The Internet:A Path to IT Market Opportunities in Japan and Asia
by David Kellar
So, should companies in Asia's information technology (IT) markets run for the hills? Not if they are smart. Under the surface turbulence runs an undercurrent of information services called the Internet, which will support and nourish strong demand for IT products and services through the coming years. Sales of digital information processing devices (PCs, word processors, electronic organizers and PDAs, digital cameras, and game machines) into Japanese homes has always been strong, and the momentum is still there. The mistake that analysts and journalists often make when measuring the health of this home information device industry is to focus on quarterly PC sales trends as the primary indicator. The fact is that the demand for PCs in Japanese homes is limited - and always will be, as long as the PC remains in its current form - but the demand for information is not. The challenge for manufacturers is to design PCs that are cheaper to buy, and new information appliances that are easier to use and that integrate better into the Japanese household environment. And the challenge for service providers, content developers, and product resellers is to figure out ways to leverage the existing significant base of PC and Internet users.
Reason for optimism? Never in Japan's history has there been a real reason - a "killer app" - to motivate the masses to purchase PCs. Home and family activities are not at the center of the Japanese PC mind set - the workplace and company activities are. The extension of a Japanese child's education outside the school is not in the home - it is in cram schools and extracurricular club activities. And the chore of preparing annual income tax returns - a major motivator for home PC purchases in the US - is not a worry for most individuals in Japan since companies commonly perform this task for their employees. Many Japanese consumers, therefore, do not feel the need to have a PC at home. For many specific information processing requirements, there is specialized equipment better designed to handle them. Need to create and print nice-looking documents? Japan has a plethora of dedicated word processors that are functional and easy to use, and create great color output (including handling digital images). Want to play games? A $200 game console offers better response and graphics processing than a fast PC. It's little wonder then that PC sales into the home are no longer booming. The luster has faded from the hype and hope of easy-to-use Windows 95, and constant technology upgrades keep typical home PC prices above the ¥200,000 mark. But this does not mean that Japanese consumers have lost their appetite for information - and the devices necessary to access and process it. The most recent implementations of Access Media International's biannual Japan Home Information Technology Usage Study (a random nationwide telephone survey of 20,000 to 25,000 households, followed by a detailed mail survey of 2,000 to 2,500 households) show that consumers planning near-future PC purchases now rate online communications and the Internet at the top of their list of most desirable applications. This is a break from past years, when document creation (including design and printing of nengajo - New Year's cards) traditionally topped the list of reasons for buying a PC.
This is the primary factor driving Japanese home PC sales today. Although there has been a recent slowdown, home PC sales are still churning along at a strong pace, with 2.5 million new PCs expected to be sold into Japanese households this year. Since about 60% of these sales will be first-time purchases, some 1.5 million PCs will be added to the installed base, likely pushing household penetration to 19% by first-quarter 1998 (representing 8.5 million Japanese homes).
Reaching critical mass What this means to Internet service providers, content developers, advertisers, and electronic commerce sites is that the home Internet user base in Japan is approaching critical mass, opening up a new era of business opportunities. The question then becomes: What do Japanese consumers really want to do on the Internet? Most home Internet users today (78%) say that personal and entertainment objectives (for example, searching for hobby-related information) are their primary reason for using the Internet, followed by work-related objectives (54%) and electronic mail (40%). Shopping over the Internet is still relatively low on the scale (12%). It is interesting to note, however, that in the same survey, nearly half (48%) of the consumers planning to purchase a PC stated that they are "interested" or "very interested" in online shopping. It therefore appears that the interest is there, but product and service offerings - and purchasing methods - are still not up to speed. In fact, many Japanese sites offering goods for sale require customers to pay by bank transfer before a product is shipped, a troublesome requirement that can cause potential buyers to hesitate. And security worries and high transaction fees are holding back the use of Internet-based credit card transactions in Japan, while new electronic payment methods are still in the experimental phase.
Internet market potential Of Internet nonusers surveyed, 82% responded that they "want to use" or "definitely want to use" the Internet in the future. So what is holding them back? On average, compared to Internet users, Japanese Internet nonusers tend to have less PC experience and own underpowered PCs with low memory capacity and older operating systems (such as DOS and Windows 3.1). For such users, upgrading is a mystery, and shelling out another ¥200,000 or more for a new PC is often out of the question. Clearly, the market is ripe for a simple, low-cost Internet-ready computer or other easy-to-use access device. Asked how they think the Internet will most affect their lives in the future, 27% of nonusers responded that it will become a "necessity" for their job and family, while 17% stated that they believe the Internet will replace existing media such as television, newspapers, and magazines. This contrasts with Internet users, who believe that while the Internet may become a necessity for their jobs, it will be of limited use as an all-encompassing information source.
Beyond Japan - Moreover, the financial crunch currently being experienced by many companies in the region could actually accelerate the adoption of the Internet as a means of reducing operation costs. Business-to-business commerce, intranets, and extranets will be the building blocks that help companies in emerging economies level the playing field with global competitors.
As this article goes to press, Access Media is implementing a landmark survey of corporate Internet users and Internet service providers in 14 countries throughout Asia to examine current Internet trends and future market potential. Though the data is not yet complete, preliminary estimates indicate that the thirteen major economies in the Asia-Pacific region outside of Japan now support an Internet user population of about 2.5 million. Our projections suggest that the number of Internet users in the Asia-Pacific outside of Japan will approach 10 million by the end of the century, creating a total regional Internet user population exceeding 20 million.
Now is the time for savvy IT companies to start planning for this demand.
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