PC Package Software Sales Grow by 37%

Revenues to reach JPY511 billion in 1996

The overall pc package software market in Japan will surpass the JPY500-billion point in 1996, achieving a year-on-year revenue growth of 37.1%, forecasts Access Media International (AMI), a Tokyo-based media ventures consulting company. Revenues will reach an estimated JPY511 billion in 1996, with Windows (95, NT, and 3.1) applications accounting for 69% of all PC package software sales.

This is a big jump from Windows' share of the market (38%) in 1994, and a healthy 12 percentage point rise from 1995. According to AMI's 1996 Japan PC Software Market White Paper, most of the growth in sales of Windows applications has come at the expense of DOS-based applications. DOS software fell from a 40% market share in 1994 to 26% in 1995, and to 17% in 1996.

Factors driving the trend, says AMI, have been the continuing strong growth in PC hardware sales, the release of Windows 95 in November 1995 and subsequent appearance of Win95-based 32-bit applications from major vendors such as Microsoft, Justsystem, and Lotus, and the increased penetration of PCs and local area networks into Japanese corporations. A contributing factor has been the growing popularity of office suites, such as Microsoft Office and Lotus SuperOffice. While intense competition has put strong downward pressure on street prices, it has resulted in very strong growth in unit shipments and thus boosted total revenues.

US software vendors have been very strong in the Windows market, capturing a growing share in several major office application areas. While most PCs today are sold with Windows 95 preinstalled, though, DOS programs continue to do well in some specific business areas (such as accounting, payroll, and personnel management packages) and in industry-specific applications that target vertical markets (such as production management and information systems). These areas, which generally rely on dedicated or proprietary machines instead of a typical desktop PC, have resisted the Windows tidal wave. Developers of such niche programs have only recently begun to port their applications to the Windows environment, and the cultural peculiarities of Japanese business practices have kept these segments almost impregnable to US software vendors.

The market share of MacOS applications, meanwhile, fell from 16% in 1994 to 11% in 1995 (though actual revenue rose, from JPY44 billion to JPY56 billion). Macintosh hardware sales remain strong in Japan, supported by the design, desktop publishing, and consumer segments. According to AMI, however, there has been a noticeable shift away from the Macintosh platform for general-purpose business use.

The "others" category of OS platforms in the chart includes IBM's OS/2, Fujitsu's FM-Towns, NEC's N5200, and Sharp's X68000.

For more information about the 1996 Japan PC Software Market White Paper (JPY55,000; officially sponsored by the Japan Personal Computer Software Association), contact the AMI Publications Division at phone 03-5467-5771 or e-mailpubs@ami.co.jp.

MPT to Keep Close Eye on NTT Interconnection

While the report avoids singling out NTT by name, it strongly recommends strict rules for "carriers which own subscriber lines in excess of 50% of the total number of subscriber lines in a specific [prefectural level] market." The only carrier that currently falls in this category is NTT. The proposed rules would stipulate such issues as tariff systems for interconnection, disclosure of accounting reports concerning interconnection, and disclosure of network function schemes (including the necessary technological requirements).

NTT has a long history of disputes with Japan's new common carriers (NCCs) regarding the interconnection issue. The NCCs charge, with some justification, that NTT has hindered their expansion by imposing unreasonably high fees, and that NTT has dragged its feet on opening up its network for interconnection by claiming that required software changes will take much time.

Based on the council's report, the MPT plans to submit a proposal to revise the Telecommunications Business Law to the Diet by March at the latest, according to Naoto Yokota, Senior Advisor of the ministry's Telecommunications Bureau, Tariff Division. If deliberations on this issue proceed smoothly in the Diet, the revised law would take effect in autumn 1997.

Size, Infrastructure Power Japan's Corporate Intranet Effort

While intranets are not yet common among Japanese companies, there is growing interest in using PC servers and Windows NT for intranet corporate construction. IDC Japan, a subsidiary of US market research firm International Data Corporation, sent computer systems and intranet survey forms to over 2,400 businesses throughout Japan in August and September 1996 and received approximately 1,000 responses.

The responses indicate that plans for corporate intranet construction are directly proportional to company size. All companies with more than 500 employees answered that they eventually plan to build intranets. For companies with networks, IDC found that the bigger the business (employees and revenues), the higher the connectivity rate becomes.

As of the end August 1996, 37% of all offices (this figure includes those without a network infrastructure) were using the Internet. Among companies with 500 to 999 employees, more than 50% were using the Internet, and 85% of those with more than 1,000 employees were connected. Some 60% of companies with more than 1,000 employees, meanwhile, are using both groupware and e-mail systems.

