VENTURE WATCH

Bit Valley Startup Takes on Silicon Valley

FreeML.com is being handled by NetAge's Kiyoshi Nishikawa, locally famous as one founder of the Bit Valley Association (which, by the way, has formal nonprofit-organization status), and by Masatoshi Kumagai, president of the ISP interQ, which is one of the better-known Bit Valley alumni companies and widely regarded as the model to copy. interQ scooped up a fortune in public cash during its IPO on the OTC here last August.

FreeML.com offers free mailing list services and will earn revenue from ad text, which will be attached to the headers of email messages sent using the service. It started as a freemail site operated by college student Yoshihiro Kono in 1997. Soon after the BVA's launch, Nishikawa met Kono and offered his support to the site as part of NetAge's then-fledgling incubation efforts. Kono was hired as manager of the service, which was subsequently adopted as the BVA's "official" networking medium.

This time, Nishikawa has decided to make FreeML.com a fully independent business, and the tie-up with Kumagai -- eager to expand interQ's Net advertising efforts -- was a natural. With a pocketful of post-IPO cash, Kumagai has to date launched two online ad companies, Magclick (which advertises independently produced email magazines), and Clickmail, another freemail service. Investing into FreeML.com is his third try at expanding his Net ad business, and by the end of this year the new company is targeting monthly ad sales of ¥30 million, with 100 million ad impressions and 1 million users signing up.

But the new venture is facing some tough competition in the form of eGroups USA and its Japanese subsidiary, eGroups Japan, which has been providing a similar free email service here since last August. The parent company has already secured a foothold in the global market, and presently boasts some 14 million users and handles 1.6 billion emails per day.

In December, eGroups' worldwide business received a cash infusion from several big-name Japanese Net companies, including impress, NTT-ME Information Xing, and Recruit -- they're all looking at some serious capital gains if eGroups' IPO in the US goes as hoped.

Another factor is eGroups' management talent, with their Japan operation being led by Akihisa Oyama, formerly with Goldman Sachs Japan. Oyama scored quite a coup when he brought Japanese investors to eGroups' table.

In a typically Japanese twist, eGroups Japan also boasts Taiga Matsuyama -- director of the BVA -- as an advisor. The company's Japan subscriber base reached 200,000 as of January.

In another twist, eGroups originally tried to launch its Japan operation by seeking a tie-up with Nishikawa and Kumagai, offering eGroups' worldwide resources and developed technology. Kumagai, fresh from interQ's successful IPO, turned down eGroups' offer in the hopes of retaining a greater share of FreeML.com's own future IPO. Time will tell whether this move was a smart choice.

In the short term, FreeML.com should do well if it can rely on the momentum gained from a successful IPO, just like interQ did. In the long run, however, it is not clear whether a Japan-only email service can compete successfully with eGroups' global operation.

The contest is one of the first between Bit Valley and Silicon Valley, and, as Japanese companies become Internet savvy, industry watchers here are forecasting more to come.