Bit Valley Grows Up

Businesses have sprung up, rents have increased, and a prestigious new resident has moved in: Reality.

Last May's opening spread shared the excitement of the moment

"I have no idea," said the young woman working in a Shibuya station kiosk. A JR Shibuya worker collecting the tickets was similarly at a loss. "Try the police," he said. The police were busy, so I strolled a few minutes from the station. "Have you ever heard of Bit Valley?" I asked, stopping a young man with an oddly hippyish hairstyle and a New Economy aura. "Don't know," he said. I explained a little more: "It's an area with lots of Internet and software companies." He thought for a minute, then "Sorry." Next, into a ramen shop in Dogenzaka, smack bang in the center of Bit Valley. Asked the same question and gave the same general explanation of what it was. "Sorry, I don't know." Neither did a pair of salarymen, one in his sixties, the other fortyish. Next a twentysomething couple, both exceedingly well-dressed, chatting together as she played on her mobile phone. No joy. Whatever else can be said about Bit Valley, etched into the public consciousness it is not.

Went across the road into a shop called In Out, selling trendy home-use nicknacks. "Do you know of Bit Valley? Have you ever heard of it?" I inquired of a young female shop assistant. After the blank look that was now becoming familiar, I explained about it being a place of software and Internet firms. "Ahhhh" -- a look of recognition and a chance to practice her English. "Straight station right building Mark City." Spot on (the directions if not the grammar): the massive new Shibuya Mark City building holds incubator Sunbridge's venture habitat and Internet advertising firm Cyber Agent, along with about two dozen other tech firms. She had pinpointed what most reckon is the heart of Bit Valley. But where do the arteries go? For an answer to this, I stepped off the streets and into some of the new tech firms, where I found an astounding level of disagreement.

Masataka Kurihara is president of Gluegent, a high-tech startup that is in the unusual position among its peers of being profitable. Kurihara's tidy little five-man office is on the East side of Shibuya station. "Is it, then, in Bit Valley?" I ask. "No, it is not. Bit Valley is the Shibuya on the other side of the tracks," says Kurihara. Masayasu Ariyoshi, CEO of product evaluation site Power to the People, says geography has little to do with it. "In my mind, Bit Valley doesn't associate with physical locations. It is more of a figurative community."

The Bit Valley Association, which helped to attach a lot of fame and not a little opprobrium to the Bit Valley image, says that the area covers all of Tokyo.

Does this include places like Musashi Sakai, an area in Western metropolitan Tokyo in which, it can be said without fear of contradiction, not a lot happens? "Yes," says Reiko Matsuura, the BVA's only full-time staff member. "We initially defined Bit Valley as a community located in Shibuya, but once we started the mailing list and parties, there were many outside Shibuya who wanted to be inside Bit Valley."

There are competing definitions of where Bit Valley stretches. According to a survey by Fujitsu Research Institute, of the 1,300 Internet businesses in Tokyo as of mid-2000, 40 percent are located in Minato and Shibuya wards. This magazine supports the definition that Bit Valley broadly covers Shinjuku, Minato, Shibuya, and Chiyoda wards, and this four-ward definition will be used in this article.

WORK, BIT-VALLEY STYLE
Shigeo Ozeki, the CEO at Internet marketing services firm axiv.com, opens a closet in his office. Inside are some untidily folded keys to business success at his firm -- sleeping bags. Ozeki's 19 full-time employees work long hours, many from 10 a.m. to 2 or 3 a.m. seven days a week. "But it depends on where they live and if they have to go home or not," says Ozeki. Often there just isn't time to go home.

The area Bit Valley covers is bustling and happening, populated with many tech companies, connected via a mass of unwired communication, and packed with commercialism.

But it doesn't work like that in the New Economy. A survey last year by the American Chief Executive Magazine suggests that dot-com CEOs in the US work between 15 and 35 hours more than their 65-hours-per-week comrades in the bricks and mortar sector. Anecdotal evidence would indicate that Japanese CEOs of Internet startups work the same hours.

With a plethora of Internet companies vying for turf in a less friendly post-bubble business world, extreme commitment is demanded. If you want to succeed, you'd best leave your family and social commitments at the door, many companies reckon. Ariyoshi of Power to the People works "from 9:30 a.m. to midnight or sometimes 1 or 2 a.m.," catching only occasional glimpses of his newborn baby. Yoshihiro Tashiro of J*investor works 13 hours a day. "9 to 5 is the best," he says. "It's a sign of efficiency. Working from 10 a.m. to 11 p.m. means there is something wrong." Not surprisingly, he doesn't have a girlfriend. Neither does Atsushi Sekiguchi, a manager at axiv.com. He lives just a minute away from work but still sleeps four or five days in the office, snuggling into a sleeping bag on the floor around 3 a.m. and getting up around 8 or 9 a.m. "If I go home, I won't wake up when I'm supposed to." Sekiguchi is happy to spend what he reckons is 95 percent of his waking hours at work. He doesn't know how long he can keep up the rigorous schedule. "Maybe for two to three years." He does it because, quite simply, he thinks he has to. "We need to know more than other people in order to make money," he says.

