Japan's Mixi Tops Facebook and MySpace

The fast-growing site is the king of social networking among Japanese users, and it really rakes in the online ads

by Kenji Hall

Asuka Kosaka joined Facebook this year to connect with her English-speaking friends. But when the 29-year-old wants to share her thoughts and photos with 70 friends and family members in Japan, she heads straight for another site: Mixi.

Mixi (2121.T) may not have the global reach of social networking giants Facebook and MySpace, but in Japan it's king. The Tokyo company had 15 million users as of June, a 40% gain from 10.7 million a year earlier. No other social networking site even comes close, analysts say. Facebook and News Corp.'s (NWS) MySpace disclose only worldwide numbers. "Most of my friends don't know that Facebook and MySpace have Japanese-language sites," says Kosaka.

In June, Mixi accounted for 12.4 million, or 41%, of the 31 million unique visitors for all social networking sites in Japan, according to research firm comScore (SCOR). MySpace was a distant second, with 1.2 million visitors, followed by Google-owned (GOOG) Orkut's 638,000 and Facebook's 538,000. "Everything Mixi does is tailored for Japanese users," says Nomura Research Institute analyst Hideo Yamazaki, who wrote a book about Mixi. "So I think it's very unlikely that Facebook and MySpace can overtake Mixi here."

Clout with Advertisers

As Mixi draws more clicks, its clout with online advertisers grows. That's important for Mixi because online ads account for 85% of its $92 million in annual revenues. Japan's Internet ad spending is set to rise 20%, to $5 billion, this year, according to Dentsu Communications Institute, a unit of Japanese ad giant Dentsu. By 2011, the figure could top $6.9 billion. Many analysts expect Mixi to benefit. On Aug. 15, Morgan Stanley (MS) analyst Naoshi Nema raised his target price to 750,000 yen ($6,818) a share, from 600,000 yen ($5,454), and predicted that Mixi's earnings this fiscal year would beat its forecasts for a 1.4% gain in operating profits, to $34.5 million, and a 29% gain in sales, to $118 million. (Last year, profits were up 72%, and sales 92%.)

For MySpace and Facebook, it will probably be a hard slog in Japan. But MySpace Japan spokesman Daisuke Chikuda says MySpace and Mixi aren't direct competitors. MySpace aims to connect music fans and entertainment buffs, while Mixi is more about staying in touch with old schoolmates or friends, he says. Facebook has a different approach (BusinessWeek.com, 8/13/08). It doesn't have local staff, and relied instead on volunteers to translate the site before launching a Japanese-language service (BusinessWeek.com, 5/14/08) in May.

Mixi's biggest advantage comes from the network effect. As more people sign up for Mixi, its users benefit from an ever-expanding group. That also makes it more attractive to marketers, who want to target the college students, twentysomethings, and housewives who are Mixi's core users.

Keeping It Squeaky-Clean

What is Mixi's secret? CEO Kenji Kasahara figured out how to tap into his country's blogging craze before anyone else, says Waseda University professor Tatsuyuki Negoro, a Web services expert.