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Information Technology: Startups
Tokyo's Valley of the Netrepreneurs
Young innovators trade business tips and nab capital
When Japanese Net entrepreneur Satoshi Koike traveled back to his native Tokyo last February to scout out promising new E-businesses to bankroll, he was disappointed with what he found. A Tokyo convention that showcased new business ventures gave Koike a chance to meet some of Japan's new Web-savvy entrepreneurs. Some had good ideas, he recalls, "but nobody knew how to launch or operate a successful Net business." So from the Tokyo office of Netyear Group Inc., the Redwood City (Calif.) E-business consultancy that he runs, Koike spent the next week working the phones and his contacts in Japan. His goal: to organize a business-networking group aimed at helping Japan's entrepreneurs get wise to the Web.
The result is Bit Valley, a promising organization that is bringing entrepreneurs together regularly to build Japan's Internet economy. Koike believes the Tokyo group will give young innovators a way to trade business tips and attract venture capital. The organization's name is an abbreviated version of "bitter valley," the English translation of Shibuya, the hip Tokyo neighborhood where many of Japan's Netrepreneurs are headquartered.
The group is starting something of a cultural revolution in Japan. In an economy long characterized by corporate behemoths and lifetime employment, a surprisingly favorable climate is emerging for nimble startups that aspire to become the next Yahoo! or eBay. As the Bit Valley group grows, its influence is spreading beyond Tokyo to the rest of Japan. Since its first meeting in March at a French-style cafe in Shibuya's Bunkamura theater and art center, Bit Valley's membership has swelled from 100 to more than 1,200, representing some 400 Shibuya Net businesses and the Japanese offices of Microsoft, America Online, and others. "Japan desperately needs a breakthrough movement to make way for an Internet boom," says Koike.WAKE-UP CALL. Suddenly, Japanese consumers and businesses are waking up to the potential of the Web. While the country still trails the U.S. in developing E-commerce, the importance of building a Net-bolstered economy has not been lost on the nation's traditionally conservative bureaucrats and politicians. Says Iwao Nakatani, a scholar and deputy chairman of the state Economic Strategy Council: "The government here still tends to support traditional industry, but it's well aware now that the robust growth of the U.S. economy is the result of E-commerce." As a gesture of support to startups, Japan recently approved a plan to extend more grants and financing to new ventures.
At the forefront of this new consciousness are tomorrow's consumers: Japanese high school and university students who can zip off short E-mail messages on their tiny cell phones. This information-savvy generation is fueling demand for handheld computers anD other Net-ready communication devices. And it's gaining new clout here. "Japan is a few years behind the U.S. when it comes to E-business," says Taizo Son, 26, who founded online systems integrator Indigo Corp. in 1996 while an economics student at Tokyo University. "Now, though, the younger generation is starting to pop up" in a business world that for decades has been ruled by older men whose place at the top was dictated largely by seniority.
It's not just the business world that's changing. According to a survey released in June by Japan's Ministry of Posts & Telecommunications, some 17 million Japanese, or 13.4% of the population, now log on to the Web, up from 1.5 million in 1995. By 2003, the percentage of Japanese households wired to the Net should rise to 52%, about the current level in the U.S., according to market researcher International Data Corp. "We're seeing a shift from early adoption of the Internet to mass penetration," says Joichi Ito, chairman of Infoseek Corp.'s Japanese operations.
And the Japanese aren't simply surfing: They're shopping, too. E-commerce hit $77 billion in Japan last year--double the 1997 amount. The market is expected to growto $639 billion by 2003, compared with $1.6 trillion in the U.S., according to a joint survey by Japan's Ministry of International Trade & Industry and Andersen Consulting.
There's yet another reason for Bit Valley optimism. Because of Japan's recession, large companies are no longer able to lure the best and brightest with promises of lifetime careers. The result: Students and managers alike are willing to take a chance on exciting new jobs with risky startups.BLUE-JEAN BRIGADE. Rakuten Inc.'s 34-year-old Hiroshi Mikitani, a former banker at the staid Industrial Bank of Japan Ltd., now wears blue jeans when he visits the gray-suited bureaucrats at the Ministry of Finance to brief them on E-commerce. Mikitani says many of his consultant and banking friends also are considering the fast pace and intellectual freedom of a Net venture. Bit Valley entrepreneur Kazuhiro Ogura, 24, went so far as to drop out of Tokyo's Hitotsubashi University to start his business, Horizon Digital Enterprises Inc., an E-systems integrator. Although Ogura graduated a year behind schedule last spring, he doesn't regret his unorthodox choice. "I couldn't imagine being in a corporate army," he says.
A flurry of recent activity promises to keep Shibuya at the forefront of Japan's tech movement. Ito, who operates Digital Garage Inc., sold his Net-search firm's interest in Infoseek-Japan in June and will use the proceeds to launch online music and concert ticket sites this fall. Nearby, Kiyoshi Nishikawa, the founder of NetAge Inc., just sold his Net Dealers online consumer-ratings service for autos to CarPoint, Microsoft's online car-locator service. With themoney from the sale, NetAge plans to launch two E-businesses--retailing and E-systems ventures--in September.
To be sure, not everything is roses in Bit Valley. For starters, the government's economic planners could do a lot more to ease costly regulations on private enterprises. Startups also want more deregulation in the stock market. As things stand, a company must show a profit for at least two business years before it can go public. That's a luxury that expanding Net startups often can't afford.PROMISING FUTURE. Even here, however, relief may be on the way. Softbank Corp. founder MAsayoshi Son, 42, plans to launch a Japanese Nasdaq by the end of next year, which, if approved, would do away with the stiff listing requirements of the existing markets. "That means Bit Valley startups like myself will have the opportunity to list," says Indigo's Son, 26, who is the youngest of Masayoshi's three brothers.
Indeed, for the young Bit Valley entrepreneurs gathered in a crowded Shibuya bar one recent night, the future never looked more promising. The changes, for Japan, are revolutionary. True, the odds aren't high that any one of these entrepreneurs will launch a Japanese Microsoft. But for the first time, they have the opportunity to try.By Irene M. Kunii in TokyoReturn to top