Considering the frantic schedules, there appears to be a surprisingly low level of burnout in the industry. Only two people have left axiv.com since it started, despite the punishing schedule. Though one boss of a high-flying dot-com lost his wife and close friends due to his dogged focus on the business, I couldn't find evidence of anyone who had been driven to insanity or death by the long hours.

Tim Williams, the CEO and founder of ValueCommerce, says he has seen "a couple of cases of burnout" in his company. In the wider Internet community, he's "seen a few people become alcoholics or get into fierce arguments with people they were once close to," he says. Williams says his firm is now pushing to have people work at a "sustainable level." After the frenzy of 60- to 70-hour weeks, he says, "We are focusing on getting working hours back to a normal 50 hours per week."

The mania for crazy hours is not shared by all. Kurihara, of two-year-old Gluegent, which develops e-commerce software, among other things, likes to think he operates a more sociable company than most. Gluegent breaks ranks with the Internet fraternity on many fronts. It says it makes a profit (albeit only ¥3 million last year), and its employees -- all five of them -- wear suits. The hours are close enough to an 8-hour day and no weekend work, claims Kurihara. Gluegent is a curious blend of the old and the new Japan. Unlike J*investor's Tashiro, who says he operates closer to Western management mores, doesn't prioritize workplace harmony, and fires underperforming workers, Kurihara's firm offers lifetime employment just when corporate Japan is moving to ditch the practice with an unseemly gusto. Very much in the mold of the late Sony chief Akio Morita, who liked to refer to the company as a corporate family, Kurihara says his firm is there to serve workers' lifestyles rather than the other way around. He reckons the standard Bit Valley lifestyle of night work and a junk food diet is a disaster. "If you work too hard you have no performance. Staff have to go home at night, take a bath, and sleep in their beds," he says.

IS BIT VALLEY GROWING?
Bit Valley may be growing, or then again it may not be. There is a strong belief throughout the sector that because venture capitalists are no longer throwing other people's money around, the majority of startups are headed for wipeout when their current rounds of funding dry up. But there are some indicators that things are not actually as bad as they are painted to be. Rent in Shibuya is increasing, for example, due directly to its image as a Net startup center. While office rents fell in the main business wards of Minato and Chiyoda in the year through July 2000, those in Shibuya leaped 16.7 percent, albeit from a lower base, according to a survey by the Japan Building Owners and Managers Association. Though there are no recent figures available on rent costs, real estate agencies in the area said rates were holding steady.

Offices are also filling up. From October to December 2000, the occupancy rate at large rental buildings in Tokyo rose 0.6 percent to 97.9 percent due to demand from high-tech firms and foreign banks, according to a property survey reported by the Nihon Keizai Shimbun. A survey by the Ministry of Land, Infrastructure, and Transport found that as of last September there were around 450 software, Internet, or information processing companies within one kilometer of Shibuya station, second in concentration only to Akihabara, which had around 650.

But other indicators, such as employment, indicate deeper troubles. Anthony Moore, of employment consultant East West, says that faltering Net firms are disgorging more people into the jobs market. Though the flow of talent from the companies has not yet become a flood, "It's been a pretty common trend since the end of last year and the beginning of this one," he says.

The famous Shibuya crossing. If Bit Valley had a geographic center, this is it.

The BVA's Matsuura reckons Bit Valley is growing. But it's hard to find reliable statistics to back this up. Data on Bit Valley is so notably lacking that the government has commissioned the BVA to carry out a study of firms in the area.

By February, some companies, such as boook.com, had gone out of business, and many others were rumored to be in deep trouble. But most were still hanging on.

Many within the industry say that while the number of failures as of early 2001 was relatively small compared to the United States, the worst is yet to come. "We have seen the tip of the iceberg in terms of companies going insolvent," says Williams of ValueCommerce. Sachio Semmoto, founder of ADSL-line provider eAccess and a Bit Valley critic, reckons that about 90 percent will go belly-up. Ozeki of axiv.com, a strong Bit Valley advocate, estimates that 90 percent is "possibly too large." But he is hardly drowning in optimism. He thinks a 50 percent failure rate within the year is closer to the mark.

