Shuji Honjo, our guest this week has a lot of experience with international companies in Japan, helping major companies like etrade enter japan. He’s also a visiting professor at one of the universities and has written a couple of books on entrepreneurship.
We talked in depth about how a successful US based company with talent, money and technology could enter the japanese market, and why Yahoo Japan has been hugely successful, while Ebay Japan was a huge failure.
Thinking about entering the Japanese market? Here’s Shuji’s rule of thumb: If you expect you be able to generate more than 10% of your revenue from Japan, go for it. If the number is less than 10%, don’t do it.
Full Interview Audio and Transcript
Hobbies and Interests: Kimono (Japanese traditional dress)
Favourite Sports Teams: Nippon Ham Fighters (baseball)
Favourite Books: Chicken Soup for the Soul by Jack Canfield and Mark Victor Hansen
Favourite Entrepreneurs: Andrew Carnegie, Soichiro Honda and Takeo Fujisawa (Honda Motor Co), Isao Okawa (CSK/SEGA)
Personal Blog: http://honjo.biz/blog
Adrian Bye: I’m talking with Shuji Honjo in Tokyo in Japan at the Startonomics event being hosted by Geeks on a Plane. We’re here to talk about the internet in Japan and what Shuji has been up to so, can you tell us about yourself?
Shuji Honjo: I started my career at Boston Consulting Group, Tokyo, before going to the Wharton School, University of Pennsylvania for my MBA study. Then I joined the Computer Sciences Corporation in California, working for the reengineering projects. After that I went back to Japan and joined CSK, which used to be the parent company of SEGA, the gaming company. I then founded the Tokyo office of General Atlantic, a Connecticut based growth capital company – growth capital investor – and this company incubated and invested in eTrade, Priceline and so forth, in the US. I helped these companies’ Japan entry and sometimes engineered expansion.
Now I’m an independent consultant catering to large corporations, new ventures and investors. My primary focus is new business development – IT, communication and internet. I also teach entrepreneurship at MBA Program at Tama University Graduate School in Shinagawa.
Adrian Bye: What has been the thing that you’ve done like in the last five years that has been a big success on the internet?
Shuji Honjo: In Japan, General Atlantic did not invest in Japanese companies, but chose to invest in Chinese companies like Oak Pacific. I think that is the biggest achievement and was one of the reasons why we didn’t invest in Mixi or Gree or some other companies.
As a consultant, I’m helping several companies in the growth mode, including Cirius Technologies. Not only the start-ups but also private companies but still in the growth phase. Financially, I act sometimes as an angel investor, but the primary work I do is a consultant now.
Adrian Bye: If we have a successful American internet business and we have money, we have good technology, good resources, good contacts, but we want to bring it into Japan, that’s not an easy thing to do, is it?
Shuji Honjo: You’re right. A number of prime internet US companies, and European companies, too, made a lot of mistakes and they failed. With General Atlantic, I helped a lot of foreign companies enter here, and one typical mistake is timing. As a company, without paying significant attention to this market, it is not so easy to enter: the market is different, the culture is different, and the customer behavior is different. Without paying some critical mass of attention, just like bringing in the US methodology and approach here, it doesn’t work.
Adrian Bye: Yahoo is owned everywhere in the world, as I understand, by Yahoo US except for Japan, where it’s owned by a totally different organization. Why did they do that?
Shuji Honjo: Okay. My understanding is similar to eTrade. At a relatively early stage of the company, Masayoshi Son approached the CEO directly and sales talked as well. Let’s build Japan operation together. The Japanese market is the second largest GDP country, but a difficult market, we want to help you. Masa Son invested in both eTrade and Yahoo and so in return he got substantial ownership of Japan entity. So, that’s the way they did it.
Yahoo now is sixty per cent here. Google? Thirty per cent or less. Google is increasing for the mobile phone search category. Younger people use Google more and more but it will take time, because, especially for PC users, Yahoo is the default.
Adrian Bye: Let’s say if ten years ago Yahoo had tried to make it themselves without making the deal with Softbank Japan: who would be the number one in search today in Japan?
