Streetwise in Asia
The man heading pacific hitech seems made-to-order for the multi-language, multi-cultural environment that is so much a part of the Linux universe. Cliff Miller first arrived in Japan on his 13th birthday, staying with a Japanese family and attending public school for two years. He attended high school in what was then Yugoslavia and after gaining a degree in linguistics, he opted for a stint teaching English at a university in China, the native country of his wife Iris (who happens to be Pacific HiTech's CFO). Many of his former students are now in senior positions of business and government in that country. In 1998, more than one million copies of Turbo Linux were distributed through retailers and over the Internet. Last year, the company won Nikkei Byte Magazine's annual Editor's Choice Award. His company is considered to be Microsoft's biggest rival in Japan. Cliff recently sat down with CJ's Thomas Caldwell to discuss his company, the Linux phenomena, and what it takes to make it in the Asian software market.
How did you go from being a teacher in China to the CEO of a major Linux distributor? Cliff Miller: After my wife and I got married and went back to the States, I did some odd jobs for a while. Over the years, I had developed an interest in computers, so I decided to go back to school and study the subject in depth. I didn't really have a computer background per se. I had taken a few community college courses, but there was enough there for me to get into graduate school at the University of Utah.
So you were a "natural?"
Miller: Well, the first class I took was about computer science theory and it was pretty rough going. In the second quarter, I was in a compiler class and that was even rougher. Most of the other students had three or four years of computer training behind them. It was quite a challenge.
How did you get into Linux after school?
Miller: I never really left school. Iris and I started the company in our basement in Salt Lake City in 1992 while I was still attending classes. At that time Linux was around but it was just in its infancy. Being at a university, I was in a Unix environment and had been using it to do programming and to set up an Internet server. So I was going to school part-time and starting up a company with Iris part-time. That's how we began. Our first product was a Linux box. From early on, we decided to concentrate on the Japanese market. I began making trips to and from Tokyo and we opened our office here in 1993.
What was the initial plan for your company?
Miller: We were planning to take American software and sell it in Japan. Early on, we got involved in the CD-ROM business that was just starting. Since we were really familiar with the Internet, it looked like an interesting kind of business: download free open-source software, check with the authors to see if we were free to distribute it, put in onto CD-ROMs and sell them for \2,000, \5,000, \12,000 or so. Initially, we distributed CD-ROMs with lots of free and shareware products for the Mac and DOS. We had some Unix and Linux CDs as well. Since we were using Linux in-house and were coming up with our own applications for it, we began to contribute programs and utilities to the archives we were selling.
I understand that at one time you were selling Red Hat's distribution of Linux in Japan.
Miller: We sold Red Hat here and in the US for a while. Actually, at least once or twice, we helped them with their manufacturing in the States. Before they had a CD-ROM writer we helped cut some of their CDRs. We were the first company to sell a copy of Red Hat in Japan with Japanese-language documentation.
So why did you split from Red Hat?
Miller: We came up with our own distribution and started selling it. We still carried Red Hat for a while but weren't promoting it as much. Red Hat then started to sell through Laser 5 in Akihabara.
It's been reported that you now have more than 50% of the Linux market in Japan. Since Linux can be freely distributed, where do the numbers come from?
Miller: There are different numbers that you can track. The numbers that we are familiar with are compiled from more than 200 top computer software retailers in Japan. Those numbers show somewhere in the neighborhood of 70 percent of the Linux sold at those stores is Turbo Linux. If you go to Softbank and look at their sales figures, they would be different, but in the same range.
Where else is your company operating in Asia?
Miller: Corporate headquarters is in California. Besides offices here in Japan, we have one in Australia and one in Beijing, China.
Your old friend and rival Red Hat now seems to have its sights set on Japan. What does your company offer Linux users that they don't?
Miller: There are a few things. From the beginning, we have been operating with internationalization in mind. Our strength in Japan early on was that we offered the first localized version of Linux. Once we had a Japanese language version, coming up with a Chinese version was only a few months of work. We are in the process of localizing our products for Europe and should have them out soon. We are now focusing on high-performance Linux. Within the next few months, we'll have some benchmark results that show performance improvements over the other distributions.
In the past, other companies have been the first to market with a superior product in Japan, but were later overtaken. For example, SuperCalc was here first and despite being fully localized and ported, it never caught on with accountants. A few years later, Lotus 1-2-3 waltzed in and stole the market. Your company is facing stiff competition from other players - like Red Hat - with deep pockets and marketing savvy. Does history have a chance of repeating itself?
Miller: The [Linux marketing] battle is not confined to Japan. The world has a global economy and Linux is a global phenomena. We [Pacific HiTech] have offices in the U.S. and are going after that market aggressively. We're playing catch-up over there and they're playing catch-up over here. Japan is a difficult market. Many large software companies have come to Japan and tried to set up shop here but eventually went home because they weren't successful. We have confidence in what we do and are actually pretty good at marketing ourselves. If you had stopped by our booth at the Linux World show you would have seen many Japanese - language Turbo Linux books on display. About 15 of them. We have relationships with several of the major hardware companies. I'm not saying we're invincible, but we're certainly not going to just roll over and die. This is already an important market for us.
What is the most difficult thing when it comes to convincing Japanese MIS executives to use a new product like Linux?
Miller: The most convincing thing is to show other locations that are using your product. They [Japanese MIS departments] never want to be first. They want to have reference sites to look at. In the case with Linux, one is starting with zero. That's a major hurdle to get over.
How is your product distributed in Japan and elsewhere? How many Turbo Linux users are out there?
Miller: Last year, we distributed over one million copies of Turbo Linux. That includes the shrink-wrapped products, the bundles with books and magazines and bundles other companies pay us a royalty on. One of our largest distributors, Softbank, reported that in the second quarter of 1998, sales of our products for them increased more than 700 percent compared to the second quarter of 1997. We were their top software vendor.
What are your plans for the future?
Miller: Well, we'll soon be releasing a version of Turbo Linux for the Taiwan market that utilizes traditional Chinese characters. For the rest of this year, we're going to remain focused on the Asia-Pacific rim market, including Japan, the US, Australia, China, Taiwan, and the other countries in the region. They're the priority for us.
Are there any major corporate investors on the horizon? Do you have any plans to take your company public anytime soon?
Miller: (laughs) People should be looking out for [news about] us a few months from now. There will be some pretty big announcements. Probably about the time this interview is printed in your magazine but I really can't say more.
What's your take on the Linux phenomena?
Miller: People should be allowed to use what they want to use. If there is only one choice, it is not really a choice, is it? Most Linux users and distributors feel that way and realize the importance of this. What I would hate to see would be one company trying to create a de facto Linux standard. Netscape seemed to try to do that with HTML but the larger community prevailed. Linux is about giving people an alternative, another operating system. Microsoft now dominates in the desktop market and there hasn't been much of a choice for people. People need to be able to use different operating systems and I think different flavors of Linux is a good thing for everybody.