The difficulty is money. Says Declan Collins of Enterprise Ireland, which helps Irish firms begin business in Japan, "So much of the funding has dried up." And money which is being disbursed is generally not going to new ventures. "$20 million funds which may have $10 million placed are not looking at new companies, because they need the other $10 million to rescue the companies funded with the first $10 million."

There was a lot of "faith-based investing" going on last year, says Allen Miner, CEO of Sunbridge. Now there is much less faith. Funding is still being made -- ValueCommerce and Giftken.com, an online gift certificates firm, managed to persuade investors to part with hundreds of millions of yen at the end of last year -- but pure ideas are no longer being funded.

Still, many companies, such as cash-strapped IQ3 -- which made staff cuts in early 2001 -- appear to be holding out to the last. Some see a cultural intolerance of corporate failure as one reason for the tenacity. "Americans are very generous to people who fail in business; they consider it a good experience," says Tashiro of J*investor, "but Japanese tend to think that if a guy's business fails he is not capable." Tashiro says that being branded a loser means one has to go into a completely new line of business. "He can't continue business in the same industry."

The number of Internet failures is also lower simply because the Net bubble here was a much smaller and shorter affair than in the US, the country to which Japan obsessively compares itself. Japan lucked out because it ran behind the United States. Though Japan has been accused of "not getting it" when it came to the Web, in some ways not getting it proved to be no bad thing. "There has typically been a time lag between when information systems technologies have been picked up and widely used in the States and in Japan," says Miner. The systems technology lag and the fact that venture capitalism in Japan is still relatively small fry compared to the US meant that the Internet bubble came here later than the US, and lasted less than a year, while the US lunacy of firing millions of dollars at online ideas lasted three years.

Added to that is a wider sense of caution, which ensures that more Net firms are built on a steadier business footing. "A preponderance of new businesses in Japan get created in a large corporate context," says Miner. "Many startups are subject to the same kinds of careful planning analysis and cash-flow business analysis that large corporations in the US and Europe bring to bear when they are considering new initiatives."

Startups have also shifted decidedly to the short term with respect to making a profit. "Some businesses are coming to us where they actually have a few customers," says Miner, who maintains he is not at all pessimistic about the prospects for the Internet-related sector. "The euphoria is gone, but I wouldn't say that the deal flow has dried up. I don't think the percentage of proposals that have the Internet as an important element of business has declined."

Venture capitalist Bruno Grandsard is also positive. "The hype and the hot air" are gone, says Grandsard. But he adds, "The true doers are still there, and Bit Valley is still an active place."

MOTIVATIONS
Now that the money is gone, the difference between early 2000 and a year later "is like heaven and hell," says Power to the People's Ariyoshi. The venture capitalists, including Hikari Tsushin and Softbank, have dropped their so-called "spray and pray approach." Insomuch as they ever were, Net startups are no longer seen as vehicles to make pots of quick money. So what motivates the average Bit Valley entrepreneur?

A look around Shibuya's fovorite meeting place reveals the extent of mobile communications.

But uncertainty also acts as a turn-off. There are far fewer professionals willing to jump ship from cushy corporate jobs now than there were in early 2000, says Grandsard. "This is the biggest negative impact of the bubble having deflated."

As the CEO of an incubator and VC provider and an experienced hand in the field, Miner is in a better position than most to understand why people want to get in on the Internet. Miner says people coming to him with business plans are "much more driven by the vision, the passion, the belief in what they are doing, than in how the Internet is going to change the world and in how they are going to get rich doing it."

It is "a matter of wanting to be the ones left standing, the ones who had in the end changed our lives as consumers and people," Miner says. The all-or-nothing approach can breed a kind of ruthlessness. A US survey found that while the No. 1 goal of most old economy CEOs was to be a customer-focused company, that of Net CEOs was to be the market leader. An indication of the dog-eat-dog ruthlessness that the drive to be No. 1 can breed is a poll in Chief Executive Magazine, in which 23 percent of Internet bosses said they would eat another human if stranded on a desert island, compared to only 6 percent of smokestack CEOs. This ultra-competitiveness is presumably behind some of the petty, internecine criticism that mars the Bit Valley community.

Others profess selfless motivation. Gluegent's Kurihara says he hopes his company will act as a beacon to others thinking of setting up a new firm. Other CEOs say they hope their business will help Japan's economy. "I run across that quite a bit," says Miner. Though it can come across as a curious form of economic nationalism, Miner sees it more as an expression of a sense of corporate social responsibility. It appears to be a strongly Japanese phenomenon. "I can't imagine an American entrepreneur saying, 'I'm starting my tech company because it will make the American economy stronger,'" says Miner.

