Something Just Clicked - Yahoo has its sites on Japan
interactive.wsj.com
By ROBERT A. GUTH
Staff Reporter of THE WALL STREET JOURNAL
TOKYO -- Talk about a simple business plan. When the heads of Yahoo! Inc. and Softbank Corp. set up their Japanese joint venture, Yahoo Japan Corp., they gave Masahiro Inoue a straightforward directive: "Be No. 1 and be profitable."
"Those are the only two things I was told," recalls Mr. Inoue. Apparently it was enough. Four years on, he has delivered. Yahoo Japan, of which he's president, is Japan's most popular Web site, has a growing base of users and is raking in profits.
Its share price was hovering around 7 million yen ($63,000) this week. That's down from its split-adjusted high earlier this year of 41 million yen, but it is up over 6,000% since Yahoo Japan first listed in November 1997.
So successful has Yahoo Japan been that it is helping buoy its U.S. parent, amid a slump in online advertising, which accounts for 80% of Yahoo's revenue. Fears among investors that Yahoo's advertiser count is dropping sparked a fall in the share price of the California-based Internet portal in October, despite strong revenue and earnings growth for the quarter ended September. The share-price drubbing has continued in recent weeks, following reports from influential analysts questioning Yahoo's ability to meet its revenue forecasts for the fourth quarter.
As Yahoo grapples with its advertising-dependent business model in the U.S., growth in less-developed Internet markets such as Japan could keep the greater franchise growing.
Softbank and Yahoo hold 51.2% and 32.6% of Yahoo Japan, respectively. The Japanese venture opened its Internet portal for business in April 1996. Yahoo estimates that every month about 85% of Japan's 20 million Internet users visit the site, which looks much like that of its U.S. parent. In the half-year ended September, it posted net income of 1.2 billion yen, a 184% jump from the year-earlier period.
The secret to Mr. Inoue's strategy has been to follow his U.S. parent. At first that meant copying, to nearly every detail, the same model that drove Yahoo's success in the U.S., where the portal offers free services, like news, chat and e-mail. Those services attract users, which in turn entice companies to pay Yahoo to post their ads. Now, as the Internet expands and Yahoo matures, Mr. Inoue, 43, is watching the U.S. market for innovative services, folding the winners into Yahoo Japan while leaving the losers out.
"Japan's Internet environment is almost two years behind the U.S., so we are relatively in a better position than the U.S. Yahoo," he says. "We can learn from the U.S. experience."
The best example is auctions. Yahoo in the U.S. was sideswiped by eBay Inc., which seemingly overnight emerged as the largest auction site, becoming a cultural phenomenon that pulled droves of Americans online to trade everything from Beanie Babies to BMWs. An early lead is crucial in the auction business, since a thriving auction needs a critical mass of buyers, sellers and auction items. From that position of strength, you're hard to beat.
Having learned that lesson in the U.S., Yahoo co-founder Jerry Yang and Softbank Chairman Masayoshi Son pressed Yahoo Japan to quickly roll out a Japanese auction service. Mr. Inoue rejected the idea at first. Japan, he explained to his shareholders, didn't have a tradition of auctions in the real world; chances were that Internet auctions wouldn't work. Still Mr. Son insisted: eBay was gearing up to move into Japan and he wanted Yahoo to strike first. Mr. Inoue relented, and quickly made the auction service his top priority.
"I understood that we better start quickly in case eBay became popular," he says. "We made auctions a higher priority and lowered the priority of e-mail and chat." Mr. Inoue put a large team of his best engineers on the task and in two months had a service running. Yahoo Japan now runs the largest auction service in Japan, boasting just under one million users, and about 1.3 million items for auction at any one time.
Mr. Inoue says Japan's Internet lag will continue to be an advantage in other ways. Though online advertising is falling off in the U.S., only now are Japan's biggest companies beginning to experiment, pumping money into online ads. In all, Mr. Inoue estimates that online advertising this year will account for less than 1% of Japan's total advertising market of 5.7 trillion yen. But that leaves a lot of room for growth, he says.
"It's still too early to decide the real value of the Internet as an advertising medium," he says. "The Internet only has a five-year history, compared to 50 years in the TV advertisement market, or over 100 years of the newspaper-advertisement market." |
