CASE STUDIES - Yahoo! Japan Dazzles
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By Charles Bickers and Bruce Gilley
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THE TIME MACHINE, in the imagination of 19th-century British author H.G. Wells, was an ivory, crystal and brass contraption that hurled its occupant 800,000 years into the future.
For Softbank, it's an investment contraption that hurls branded U.S. Internet companies backward into Asian markets which are a few years behind the United States.
The time machine has landed Softbank with a few very profitable ventures such as systems integrator Cisco Japan and on-line brokerage E*Trade Japan. But nowhere has the concept been a bigger hit than in the case of Softbank's 51%-owned portal Yahoo! Japan, an offshoot of the Yahoo! portal in the U.S.
Launched in April 1996, Yahoo! Japan has become dominant in Japan in a way that most companies can only dream of. It claimed 112 million page views per day during September, outstripping its nearest rival by three times. About three-quarters of Japan's Web population is estimated to visit the company's site once a month.
The portal also learned from the mistakes of its U.S. parent. Yahoo!, for example, missed the initial U.S. surge of interest in on-line auctions in early 1999 and was beaten by auction site leader Ebay. Yahoo! Japan moved quickly to occupy that market in Japan. The company is now the knockdown king of Web bidding, claiming 1.6 million auctions completed after just a year.
Yahoo! Japan is also more than just a dotcom celebrity. It makes money, nearly $20 million of it in the six months to September 30 on revenues of around $50 million. That has helped keep the company's stock price high--at close to 300 times earnings--while others have fallen. For Softbank, this is music to its ears. It invested $72 million in the portal when it was founded. By early November, that stake was worth nearly $6 billion, the equivalent of a quarter of Softbank's own market capitalization. (Softbank's investment in the U.S. Yahoo! is worth even more.)
But there are questions about whether Softbank can ever again replicate this "time machine" success story on such a grand scale. The window of opportunity for such big plays has closed as Japan has caught up with the U.S. in most Internet sectors. Even where companies gain a head start, there are questions about whether they can stay in the lead once others follow suit.
Those are the issues confronting Yahoo! Japan. Commerzbank Securities in Tokyo recently downgraded the company from "buy" to "hold" on the grounds that although income growth was high, sales growth was tapering. Analysts say the portal's future growth depends on its movement into mobile and broadband Internet applications, which are growing quickly in Japan.
"It's a text-based portal right now, but it has to shift to video over the next few years," says Toby Rodes, an analyst with Nikko Salomon Smith Barney in Tokyo.
Masahiro Inoue, Yahoo! Japan's chief executive, says that expanding into mobile applications is a top priority. The company already operates a news Web site on the popular wireless Internet service of NTT DoCoMo, i-mode, which will expand to messaging and mobile consumer information such as restaurant and leisure guides soon.
Inoue also expects to offer services on i-mode competitors such as Japan Telecom's J-Phone network. Yahoo! Japan is also trying to deliver broadband applications like video and music.
The next company Softbank plans to place in its time machine and bring to Japan is U.S. e-commerce-services firm Ariba. It may stand a good chance of success too since e-commerce is one area where the time lag between the two places remains huge.
But unlike those of H.G. Wells, Softbank's time travellers eventually find others have discovered how to use the same contraption. For Yahoo! Japan, Ariba and others, that will mean learning to compete with a better product, not just a novel one.
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