Williams views it from a slightly different angle. There is a feeling among Japanese entrepreneurs "that a lot of the technologies are imported," he says, and "that they are just a localization job." He says some companies want to make something that they can take to the rest of the world.

MALE VALLEY
The New Economy may be, well, new, but those people making the decisions are very reminiscent of the old economy. Namely, they're mostly male. "The Internet world is a meritocracy, survival of the fittest, you're in or you're out," says Yumi Kuwana of Giftken.com. But the Darwinian language only applies to companies, not to individuals. Women still have a harder time of it than men.

"All of the venture capital meetings I've been to have been 100 percent men," says Kuwana, "and major Internet companies tend to be run by men." She acknowledges, however, that the Internet is helping to somewhat level the gender playing field. Think of the top companies in Japan and not a single one is headed by a woman. In fact only around one in 25 Japanese bosses of smokestack firms is a woman, and most of those run small companies. But think of the top Internet firms and a couple come to mind, including media darling Tomoko Namba, the CEO of DeNA Co., which runs bidders.com, and Merle Okawara, the CEO of eBay Japan.

But like the rest of corporate Japan, the overwhelming number of Bit Valley startups are run by men. Though there are no useful statistics available, anecdotal evidence would suggest that the percentage of New Economy female CEOs is no more than a couple of percentage points higher.

It can't help that New Economy attitudes are not always new. "Only a few women have the power and energy to manage a company," says Ozeki, of axiv.com. "They want to enjoy living instead of doing business."

Top to bottom: Shigeo Ozeki of axiv.com; Reiko Matsuura of the Bit Valley Association; Yoshihiro Tashiro of J*investor

Additionally, many of the women who are involved in Japan's Internet world run businesses that focus exclusively on women, as opposed to the broader marketplace (See "Breaking Through: 8 Japanese Women Netpreneurs," page 22, April 2000). Take Meiko Towada, for example, who runs esampo.com, targeting services and products for women, or ex-journalist Kikuko Yano, who runs cafeglobe.com, a portal site for women.

Giftken.com's Kuwana highlights a lack of government support in helping women entrepreneurs start from a more level playing field as one reason for the underrepresentation of women. She would like to see support programs in Japan for emerging businesswomen, similar to those in the United States.

Parents, too, can get in the way. "If the father has a daughter who has yet to get married, working for a big corporation is very important for a successful marriage," says Kuwana. Put simply, Pops doesn't want his Yoko at a dot-com where she marries some online dreamer working for a company that was never in a zaibatsu.

Young and single, Naoko Yagi took the plunge to leave Toyota and join startup eAccess. She says some women seek jobs at Toyota partly to snag a husband with steady prospects. "One of the reasons to join (Toyota) is to find a husband; there are many couples within the company," she says. But Yagi was fortunate enough to switch careers with the full support of her "untypical" parents.

Williams of ValueCommerce says, "To become a CEO, you have to pitch to venture capitalist bankers and lawyers, a lot of whom are older men." They are unlikely to respond to a young woman as they may to a young man, says Williams. "It simply reflects how women are treated in the workforce and on the political scene in general."

Kuwana, who says she left Morgan Stanley "to get away from the large corporate world, especially the male-dominated finance world," has developed one strategy for getting crusty bankers with ancient opinions to part with financing. "I bring my men with me," she says.

HOW BIT VALLEY IS SEEN
"In Japan, image is of the utmost importance," says axiv.com's Ozeki. And perhaps more so in the Internet industry than in most others. In the case of Bit Valley, one needn't scratch the surface very much to find a dislike -- almost a deep loathing -- of its image.

The Bit Valley Association, which is symbiotically linked with the Bit Valley idea, went from being the media wonderboy to persona non grata within less than a year of its February 2000 meeting in Tokyo's Roppongi discotheque Velfarre, where over 2,000 people met to swap business cards, meet venture capitalists, or simply gawk. Japan's Mr. Internet, Softbank's Masayoshi Son, hired a private jet to fly from Europe to be there. Also there was Central Bank Governor Masaru Hayami, as well as the controversial Tokyo governor, Shintaro Ishihara.

In many ways, the Velfarre meeting was unfortunate because it combined a sense of shameless self-promotion with total disorder and razzmatazz, a combination that makes the average Japanese squirm. It left a lasting taste that the BVA organizers were more interested in PR than in helping to lay the groundwork for real business. This impression is in many ways unfair, but widely held.

