TT-567 -- Cloud Computing Heats Up, e-biz news from Japan

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Over the last five years there has been a lot of
speculation about cloud computing, in its many guises, and
what sort of impact it will make in Japan. "Cloud
Computing" sounds sexy, but really just refers to any
application that runs on the Internet and where the
servers and user terminals are likely to be remote from
each other. We are in fact already deep in a Cloud
Computing boom here in Japan, thanks to Google, Mixi, and
DeNA, who all provide consumer applications such as email,
SNS, web office applications, and online games.

Rather, what the Japanese more specifically refer to as
Cloud Computing is commercial grade applications that
companies would want to use as replacements to
applications sitting on their mainframes, Unix open
systems, and Microsoft LANs/WANs. The main reason for
pursuing Cloud Computing is to allow companies to do away
with expensive hardware and the need to have to maintain
customized software.

According to market research firm IDC, the Japanese market
for Cloud Computing will jump from around JPY39.7bn in
2009 to around JPY143.2bn in 2014, an increase of around
360%. In our opinion, it could be a lot more than this if
the right conditions occur over the next two years.

There seems hardly a day that goes by without some major
firm announcing that it will start supplying and/or using
Cloud Computing as a strategic tool. At the forefront on
the supplier side are of course the leading IT firms such
as Fujitsu, NEC, and Hitachi, which are all trying to
emulate IBM's highly successful shift from hardware to
software and services. Ironically all three companies are
doing this by setting up large data centers (Fujitsu plans
to invest JPY20bn-JPY30bn in data centers) and appear to be
bringing in the software from outside parties...! In
contrast, about 80% of IBM's sales comes from software and
services, and increasingly more of it is coming from Cloud
Computing. True, IBM also is the dominant player worldwide
in servers, but this is a means to an end rather than the
main game.

Oh well, at least the Japanese IT majors are trying to
change their strategies. Perhaps in another ten years they
will have exchanged their hardware-centric engineering
workforce for a software centric one.

[Continued below...]

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[...Article continues]

The company which epitomizes what is possible with Cloud
Computing, as defined by commercial-grade applications, is The company has been in Japan for more than
ten years, and had a hard time of it in the beginning. This was
largely because even though Japanese companies loved the
idea of reducing costs by using remote software, it turned
out that they couldn't get away from their unwillingness to
change their work flows, and thus needed customized

Initially couldn't figure out how to address
the apparent conflict between their one-size fits all model and
customer requests for special features. It partly resolved
this by turning the product from a purely Customer
Relationship Management (CRM) sales tool, into more of a
"glue" to provide a web front end for larger firms wanting
to give PC users access to their mainframe data.

At the same time, came up with the idea of
making templates, to give users different views of the same
back end. This worked, and now the company has over 100
templates (our guess) that make the users think they are
getting something tailored for their industry -- but which
is really only partly the case. At the same time, has forged alliances with IT companies
wanting to help tune the templates and do even further
customization. This has gone well for them and has turned
the software into a development standard.

In FY2009, according to the Nikkei, had
sales in Japan of just under JPY10bn, making it a serious
player in the local market. Indeed, is now
doing well enough that it has announced that it will be
setting up a Japan-specific data center in Tokyo, to help
larger corporate and government users get over their fear
of their data going off-shore.

The templating approach certainly stood in
good stead with one major new client recently. The
government needed software to manage the registration of
10-15m consumers reporting in for the eco-points program,
which allows them to get credits against purchases of
eco-friendly electronic products. Apparently local major
SI firms were approached first, but on hearing that there was
only one month to prepare the system basically they said
it couldn't be done. Not so,, which agreed
to the timeframe and actually delivered a usable system in
just three weeks. This win has provided the company with a
huge endorsement and lets it better compete for the
business of local governments, medical organizations, and
other semi-governmental customers.

Along with, the other winners in the Cloud
Computing sector so far all seem to be foreign firms. Much
has been made of the major contract won last year by Google
with Unicharm and various other major companies. True this
is just email and other simple apps, but it is a start to
an industry that otherwise has still been trying to get off
the ground for some time now. More recent wins include
Oracle supplying a manufacturing system to Panasonic
Factory Solutions last month (May), which both parties said
would cut Panasonic's IT spend by about 40% a year, and
auto parts maker Jatco, which will also introduce an
Oracle-produced system for intra-company suppliers' data
held at the firm.

Given that Japan has had excellent Internet connectivity
for almost ten years now, and an ample supply of data
centers, why is it that Cloud Computing, and before it
"Software as a Service" (SaaS), has been slow to gain
acceptance? We know of a number of leading
commercial-grade applications companies, such as
accounting software firms, who have tried to make Cloud
Computing work but who have not been successful.

