The Evolving Groupware Market in Group-Aware Japan

by John Boyd

Yet despite a clear home advantage, domestic groupware products like NEC's StarOffice, Fujitsu's TeamWare, and Hitachi's Groupmax have been struggling against the better known Lotus Notes, the IBM Lotus Development hit product. Now, they face further competition from new products being released by Microsoft, Novell, Hewlett-Packard, and Internet-star Netscape Communications.

Made-in-Japan groupware
Typically, groupware enables users to schedule meetings for each other, collaborate electronically, work together on documents, send e-mail, and route electronic forms through the enterprise. From reading the Western press, you might think that groupware first made its debut in 1989, with the introduction of Lotus Notes. While Notes has certainly established itself as the benchmark for this software category, groupware-like products actually have been marketed by Japanese mainframe vendors since the early 1980s.

NEC, for instance, introduced Aladdin, an early groupware application, in 1983. Aladdin, marketed under the then-popular rubric of Office Automation (OA) software, targeted customers of NEC mainframes and N5200 terminals. It offered users such network features as electronic mail, electronic document filing, and schedule-management functions.

In 1990, a beefed-up Aladdin II was migrated to Unix and OS/2 servers, and to the ubiquitous PC98. The third major upgrade came in 1995, when the name was changed to StarOffice. NEC's StarOffice now supports Windows NT, DOS/V, and the Internet. It includes sophisticated modules such as a work-flow component that lets users automatically route electronic documents through the enterprise, thus reducing the paper flow and the time it takes to process such documents.

Fujitsu talks of a similar development path. Currently, Fujitsu competes in the groupware market with its TeamWare product - software originally created by its British subsidiary ICL. Fujitsu localized TeamWare for the Japanese market and introduced it here in 1994.

Unlike its domestic-only competitors, TeamWare is marketed widely overseas. It is currently sold in more than 40 countries through a joint-venture company with ICL. According to Fujitsu, it had shipped 1.34 million TeamWare clients worldwide as of this February, with about one-third of these going to Japanese customers.

Hitachi, another noted mainframe manufacturer, can also point to OA products for host networks that it introduced in the 1980s. Hitachi began marketing its current groupware software, Groupmax, in 1995.

The groupware market
While domestic software vendors count accumulated Japanese market sales of their groupware products in the hundreds of thousands, Tsuneo Nakahata, director of groupware marketing operations for IBM Japan, says Lotus shipped 1.2 million copies of Lotus Notes last year, its first full year of marketing in Japan. "And we'll triple that this year," he predicts.

Shin-ichiro Wakahara, a software analyst with Dataquest Japan (of the Gartner Group), doesn't dispute Notes' success. "Lotus Notes' market share here is growing big," he acknowledges. Wakahara points out, however, that although Notes was number one in Japan in 1996 in terms of units sold, Fujitsu's TeamWare came out on top in terms of revenues.

Wakahara emphasizes that domestic vendors have so far been marketing mainly to their mainframe customers. "So their sales depend on their hardware share," he observes. "NEC doesn't sell to Fujitsu customers; Hitachi doesn't sell to NEC customers. But Lotus sells to everyone."

Simply tallying product sales doesn't tell the whole story. Masaaki Takahashi, a senior marketing manager in NEC's application software division, notes that groupware is only part of a much bigger business. "We don't get revenues only from product sales; we also get revenues from systems integration (SI) work," he explains.

In major groupware installations, for instance, Takahashi says that a rough pricing calculation could be as low as JPY 5,000 for each client, and JPY 10,000 per server. This compares to the company's entry-level SI package of one server and five clients retailing at JPY 240,000.

It's a similar story for others. IBM Japan's Nakahata says that "for every $1 of Lotus Notes I can sell, it generates another $7 of additional business, including hardware."

Notes [in Japan] is more popular with younger staff and less popular with older staff than in the US.

Lotus Notes came to international prominence when IBM bought out Lotus Development in 1995 for a record $3.5 billion. The lure for IBM was chiefly Notes: a combination of e-mail, collaborative software, and database functions, with the additional unmatchable ability to replicate data across a workgroup (an essential feature to keep everyone on track).

Today Notes is clearly the entrenched market leader, though Microsoft is finally drawing a bead on it with its own groupware product, the much-delayed Exchange. But Microsoft has a lot of catching up to do. IBM Japan's Nakahata claims that over 9 million Notes clients have so far been shipped worldwide, and he says IBM expects to double the installed base to 18 million in 1997.

One of the largest users of Notes is Andersen Consulting, which "has had Lotus Notes as a worldwide standard since about 1990," according to Dick Sullivan, a Tokyo-based partner with the business consultants. "At this point, we have between 40,000 to 50,000 user IDs worldwide; it may be more."

That's a lot of users. So many, in fact, that Sullivan says Andersen has concerns about the performance of its Notes network. The company has been pressing Lotus to increase the size of its user directory because Andersen keeps outgrowing it. But then, with 3,000 Andersen databases now in operation on this global network, you may have to expect occasional slowdowns.

