Windows 95J: Marketplace
Evolution, or Revolution?
Microsoft KK is sitting pretty, but how will
Windows 95 affect other Japanese companies?
Windows 95 is likely to have a bigger impact in Japan than in the US,
and it is sure to bring about changes in Japan's PC hardware and software
market environment. Some companies will adapt to the changes that Windows
95J brings, and survive or even prosper. Others will find themselves threatened,
or even facing extinction. On the occasion of Windows 95's release in Japan,
we offer a preliminary look at the shakeout in the marketplace. by John McGlynn
Amid the hoopla surrounding the release of Windows 95 (Win95), it's easy to lose sight of how companies other than Microsoft and leading PC systems makers may be affected. While a discussion of printers, hard disk drives, and guidebooks may pale in comparison to an analysis of Win95's whistles and bells, it is intriguing to consider how the fortunes of some Japanese companies will fare under the new OS's (operating system's) influence.
At the outset, let me caution that nothing is carved in stone. In advance of the Japan sales campaign for Win95 and Win95-related products, no one can reliably predict the precise extent to which Japanese Windows 95 will affect the corporate bottom line. Microsoft's late-October quarterly earnings announcement, and the announcements of other companies selling related products, do provide a measure of Win95's impact on some Japanese companies, but these are primarily based on sales outside Japan. This article attempts to spotlight Win95's effect on the Japanese domestic market, particularly on some companies less famous than the Canons and Fujitsus of the world. (The nature of the global computer and software markets makes this something of an artificial exercise, but one that nevertheless may provide some interesting insights.)
PC boom times
Since long before Win95 stories started to make their appearance in the media, Japan has been in the throes of a PC sales boom -- one which got its start back in the fall of 1993. Teasing out Win95's specific market influence from the overall PC craze in Japan isn't easy, but enough information exists to develop a reasonable notion of what lies ahead.Microsoft estimates that it will sell 4 million copies of Win95 in Japan in the first year. It may be easier for the average Japanese hardware owner to move to Win95, compared with his US counterpart. The relatively late takeoff of Japan's domestic PC market means that the average Japanese user's PC system delivers higher performance.
In order to cope with the expected sales rush, retail outlets began devising their sales campaigns back in September. T-Zone (a sales division of Ado Electronics, a trading company dealing mainly in semiconductors and PCs), a retailer based in Tokyo's Akihabara electronics district, plans to set aside an entire floor devoted to Win95 and related products. Sofmap, a rival retailer, stands ready to undertake home deliveries of Win95 on the date of release to buyers who have registered for this service.
Hurry up and wait
Unfortunately for retailers and manufacturers, the excitement in the weeks leading up to Win95's official release resulted in many potential buyers opting to hold off on their computer equipment purchases until the Win95-preinstalled computers actually hit the shelves. This decision was influenced in part by the media; even those not normally concerned with computers are discussing the impact of Windows 95. For example, "Tonight," a popular Japanese late-night TV information program whose viewing fare (aimed at the hard-working sarariman) generally contains a mix of reports on restaurants and new products interspersed with gratuitous and titillating features on the social habits of Tokyo's young women, presented a segment on the pros and cons of delaying a computer purchase in the face of Win95's debut.Taking September sales as an example, some computer retailers reported missing their monthly targets by 5% to 20%. In an attempt to draw in customers, prices were slashed. Fujitsu took the lead, with promises of a free upgrade to Win95 at a later date becoming a key selling point.
But following Win95's November 23 release, December is the time when hardware sales are expected to blaze anew. One interesting sales sidenote is that Microsoft, taking a cue from its US Wal-Mart sales strategy, reached a first-of-its-kind agreement with the Lawson's chain of convenience stores (owned by Daiei, Japan's largest retail chain operator) to put Win95 (slimmed down owing to the absence of a bundled help guidebook) on the sales floor somewhere between the instant Japanese noodles and the magazine rack.