Existing infrastructure is clearly a motivating factor for the introduction of an intranet. Among companies using intranets, 50% mentioned making "effective use of the existing system infrastructure" as their purpose for building one. The two top motivators, each cited by 58% of the respondents, were "the [intranet] building cost was low" and "[it gives] the ability to share information with other business sites within a corporation." Another popular reason, cited by 54% of respondents, was "reduces information distribution cost/labor."

Regarding actual use of their intranets, 67% of intranet-using business sites said that they share interoffice documents, and 42% use them to distribute "company rules and policies," "create departmental databases," and "supply product information." For the most part, intranets have fulfilled user expectations, with some 71% of respondents that have intranets saying they are "very satisfied" or "fairly satisfied." Asked if their intranets have achieved expectations, 57% responded "mostly achieved."

Regarding areas for future intranet investment, a crucial concern of those with intranets is "security strategies" (52%), followed by investment in the "client environment." The largest source of problems after intranet installation was "user error." Over 30% said that their future PC purchases will be driven by their intranet introduction.

Results of the IDC Japan survey suggest that 69% of business sites in Japan now have some form of network system. In conjunction with the spread of networks, the general diffusion of PC servers is evidenced by the fact that a total of 6,000 PC servers are being used in about half of the companies surveyed that have no networks. Overall, about 10% of office computers are being used as servers.

Web TV Enters Japan's Internet-TV Market

California-based webtv networks, a television-based Internet service provider, has officially announced its entry into the Japanese market through a tie-up with Fujitsu. The company's ultimate objective is not merely to be a player in Japan's Internet TV market, but to win Japanese consumer electronics manufacturers to its side for smooth global business expansion.

WebTV, which launched a subscription-based online service in the US last September, has signed license agreements with Sony Electronics Inc. (a Sony US subsidiary) and Philips Consumer Electronics for the development and sale of WebTV set-top boxes and integrated devices for the US market. WebTV needs strong support from Japanese consumer electronics manufacturers, however, to obtain a dominant presence in the global market. This, in part, explains WebTV's decision to enter the Japanese market.

"Our WebTV Reference Design is flexible and can be incorporated into such products as cable TV set-top boxes and DVDs," says Steve Perlman, President and CEO of WebTV, explaining why he expects the WebTV effort to be successful in Japan. "Also, karaoke is one of its applications, since our system is MIDI compatible."

In December, WebTV announced the establishment of a joint venture with Fujitsu for providing Internet TV service in Japan. The new company will be owned 65% by WebTV and 35% by Fujitsu. For its part, Fujitsu will set up a network operations center and provide Internet access and various online content for WebTV's Japanese network service.

According to an industry source, WebTV originally had hoped to tie up with major Japanese consumer electronics manufacturers such as Matsushita and Sharp. Its proposals were turned down, however, since the Japanese manufacturers were wary of the closed characteristics of the WebTV system (which does not allow the use of another company's browser or operating system). Further, WebTV's timing was wrong, since the Japanese manufacturers had already developed their own Internet TV systems with the help of Japanese venture companies, such as Access and Aplix. (Access has developed Internet TV browsers for Sharp, Mitsubishi, and Matsushita, as well as a set-top box for Sony Communication Network Corp.'s Sonet Internet TV service. Aplix, meanwhile, has developed a browser for Sanyo's Internet TV.)

After being rebuffed by Japan's consumer electronics manufacturers, WebTV turned to communications infrastructure companies, such as NTT, but encountered rejection there, too. WebTV then turned to Fujitsu. Although not its first choice, Fujitsu is likely to prove a valuable partner for WebTV. Fujitsu has experience through its NIFTY-Serve online service, possesses an extensive network infrastructure, and has cooperative relationships with several cable TV companies.

Companies in various fields are expected to join in WebTV's Japanese network service, such as consumer electronics manufacturers who may supply set-top boxes or a TV-integrated system. And since the 128-bit key length encryption system of the WebTV Reference Design falls under US government export controls, WebTV reportedly will seek a Japanese company to supply an equivalent encryption system.

Widespread dissemination of Internet TV systems in Japan is likely to take some time. Although a few Internet TV systems were introduced in Japan last year, they were positioned by manufacturers as pump-priming products to attract public attention to other products, such as word processors with built-in Internet functionality. Sales of the Internet TVs in Japan so far have not been good.

Under current market conditions, WebTV may face tough times if it tries to focus on the Internet TV business only. The key to success will be whether WebTV can involve and utilize Japanese companies.