Increased Competition Hurts Yahoo Japan

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Another concern: Key talent has been leaving for top posts at rivals. In recent months, Baidu lured away two top Yahoo Japan execs, and social networking service MySpace Japan found itself a new president by snatching Yahoo Japan's former chief marketing officer.

Yahoo Japan's site looks a lot like the one in the U.S. There's the Yahoo banner at the top; icons for finance, games, shopping, maps, and news down the left-hand column; and news and ads filling the rest of the page's real estate. But Yahoo Japan operates more like a franchise than a clone. It benefits from being part of Softbank CEO Masayoshi Son's empire, which includes a wireless operator, social networking sites, small Net ventures, and a professional baseball team.

Phones with a Y! Button

A brash businessman whose tactics forced other Japanese broadband and wireless service providers to lower their rates, Son has made no secret of his ambition to dominate online services in Japan—and eventually all of Asia. Yahoo Japan, which is 41% owned by Softbank, is vital to those plans. After Softbank took over Vodafone's wireless operator business in Japan, it rolled out phones with a Y! button. That's made regular Yahoo Japan users out of Softbank mobile subscribers, many of whom rely on their phones as their primary access to the Web.

Inoue, Yahoo Japan's chief, isn't sitting idle, either. To improve the relevance of the ads it bombards users with, Yahoo Japan unveiled on Sept. 4 a new service dubbed Interest Match. It relies on technology from Overture, acquired a year ago, that combines a person's current and past search data for matching ads to users. Yahoo has hired other smaller firms to tweak searches so Net commerce sites and services are also more accurate. And in July, it teamed up with ad agency Dentsu to help businesses coordinate TV commercials and online content.

Hall is BusinessWeek's technology correspondent in Tokyo.