Creating a new market
It's not just Win95's operating convenience, but rather the features that are built into the OS and the demands on hardware that influence a company's development and sales of related products. With Win95's larger storage volume needs and its Plug&Play (PnP) feature, various peripheral makers should see sales gains.Mitsumi Electric, for example -- which, along with Sony and Matsushita-Kotobuki Electronics, is a leading maker of CD-ROM drives -- was running at full production in September and October, partly in anticipation of Win95. Orders were still outpacing production, though, so the company was gearing up to double production (to 1 million units) in the last six months of 1995. Mitsumi clearly stands to be a beneficiary of Win95's release, and its products have been mentioned favorably in various PC magazine reports on beta-phase testing of English-language Win95's PnP feature.
Melco, a comprehensive producer of PC peripherals, plans to adopt the PnP feature for all its products by the end of the year. The company is famous for its installed memory devices, and business in this area should get a boost from Win95's demands on memory capacity. High expectations also exist for HDD (hard disk drive) sales, a market that Melco only recently entered, but in which it has already made strong gains. The company's HDD-related profits have been rising in tandem with market growth, which means that the entry of a market-expanding product like Win95 is a welcome event.
Some will win, others will lose
In the area of business applications, Fuji Soft is a maker of control software for communications equipment, machinery, and PC peripherals. The company has begun to make drivers so that equipment like printers and HDDs can be supported by Win95. Additionally, it operates software sales stores, a business line that investment analysts predict will break even for the first time this year. Overall, the company's net profits are likely to double by the end of the March 1996 business term, and a good chunk of the increase will come from sales related to Japan's PC boom and Win95.Hoya is another company that stands to profit by attaching its wagon to the Win95 rising star. The company has already been doing well in one area: glass-based memory disks used in-hard drive applications. Sales of this product doubled in the March '95 business term. Expansion in the PC market, particularly notebooks, has pushed up demand for glass-based disks for HDDs, because their thinness offers an advantage over aluminum disks. Based on the cramped conditions of many homes and offices in Japan, and some 10 years of experience with portable wordprocessors, there's no reason why a sales push of notebooks geared to Win95 shouldn't be a huge success among space and convenience-conscious Japanese buyers.
Peripherals maker IO Data Device can also expect a boost from Win95. This company should see favorable growth in its RAM memory boards and graphics business lines over the next 1 to 2 years.
ASCII, whose sales base is 50% dependent on computer-related publications, has been chosen by Microsoft to be the official producer of the Win95 Japanese-language help manual. Microsoft has decided to forgo the bundling of a help guide with Win95, opting instead to include only the installation instructions. In the absence of a pre-packaged manual, users will have to rely on the help tips built into the software, or else buy a phonebook-size help guide. In addition to the Win95 guidebook (with the Microsoft logo affixed), ASCII will also be the official seller of Japanese manuals for Word and Excel. Amidst the ranks of similar publications overcrowding the bookstore book bins, though, it remains to be seen whether the prestige of having the Microsoft logo on the front cover will help set ASCII's publications apart from the competition.
While for some companies Win95 may be a rising tide to lift all boats, for other companies it may mean, at best, that already intense competition is simply carried to a higher sea level. At worst, it could lead to foundering. Such an outlook probably holds true for Star Micron, an electronics/printer maker that has been on an earnings skid for a few years and is desperately looking to get back on a positive sales track. One of the company's main business lines is exporting its own brand name dot matrix printer -- a product on its way to extinction -- to Asian countries. But it also sells ink-jet and laser printers on an OEM basis. If Star Micron can find a way to change its sales formula for printers (i.e., move away from dot matrix printers), then the company may be able to find its own shining star above an expanding market for printers. But if it fails to change the status quo, the company's printer business may recede further into the shadows cast by companies like Canon and Epson.
Less fun and games for dedicated game machine makers?
Until now, only a small fraction of users have viewed their PC as a preferred platform for games. DOS- and Windows 3.1-based PCs have been a poor match for the dedicated 32-bit, high-resolution graphics game machines sold by Sega and Nintendo (and, more recently, Sony). In 1994, only about 18% of PC software sales in the North American market fell into the family education/games/entertainment category -- and the figure was even lower for Japan. Wordprocessing and spreadsheet PC applications have taken precedence over everything else.Alongside the PC boom of the past two years were indications that Japan's PC users have been so busy using their machines for business-related purposes that they haven't even considered using them as game platforms. The one exception has been the adult entertainment software tailored for NEC's PC-98 series -- a market that, pretty much by definition, is composed mostly of young male users.