Our guess is that the following factors have been hobbling
the industry, and it will be companies like Google, with
their extremely low pricing, who will lead the way.
1. Requirement that the customer follows the work flow of
the product being offered, versus having to customize it
(make it cheap enough and they will change...!)
2. Requirement for the data to move outside the customer's
own servers -- many companies are concerned about this.
3. Coupled with data storage off-site, there is the
perceived security risk of transmitting data over the
4. The still high cost of telecommunications and mission
critical grade remote data center facilities.
5. The high cost of Cloud Applications -- especially those
sold as SaaS. Often these products cost more than 5-10
times what a single traditionally licenced application
does, over the 5-year lifetime of the product.

We think that companies who start pricing fully functional
software at JPY300-JPY500/user/month, instead of the
current pricing of JPY5,000-JPY20,000/user/month, will gain
strong traction in the market. We are already seeing some
firms price at this level, with very basic applications in
the Human Resources (HR) and anti-spam fields, and there
will be more over the coming year.

The market is truly huge. According to a recent Nikkei
article, Japan's medical records software market is already
worth around JPY110bn -- but vendors are primarily
targeting larger hospitals with 400+ beds. As of February
2009, only 10% of hospitals with less than 100 beds and
just 18% of hospitals with 100-399 beds had such software
in place -- leaving a lot of sales for someone with the
stamina to visit Japan's 8,862 hospitals, 99,532 general
practitioner clinics, and 67,798 dental clinics...!

...The information janitors/


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+++ NEWS

- Unemployment numbers unexpectedly rise
- International traveler bookings jump
- More deflation for April
- Australia to take Japan to International Court on whaling
- "Junk" credit rating for Promise

-> Unemployment numbers unexpectedly rise

Unemployment numbers increased 0.1% in April over March, to
total 5.1%. While the rate fell to 5.5% for men, it rose to
4.7% for women, indicating that companies are still cutting
back on internal costs. There are now 3.56m people
unemployed in Japan, versus 62.69m people who are working.
As could be expected, construction industry jobs fell by
140,000 to 4.92m workers, while medical and welfare sector
jobs rose 310,000 to 6.45m workers. (Source: TT commentary
from, May 28, 2010)

-> International traveler bookings jump

The number of Japanese planning to go overseas this year
appears to be headed for a big increase, with advance
bookings on international travel being up by 30% for the
month of July at the nation's number one travel agent JTB.
Advance bookings for August are up even further, with a 44%
increase at JTB. China is the major destination, mainly
because of the Shanghai Expo. Observers say the overall
travel increase is due to big discounts being offered on
family travel and a steady improvement in the economy.
(Source: TT commentary from, May 28, 2010)

-> More deflation for April

The nation's Consumer Price Index (CPI) feel 1.5% over the
same month last year, making this the 14th month in a row
for deflation in the CPI. The April figure is largely
blamed on the government's waiver of public high school
tuition fees, which increased the drop by 0.54%. Outside
of this contributing factor, analysts are saying that
deflationary pressure is easing and may follow the Bank of
Japan's forecast for a CPI increase in FY2011 (ending March
2012). (Source: TT commentary from, May 27,

-> Australia to take Japan to International Court on whaling

Australia is finally taking Japan to the International
Court of Justice in the Hague, to argue that Japan's
so-called "scientific whaling" practice is really just a
work-around on the limits on hunting whales. Japan has said
that it is prepared to defend itself in a court
confrontation. ***Ed: Australia has declared the southern
seas a whale sanctuary, which in itself doesn't have legal
power since the area is largely in international waters.
Rather, Australia's argument will focus on whether the
scientific whaling loophole Japan is using to hunt whales
is in fact being abused. The argument will be that Japan
kills far more whales than are needed for scientific
purposes and that furthermore there are now non-lethal
means to monitor the mammals. Good luck to them.** (Source:
TT commentary from, May 28, 2010)

-> "Junk" credit rating for Promise

Japan's second largest consumer finance company, Promise,
had its credit rating cut to junk grade (i.e., below
investment grade) by Moody's Investors Services. Moody's
said that Promise has a broken business model and may not
be able to regain profitability. The company's long-term
debt rating fell two levels from Ba1 to Baa2. Promise
shares fell another 1.6% on the news, making them 52% down
for the last 12 months. (Source: TT commentary from, May 28, 2010)

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.


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Speaker: Dr. Gerhard Fasol, CEO-Eurotechnology Japan K.K.
Topic: Current Mobile Market Trends - Opportunities For Japan

Details: Complete event details at:
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Date: Thursday, June 17, 2010
Time: 6:30 Doors open, Pizza and Drinks included.
Cost: 4,000 yen (members), 6,000 yen (non-members)

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