Shuji Honjo: Google. With Yahoo, Taizo Son, the younger brother, collected a bunch of college students to build Yahoo Japan initially. So, it’s a kind of very venture-like start up. So, it accelerated the start up of Yahoo Japan, but probably Yahoo US tried to enter here, probably they couldn’t do that. So, the launch speed would be less. But probably the more closer battle was there if Yahoo US entered one hundred percent subsidiary in Japan.
Adrian Bye: Why is it so important for them to have a local partner in Japan like Softbank to help make the deal work?
Shuji Honjo: If that is business-to-business relationship and partnership, business infrastructure is important, but for consumers, it is not the case. When I worked with General Atlantic, I helped a lot of companies, also including the consumer sectors. One common mistake is recruiting and team building. Wrong country manager, wrong team, and the less quality people, they instantly hire. They spend just two or three years without any results. I don’t know why but even the great company in the United States, they often make such recruiting mistakes.
Of course, they utilized a US asset – the software and the system. But the content itself, they created locally a lot. So that’s one major difference, especially for consumers. This is not the US guys but also companies like Cyworld, a good Korean company. They entered Japan but almost no results. Not only the team building things but also localization of content and also the experience is critical, otherwise nobody uses that.
Adrian Bye: What other things, I mean for a guy like me, when I choose to use a search engine, Google’s clean, simple fast interface is what I want. Is the Yahoo page in Japan like Yahoo in the US? Were there lots of ads?
Shuji Honjo: Yes, lots of contents. And Google is clean… almost nothing. Another example is Naver in Korea, a super content-rich portal site and search engine with number one market share in Korea. So, I think the nature of customers and users are very different. Typical Japanese search engine users love some information in the content together with that… I don’t think that everyone loves that simple interface.
Actually, it really depends on the taste of people but probably the game will be more complicated in the near future because of more and more searching is done through mobile phone. Probably people’s perception and also the demographics of the PC search users and the mobile search users are very different, and also the interface, of course, the size is different. The mobile search market share game will be very interesting.
Adrian Bye: If you’re a successful US company, how do you break into the Japan market? Let’s take Facebook. Do they have a Japanese partner?
Shuji Honjo: No. Just by themselves. If you use the Japanese version of Facebook, you see a lot of English. Worse thing is, have you seen MySpace Japan? You see lots of English. Even the people like these at great companies, many of them don’t like to see so much English. People like the Startonomics participants, they use Facebook, but the ordinary people, I don’t think so.
Adrian Bye: Tell me about social networking, what do people use in Japan instead of Facebook?
Shuji Honjo: Mostly Mixi. Especially for PC, and Gree and others follow. On the mobile phone, Mobage town from DeNA and Gree, of course Mixi provided the interface on mobile phone. But the growth rate from mobile phone is tremendous. In the near future, in fact, it will really exceed the amount from PC, in less than three years.
Adrian Bye: So, what would you say is the market share of Mixi versus Facebook in Japan?
Shuji Honjo: Trafficwise, a hundred times. People almost don’t use Facebook. Just geeks or the IT net industry people use that. But ordinary people, no.
Adrian Bye: So, Facebook really maybe should have done a deal like Yahoo?
Shuji Honjo: Even though if you partner with Softbank or other guys, it doesn’t guarantee success. Good example is MySpace, which partnered with Softbank. It’s a mess. They did what Yahoo did but it didn’t work for MySpace. MySpace originally became popular with music. Initially, MySpace Japan they used just western, especially US music contents only, almost, and no Japanese, no local contents, plus a lot of English. Three, interface and added localization, they didn’t do that. So, from a Japanese perspective, design-wise, it’s weird. They focused on just creative things like musicians and that sort of creative people. In that segment, their market share is gradually growing but it means they cannot capture the ordinary people.
Adrian Bye: Is that an accurate summary that Japan is a very closed country as well, but it’s a big market so it’s worth making this effort to understand this localization and if you can do the localization well in Japan, then you’re going to be able to do localization well in other countries as well?
Shuji Honjo: I heard that Yahoo Japan considered China entry, but they abandoned the Chinese market. Probably they saw that it’s too much work for them, and I’ve heard that even Google has a problem with government and regulations, so Yahoo Japan didn’t like that. I heard that there’s some internal discussion that some guys saying we should enter China, it’s a big market, now difficult but in the long run, it’s a fortune but other guys say, “Well, no. It’s a difficult country and country risk, politics and all.”