Sullivan stresses one thing the company has learned is that it's vital to appoint specific "knowledge managers" to act as "librarians" and oversee each of the databases. Without such management, problems like information overload quickly arise, making it impossible to locate the information required. Or else the opposite happens, and a database may die through lack of use.

Though Sullivan can't point to any quantifiable financial benefits from using Notes, he says Andersen is producing better proposals and using its people and technology resources better. "We think the quality of our response to clients has gone up a lot, and that has been a significant factor in our selling success. Notes," says Sullivan, "has to be viewed as a strategic tool."

One difference he has noticed, both inside Andersen Consulting in Japan and with Andersen's Japanese clients that have implemented Notes, is that Notes is more popular with younger staff and less popular with older staff than in the US. "One reason is that it seems to be something of a status symbol," says Sullivan. "Almost like the mobile phone. You get access to a lot of information, and you see your company is investing in you."

This difference makes it important, Sullivan explains, to get the older staff in the company - especially higher management and executives who often don't feel it's their job to use a computer - to adopt Notes first. "Otherwise, they get in the habit of grabbing young employees to send notes for them - just like a secretary. But if we start rolling Notes out at the top, they have no choice [but to learn it]." By contrast, Sullivan says that in the US it's common to roll out Notes from the bottom up.

However the proprietary groupware versus Internet groupware battle eventually pans out... Notes will continue to gain market share by building on its momentum.

Dataquest Japan's Wakahara makes similar observations. "I don't believe most Japanese use all the features of Lotus Notes," he says. "And some implementers are not able to customize it to suit their customers' needs, so some users are not satisfied." In this regard, Wakahara says Fujitsu, NEC, and Hitachi are generally doing a better job of customizing their groupware products to meet customer requirements.

At the next level
Such complexity and cost are causing some in the industry to predict that, eventually, corporate intranets will take over the groupware functions now handled by Notes and its competition. This is not about to happen overnight, of course. Sullivan says Lotus Notes' advanced functionality cannot easily be shifted over to the Internet by software vendors right away, "but in the long run, the browser will be easier to deal with, and to interact with the [office] backend and databases like Oracle," he adds.

IBM Japan's Nakahata argues that Lotus Development has already moved to meet this threat by incorporating Internet protocols like HTTP, HTML, and Java into Notes. Now, Notes users can deploy Lotus Domino, an integrated Notes and web server, and access Notes data using an Internet browser.

Naturally, Notes' competitors have also integrated, or are integrating, Internet support into their products. Shin-ichi Sugihara, country manager for Netscape Communications Japan, however, contends that as a latecomer, Netscape's groupware client, Communicator, and its groupware Enterprise Server (both due out this summer in Japan) have an advantage over the established competition. Netscape's products, he points out, are based from the ground up on Internet technology.

"Our competitors' products may have added gateways to the Internet, but they are still proprietary systems," says Sugihara. "We offer an open platform aimed at heterogeneous environments." The result, he says, is that you will see a big difference in implementation, performance, and price.

The groupware future
However the proprietary groupware versus Internet groupware battle eventually pans out, for the time being, Notes will continue to gain market share by building on its momentum, forecasts analyst Wakahara. Given its popularity, he suggests that business groups among the mainframe vendor competition will have to offer Notes as part of their systems integration and solutions businesses, thereby helping Lotus further boost its sales.

But Wakahara doesn't see the rest of the overseas competition doing as well. He predicts that Microsoft will have problems making significant headway in Japan in the near future with Exchange. "They don't have the channels [or] the systems integrators."

For similar reasons, Wakahara doesn't believe Hewlett-Packard Japan (HPJ), with its OpenOffice groupware, and Netscape will see much short-term success. However, if Netscape or HPJ were to establish a joint-venture with some of the major computer vendors, that could change, he adds.

Novell, on the other hand, may be somewhat better placed to get its GroupWise product off the ground in Japan. "Novell has good distribution and good channels, so it may sell to smaller companies," says Wakahara.

One thing all observers agree on is that groupware is changing the way Japanese firms go about their business. At Andersen Consulting, for example, Sullivan says more meetings are now being conducted electronically. And IBM Japan's Nakahata says big Notes users like Ricoh, Mitsubishi Chemicals, and Komatsu are using Notes to reach out to suppliers and subsidiaries. "They are finding they can reduce the number of general meetings they hold because of e-mail and the network, and can spend more time focusing on specific issues."

At NEC, which has 50 servers interlinked with its StarOffice groupware and upwards of 30,000 clients, it is a similar story. Not only are the number of certain kinds of meetings being reduced, but the paper-based reports that used to follow these meetings are gradually giving way to electronic reports, says NEC's Takahashi.

Clearly, groupware is establishing itself as another key software category in Japan. Perhaps the biggest question regarding groupware's future here is not whether domestic products can compete effectively with market leader Lotus Notes, but whether today's proprietary groupware products can maintain their independence against the onslaught of the Internet.

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