Building an Electronic Electric Town

Vertical portal play Venture Republic taps into the power of databases -- and its big-name partners.

"They buy anything, from printers and scanners and other products to parts like CPUs and motherboards," Shibata says of otaku. "They often make their own PCs. They used to look at PCs on a stand-alone basis, but recently we've seen lots of networking products getting popular -- routers, hubs, et cetera. They're really interested in broadband."

So what makes him think they'll want to do this online? Easier product location and purchasing, cheaper prices, and Japan's largest sales database of its kind, says the 35-year-old Tokyo native. But otaku gadgets isn't the only market he thinks he can win in by exploiting the power of databases. The travel industry, especially the airfare market, also features numerous products that often change, many vendors, and significant scale and online penetration. So Shibata also has an online comparison shopping service for travel in the works.

Shibata founded e-marketing holding firm Venture Republic (www.v-republic.co.jp) in January this year, and with $4 million in backing from Mitsubishi and WIT Japan Investment, Venture Republic launched www.coneco.net in April, billing it as Japan's biggest online shopping destination for tech goodies and services.

Run by Venture Republic group firm Bestag, coneco allows its overwhelmingly male target audience to comparison shop among over 400 online firms in and outside Akihabara offering PCs, PDAs, peripherals, software, broadband access, and more. In addition to mulling over 50,000 items, users can search for new and used goods for sale at online auctioneer Bidders (www.bidders.co.jp), run by Mitsubishi partner DeNA Co.

coneco was built on precursor NETdeTsuhan, a smaller site created in 1997 by Yasumichi Ohishi, who is now Bestag's CTO. Shibata says the number of coneco's repeat users, in the millions, is already more than three times that of NETdeTsuhan. Though coneco features vendors outside Akihabara, its launch comes as retailers in Japan's largest electronics market are seeing margins evaporate due to tough competition from massive discount chains that have opened outlets near major train stations such as Shinjuku and Ikebukuro. The merchants in Electric Town aren't so willing to bargain anymore, and online prices are generally $10-20 cheaper than in Akihabara, according to Shibata.

But some tech-savvy shoppers are well aware of that. At least one otaku, Sigi Rindler of the Tokyo PC Users Group -- known as "Mr. Akihabara" -- says he won't switch from rival site www.kakaku.com (see page 8, November 2000, for more on founder Mitsuaki Makino), in business since 1997. He says kakaku has more up-to-date sales info and its retailers offer better deals.

"Although the new site looks a bit easier to find things, kakaku beats it in many aspects," says Rindler, a 20-year aficionado of Electric Town. "The vendors (at coneco) are generally known as the more expensive ones, like Sofmap, T-Zone, et cetera. They can't be found at kakaku -- I haven't spotted them yet -- since they will always be undercut by several thousand yen. They will argue that their service is better, but this is nonsense at best. I can get my camera (or whatever I buy) fixed by the Japanese manufacturer. Toshiba does it faster than going through T-Zone."

But, Shibata counters, "We don't focus on price. It's not the single biggest factor in a user's buying decision."

One of coneco's strengths, the company claims, is its huge sales database built on NETdeTsuhan. Shibata says that NETdeTsuhan's reputation as one of the oldest online comparison shopping services in Japan helped bring users in to coneco. Bestag CEO Kenichi Shibata (no relation to Kei) notes that the whole coneco operation is run by only two people, thanks to automated bots software that gathers sales data online.

After joining Mitsubishi in 1988, Kei Shibata worked in its food division before going to Harvard in 1996. While in the US, he did a stint at Seattle-based tech infrastructure and services provider Network Commerce, once known as ShopNow.com, and thought about the Japanese market and the Net's impact on business. Back with Mitsubishi in 1999, he led a project called Mobile e-Kiosk that resulted in the October 2000 birth of iConvenience Corp., a $20 million JV between NTT DoCoMo, Matsushita Electric Industrial Co., Mitsubishi, and convenience-store chain Lawson. The idea was to unite i-mode with konbini by, for instance, having printers in the stores to output data downloaded to mobiles.

Last year in Tokyo, Kei Shibata accidentally met Kenichi Shibata, who, besides having the same last name and initials, was also a Harvard MBA and was dreaming up a similar business model. When they pitched their e-marketing idea to WIT and Mitsubishi, each agreed to take out a 48 percent stake in Venture Republic, and the ball got rolling.

"We see a lot of importance in focusing on only one particular segment that can give us some strength," says Venture Republic CEO Shibata of his vertical portal strategy. "We have to be a winner in one area; otherwise, we lose everything."

Venture Republic thinks travel is another industry where it can win. Shibata says Japanese travel agencies are far behind their US counterparts in terms of booking technology, and the firm plans to officially launch B2B-B2C site Travel.co.jp (www.travel.co.jp) this month.

Run by Venture Republic's other group firm, Travel.co.jp Inc., the site will let users do real-time air ticket searches and reservations with major airlines serving Japan, thanks partly to recent deregulation allowing customers to buy online. It will also feature info on rail travel, accommodations, package tours, and links to 20,000 Japanese travel sites.

But Japanese e-commerce will have to grow beyond its infancy if vertical portals (VPs) are to make winners out of firms like Venture Republic. Though Japan was late in adapting to the online world, e-com here is expected to grow to $27.5 billion by 2002 on the back of telecom deregulation, new payment methods, and robust mobile penetration. This despite the ubiquity and relative proximity of real stores in major urban areas.

"VPs make a lot of sense for Japan, even more so than in the US," says Paul Anders Schwamm, a management consultant and president of site operator and consulting firm @Asia Inc. "Japan is decades behind the US in terms of industry consolidation and rationalization of distribution systems. If Japan fully embraces the power of the Net, it could achieve in five to 10 years what it took the US 20 to 30 years to achieve."

Seeing Venture Republic's Web operations, he warns, "Sites that merely provide 'price lists' have not done very well. Web users want qualitative information and editorial content with price information."

Tetsuta Wada, whose firm EC-Com runs EC Oil, a wholesale B2B oil market (see " A B2B Exchange for ... Oil," December 2000, ), says Venture Republic would do well to sever its ties with Mitsubishi and "rebuild a neutral portal marketplace."

"The vertical portal market in Japan will not be so easy because of internal protection by keiretsu," he adds. "Most portal sites are facing difficulties."

Shibata, however, sees his ties to Mitsubishi as a serious asset.

"In Japan, established players are still very, very strong," he notes. "We have to utilize those resources. We can do that because Mitsubishi is an investor and a strategic partner."

Venture Republic's sites are a work in progress. For now, Shibata is concentrating on launching the travel site, finding more business partners, possibly sharing coneco's database with related info providers, and creating wireless versions of the two sites. He expects Venture Republic to be self-sufficient on a cash basis in the next year or two, thanks to careful cost control and because the focused nature of VPs has allowed it to save on marketing layouts. He also wants to grow the firm on a self-sustainable basis and is in no rush to go public, saying an IPO is not a goal in itself, but just another stage of development.

"The question is how successful we are going to be," he says. "But I believe that as long as we can concentrate on the things we are doing, we're going to be able to provide a big value to not only Internet users, but investors and vendors."

Leo Keeley, CEO and president of Japan InfoTech, is optimistic about the firm. "To a large extent, Venture Republic's chances rest on Shibata's ability to navigate the Mitsubishi landscape," he says. "He's done some big things in his career, and I'll bet he pulls this off."