A look at Crayfish, an email service hosting provider that was third to go public on Mothers.

One market observer commented, "The market took its bearings from the closing figure set on the first day of trading in the US, $126, to define the core trading range. That meant that trading opened with a reference figure of ¥6.5 million per share, or five times the public offering price of ¥1.32 million, and sellers wanting to take their profits immediately dominated the market. On top of that, Crayfish's parent company, Hikari Tsushin (which owned 50.1 percent of the stock when Crayfish was listed) took a big hit in its own share price that day, which didn't help Crayfish. What sent Hikari Tsushin's stock plummeting was an article slamming Shigeta Yasumitsu, the company's chairman, in the issue of the monthly Bungei Shunju that appeared the same day.

Crayfish, a de facto subsidiary of Hikari Tsushin, offers email hosting services for smaller companies: it rents out servers for running email systems and serving websites. Using Crayfish enables customers to outsource building their email and Web systems to it, with the additional benefit of access to the latest in system architectures. Crayfish mainly targets smaller companies -- for whom building their own systems would be a burden -- in offering its Hitmail email and other services.

Crayfish has its own sales department, but it is largely dependent at present on Hikari Tsushin's marketing power, since the parent company serves as agent for Crayfish's services. Hikari Tsushin, with subsidiary Call to Web, acts as the sales agent for Crayfish and handles marketing for it. Domain names registered with Hitmail (roughly equivalent to the number of customers) totaled 44,811 as of the end of January. That makes it the largest provider of hosting services in the country, with an estimated 30 percent or more of the market.

Hosting services have been a booming industry in the United States, where efficiency through outsourcing is the order of the day, and are used by some major corporations. Similar potential seems to exist in Japan. Crayfish, which charges ¥10,000 per month for its basic service (bare-bones email), has new customers signing up at a fever pitch -- about 10,000 new accounts a month. The company forecasts expansion to about 100,000 accounts in the course of this year.

Hitmail accounted for 71 percent of sales for the period ended September 1999; SSOS (server maintenance and user support) generated 11 percent of sales, system development 13, and other operations 5. The company was ¥387 million in the red for that fiscal year. That is because the company incurs initial costs when it starts providing service to a customer; with new customers growing rapidly while the company's scale was still small, costs mushroomed.

In the quarter covering October to December 1999, Crayfish recorded a ¥465 million loss on sales of ¥939 million, and red ink can be expected to continue to flow until sales reach a certain level. Given the current influx of new customers, it is likely that the company will enter the black in the next period.

Not content to remain a large crustacean in a small pond, Crayfish aims to join the ranks of the world's IT companies. That, the company says, was its objective in offering 870 of its shares on Nasdaq on March 8.

Despite its strong sales projections and improving cost picture, several points about the company bear watching. If Crayfish's services were to lose competitiveness and marketability, Hikari Tsushin would stop acting as its sales agent. Crayfish would also suffer if Hikari Tsushin's salespeople were to use inappropriate selling methods, or if its relationship with Itochu Technology, which provides the servers needed to provide its services, suddenly broke down. -- [translated]