Microsoft to upgrade the OS for a project in order to accommodate new
technologies. The issue was reportedly resolved amicably, and the project
was scheduled for completion in May.

Concerning the technical support issue, LaLonde notes that
Microsoft in April opened its first Regional Escalation Center (REC) in
Japan, a center that will be devoted to trouble-shooting for Microsoft
products. The REC represents an effort on the part of Microsoft to bring
more product support and Microsoft technical know-how to Japan. The source
code for all Microsoft products will be on-hand at the REC in order to
help technicians get to the bottom of problems quickly.

IBM: What, me worry?

IBM does not seemed to be overly concerned about the current scarcity of
OS/2 applications, but some industry sources feel the issue could hurt IBM
more in Japan than in other markets. Fast River Systems founder and
president Greg Smith notes that Japanese companies "can be especially
hesitant to mix components from different vendors." In other words, there
is much of the "Windows applications need the Windows operating
environment" kind of thinking here. The consensus, however, seems to be
that OS/2 Warp V3 manages to run Windows applications well. "IBM did a
good job of taking OS/2 out of the ambulance, putting make-up on it,
and getting it to run Windows apps," says Microsoft's LaLonde.

Regarding criticism that IBM has focused too much of its OS/2 Warp
marketing effort toward home users, IBM Japan's response can be summed up
as, "Criticism? What criticism?" Claims one IBM manager: "This is the
first we have heard about any criticism reg arding our marketing strategy
for OS/2 Warp. In fact, we have been hearing praise for paying attention
to the end user, after having spent so many years selling predominantly to

Apple's flank attack

When Apple announced its "expanded markets" strategy, some expected an
all-out release of the Mac technology. Instead, Apple has been doling out
its OS under a watchful eye and strict protective measures. In Japan, with
its traditionally protective market s, few find anything amiss with
Apple's solution. Comments Apple Japan's Miyamoto, "rather than give away
pieces of our present market pie, we would prefer to cause our pie to grow
bigger by expansion into new markets"- markets on the frontier that may be
developed into tomorrow's prime real estate.

The only company in Japan so far to license the MacOS technology
is Pioneer, which intends to release a line of multimedia computers that
will integrate audio-visual technology and the desktop. (In the US, three
companies - Daystor Digital, Radius, and Power Computing - have announced
Mac licensing.) Some look upon the lack of licensees as a failure on
Apple's part, but Apple sees itself as being selective in choosing its new

Apple Japan's strategy incorporates many possible pitfalls and
traps. On one hand, Apple Japan does not want to lose market share, as
Apple did in the US in 1994. But on the other hand, Apple must make it
profitable for a company to be a licensee of its technology. Apple Japan
is walking a fine line with both Pioneer and (though to a lesser extent)
Bandai, which has licensed the Pippin technology. Essentially, Apple is
attempting to attack the Japanese PC market by combining a flanking action
with an attempt to leap-frog the competition into new markets.

Give and take

It is surprising how often industry watchers want to polarize the market
into two opposing forces: the overlord and the underdog. Given that
Windows 3.1 has taken much from the MacOS, and Windows 95 is expected to
take much more, the roles are in some way s apt. Even Windows proponents
acknowledge that Bill Gates saw from the beginning that the Mac graphical
user interface (GUI) was the way to go, and that many Mac-like features
have been incorporated into Windows products.

Since the two operating systems run on different platforms, in
many ways they are competing in pushing the associated hardware. As both
companies expand their supported platforms (Windows NT can run on Intel,
Sun, and, soon, the PowerPC platforms), the c ompetition will escalate.
Currently, Apple Japan's renewed push into the business market is a minor
(but growing) threat to Microsoft. While many would also consider the move
a threat to the IBM OS/2 market share, Apple Japan and IBM Japan have
expressed an unusual willingness to work together - a far cry from the
famous 1984 "hammer" commercial heralding the release of the Mac.

Looking ahead

As the world's second largest market for personal computers, Japan
represents a tremendous opportunity for Microsoft, IBM, and Apple to
establish their OS platforms, in both the home and business sectors.
Microsoft would like boost its share of the market here to the point
where it would wield the same kind of power it enjoys in the US. IBM
Japan, on the other hand, is attempting to entice potential
users to try OS/2 Warp by emphasizing its Windows compatibility features.

If IBM's push to persuade independent software vendors to produce
high-quality OS/2 applications succeeds, the Warp could expand its
following and emerge as a legitimate competitor to Windows 95 (especially
if the latter suffers yet another shipping delay). The battle for the
corporate market, between NT and OS/2, will also be interesting to watch.
Although Apple is not yet seen as a major player in the business market,
the company is working to establish itself there as a provider of
solutions that increase productivity and creativity, while at the same
time continuing to grow in the areas it has traditionally excelled in:
multimedia, desktop publishing, and education.

In their efforts to secure a piece of the Japanese OS market, the
marketing departments of Microsoft, IBM, and Apple have stated their
messages, made promises, slung mud, and done some quick damage control
when potentially embarrassing questions have emerged about their
products. The race has only begun, and market watchers can expect some
interesting jockeying for position as the runners attempt to gain control
of Japan's OS market in the months to come.

One question many bilingual DOS/Windows users have asked is whether
development is under way for a Windows 95 version of Win/V (a systems
software product that allows Japanese applications to be run on English
Windows 3.1).

Citing technical complexity and a desire to focus on other projects, C.
F. Computing (the originator of Win/V) reports that they have abandoned
plans to produce a version of Win/V for Windows 95. However, Fast River
Systems, which produces and markets the English-language version of Win/V,
will continue to support the product and is said to be seeking another
developer to do a Windows 95 version of Win/V.

Hopefuls on Apple's OS team

Apple's diversified marketing strategy is apparent in that the company
currently supports three different operating systems. Aside from the
MacOS, Apple maintains the Newton OS and Pippin (the company's new
multimedia platform).

The Japanese version of the Newton was originally slated to ship
during the summer of 1994 and then, when that date was missed, by the
summer of 1995. While Apple Japan has exhibited a prototype at several
trade shows, problems with kanji recognition have reportedly put the
Japanese Newton on hold. The development delays of the Japanese Newton put
its future in question, especially with the Sharp Zaurus doing so well.
Some industry experts question Apple Japan's judgment in selecting Sharp
to develop the Japanese Newton, considering that Sharp's bets are on
its own product.

All is not dark for the Newton, however, as some companies (such as Tokyo
Gas) are starting to use it as a portable terminal for processing data.
Apple's efforts in the multimedia area, on the other hand, seem to
have picked up speed with Bandai's licensing of the Pippin technology.
Bandai intends to incorporate the technology into the Power Player, a home
information platform for playing, learnin g, and staying informed. The
player will be released worldwide in 1995 and will be able to use CD-ROMs
that have been slightly modified.

While neither of Apple's two alternative operating systems are on
the market in Japan, both represent ideas that Apple would like to
integrate into its multimedia approach to information management and