Adrian Bye: What I’m getting from this conversation is that entering Asia in general is a lot of work and for a lot of internet businesses, it’s not going to be worth it.
Shuji Honjo: I agree with that. When I worked at General Atlantic, if they don’t have immediate business plan to exceed ten percent of the total revenue from Japan, don’t enter Japan.
Adrian Bye: So let’s say I was Mark Zuckerberg, and you’re here sitting, talking with Mark Zuckerberg about Facebook Japan, what would you be telling me to do?
Shuji Honjo: Remaining as I stand, no investment or very small investment and get small results or work hard and find new partner and invest. If you fall in the in between you just lose money. Or remain very small.
The churn between SNS, well, in the western worlds, so there was churn in the past like BiVo, and if in Japan, Mixi immigrant… Mixi refugees…of course, Gree’s growth rate is tremendous. It means Gree acquires several users from Mixi and Mobage. Gree is one of the hottest social networking services here. There is churn and in five years, there will be another platform, again another SNS, sort of the next generation SNS. This newcomer might acquire substantial users from these existing services. So, people say, there is first-mover advantage if you build some substantial personal base, you are okay, but consumers, when looking at the gaming market in the past, every four years, customer switch. It’s what’s happening even in the social networking service. So, maybe the next generation Facebook might acquire a lot of users from Gree or Mixi. It might happen.
Adrian Bye: So, an area I’m personally very interested in is direct response affiliate marketing which works very well in the US, Canada, Australia and UK. Does this exist in Japan?
Shuji Honjo: It does. There was some boom around affiliate marketing especially for Rakuten, the electric commerce site, like a virtual shopping mall, a good example. Several housewives and several brokers made a lot of money from affiliate. But at this moment, the affiliate is not tremendous existence in this country, but affiliate has become the common thing here.
Adrian Bye: See, one of the changes that I see happening is that even big brands, big companies with big advertising budgets in the US are moving towards direct response style campaigns.
Shuji Honjo: It makes sense because when I talked with internet based marketing agencies and so forth, the demand from the customers which are large corporations around that sort of marketing, it’s increasing here. Probably in that aspect, US is very advanced from this market. But I agree that even in this market especially this year I hear a lot of voices similar to that.
Adrian Bye: Now, consider someone who has a normal like tech-guy that has an iPhone and uses Facebook and maybe has 3G and that stuff. What’s different about mobile in Japan versus that?
Shuji Honjo: In Japan, the major mobile users are not geeks, they’re more like ordinary people. The cellphone is appealing to these guys, not only for voice communication but also the browsing and data communication and email. One major difference is a lot of content providers are there and not only the official site. The official site is like iMode of Docomo, but lots of non-official sites are there, for example the mobage, from DeNA. So, a variety of contents and services are there, very different from the US and I understand that for iPhone, a number of applications and sites are there but only the business people and the geeks use iPhone here. The design and the functionality, well, for example, if you receive an email, most of the Japanese cellphones, you can understand with ring tones you chose, but iPhone you cannot. And also the content provider for the iPhone, here the existing content provided for ordinary cellphone, it is not available on iPhone. Neither digital money nor TV. So it’s pretty different.
The heavy traffic you can see is especially datacom. The heavy traffic is just before going to bed. It’s not mobile phones but personal phones from the users perspective. Just before going to bed, that lady will read free mobile novel, that sort of thing they do. So, it’s pretty different.
Adrian Bye: Is there anything that you want to talk about that we haven’t covered?
Shuji Honjo: According to the Technorati statistics, by language, the amount of blog contents the Japanese language is the number one, English is number two. So, when we look at the population, Japanese people write a lot. The Koreans write a lot, too.
Adrian Bye: So hundred thirty million people are writing more than three hundred million people.
Shuji Honjo: Yes, the content itself is pretty different. Here, just ordinary housewives just, “Oh my baby is something. Or my cat is something.” The value of content is kind of nothing. American blogs, we see similar things, but also great logic, observation, thought and so on and so forth, we can see a lot. But the amount of blog written in Japan is unbelievable. It’s interesting.
Adrian Bye: Thank you so much for your time.