The new NTT DoCoMo building in Yoyogi

The BVA's Matsuura says she is familiar with the criticisms and knows the Bit Valley label is no longer "cool": "People say Bit Valley is for youngsters, they are just playing, they are not real businesses," says Matsuura. "Then the criticism broadened to become that the Internet is not good." She says that some of the harshest criticism comes from people "who pursued money and hate the Bit Valley Association because since the collapse of the bubble they can't get venture capital money."

She reckons the most important achievement of the BVA has been to give some publicity oxygen to Internet startups and spread the word that Japan is finally "getting it."

But this explanation doesn't wash with Ariyoshi of Power to the People. Ariyoshi's offices are in Yoyogi, in Shibuya Ward. "I hated to choose Shibuya in case people thought I was one of them (associated with Bit Valley)," says Ariyoshi, who spent 10 years as an analyst at the respected Nomura Research Institute. "I have a negative connotation as everyone else has." He refused to get involved with the Bit Valley Association because he didn't think it was "stable."

Graeme Kerr, chief of startup travelfreak.com, plans to give Shibuya a wide berth when his company sets up an office and begins operations in early summer. "Shibuya is overhyped," he says. Kerr prefers a grungy environment. "Part of the idea of a startup is surely beginning in a slightly rough environment. I think it adds to the creativity of the project. That's where japantoday.com [a Shibuya-based Internet news site] went wrong. If I was on the 10th floor of a Shibuya building, I'd be disturbed by the view," he says.

eAccess CEO Sachio Semmoto, one of the most respected figures in the telecommunications industry, is almost completely dismissive of Bit Valley. He says he appreciates the sentiment behind the Bit Valley idea, but the firms there represent little more than "virtual entrepreneurship." Management is the problem, he says. "They should acquire the basic elements of entrepreneurship in marketing, organizational structure, personnel issues, and financing."

Semmoto argues that the BVA is lightweight. Bit Valley sentiment was not represented, for example, he says, in submissions to the influential Telecommunications Council, which advises the government. The council is not at all glamorous, but it is powerful and will have a huge say in deciding the shape of telecom deregulation and thus the Internet in Japan.

Matsuura says simply that the BVA was not invited. In fact the BVA has been carrying out some substantial activities, including holding seminars for startups and sending out a newsletter to the some 5,000 names on the BVA mailing list. But the seminars are highly irregular -- only four were held between February 2000 and February 2001, not really enough to dispel the image held by the corporate mainstream that Bit Valley is kids' stuff.

Tech companies populate the area -- and drive up rents.

Neither did the travails of mobile phone seller and venture capitalist Hikari Tsushin, which invested in many Bit Valley companies. Hikari Tsushin was the dream company at the beginning of 2000, until its less-than-transparent financial practices came to light, sending its stock into a tailspin from a 2000 high of ¥241,000 to as low as ¥1,500 by the beginning of 2001. The salacious weekly magazines feasted on Hikari Tsushin rumors, such as the one which had company president Yasumitsu Shigeta feeding live rabbits to his pet python. His firm went from being in the top 10 Tokyo Stock Exchange companies to practically nowhere.

"Hikari Tsushin lied about earnings. You do that once and the institutional investors won't touch you ever again," says a Tokyo-based futures trader who asked to remain anonymous.

One of Hikari Tsushin's investment targets, Bit Valley firm Crayfish, also drew some negative publicity when a group of US investors sued it last year, alleging inadequate disclosure of financial information.

Perhaps a more damaging, though much less serious, criticism was that made against firms such as Rakuten and boook.com, among many others, that they failed to make the wisest use of investor funds.

But some see an element of opportunism in the anti-Bit Valley surge in opinion. "As some Bit Valley companies are failing, they may be trying to jump ship and are looking for an excuse (to justify distancing themselves)," says Enterprise Ireland's Declan Collins. Collins acknowledges that Bit Valley "is a long way from the concept of trying to duplicate the Silicon Valley experience" and that too many of the companies are of the "dot-com genre," but he says the idea of an area where companies can come together to network and share experience and contacts is still valid.

Some firms are still attracted by the concept. Though the average person may not know much about Bit Valley, it remains a potent symbol with a great name for Japan's Internet future. Sanyo set up a semiconductor development center in Shibuya's Dogenzaka in February, choosing the area precisely because it is home to a network of Internet and tech companies, said a company spokesman.

Matsuura reckons that the pendulum will probably swing back and that Bit Valley will once again become fashionable. She says much of the criticism is emotional and there is both a fickle and a sheep-like element to it all. If a big company decides to proclaim itself a Bit Valley firm, she says, "Other people will follow."