A potent brew of the Win95 OS and high-performance PC systems, though -- plus a dash of computer education in the Japan's schools -- promises to change, or even radically alter, how the PC is viewed in Japan. First, as a 32-bit OS, Win95 will offer the high speeds that game users have been used to getting out of their Super Nintendo and Sega Saturn systems. Graphics, too, will see a big improvement. Furthermore, as the release date for the Japanese version of Windows 95 has drawn nearer, various game and education software makers have begun retooling existing titles or setting up to release new series.
Koei, for example -- maker of a popular game series based on famous Japanese and Chinese historical figures and World War II-type action simulation -- is thought to be developing a new PC-compatible series (though the theme is, as yet, unknown). An estimate by the Okasan Economic Research Institute (ORI), the research arm of Okasan securities, predicts that 2 to 3 million Japanese homes may be equipped with Win95 machines by the end of next year. Thus, in virtually one fell swoop, a very sizable market for sales of PC-related game and entertainment software stands ready to open up.
Education catches up
Meanwhile, the high penetration rates of PC systems into Japanese schools is at last turning out a generation of youth trained in the ways of computer usage. According to the Ministry of Education, 78.8% of all schools (including 98.4% of junior high schools and 99.9% of senior high schools) had PC systems installed as of March 31, 1994, and about half of the installed school base is 32-bit machines. Most (about 70%) were either NEC or Fujitsu models, but some US-based makers have acquired a foothold. Uchida, which supplies about half the Japanese school systems with PCs, recently added both Apple and Compaq to its lineup. Forecasts are for steady share increases by these machines in the years to come.Information about OS use in schools is more difficult to come by, but Compaq and (at least, from this point forward) Fujitsu machines will be DOS equipped, thus providing a bridge to the Windows environment. Whatever is learned in the schools will increasingly be reinforced or augmented in the home as the PC continues to take up a natural position alongside the CD player and TV. An Economic Planning Agency study found that 15.6% of all homes had a PC as of April 1995 -- an installed base of 7.3 million units.
A wild card
Riding in out of the sunset to potentially wreak havoc on manufacturers of dedicated machines is Gamebank, a joint venture of Microsoft (40% ownership) and Softbank (60%) aimed at promoting the use of Win95 to run video games. Gamebank, which will also work on porting Softbank's accumulated stock of software titles to the PC, has set a goal of having 100 titles on the market in three years.Presumably, the response of the game console makers will be to develop more powerful machines and write more attractive titles to hold onto their customer base. Nintendo, which has 75% of the Japanese market and splits the US market with Sega, will start selling a 64-bit machine (the Nintendo Ultra 64) in the spring and is planning a new upgrade of the popular "Donkey Kong."
Unsurprisingly, the public face of Japanese game company officials displays no fear of the new kid on the block. Confident assertions are made that, like TV and radio, there will always be a market for dedicated game machines (though there appears to be a hedging of bets, as the addition of online databases and e-mail functions is being explored).
Time will tell
Unlike Windows 3.1, which was pitched heavily to the workplace, the promotion of Win95 is being directed more toward individual users. As the PC rapidly gains social acceptance outside the workplace in Japan, sales to individuals, as well as those going to businesses, look promising.For many Japanese PC-related companies seeking to expand sales, Win95's highly attractive coattails will be long indeed. Exactly how long, however, won't be clear until the end of May 1996. By that time, most Japanese companies will have announced their earnings results for the business term that includes the first four months of the Japanese domestic Win95 and related products sales campaign, and a full seven months of overseas sales activity. Watch for a follow-up and review of company performances in a summer issue of Computing Japan.ç
The author wishes to thank Okasan Economic Research Institute (ORI) for its substantial assistance.
