TT-738 -- Changing Web Business Models for Japan, e-biz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, Dec 08, 2013, Issue No. 738

+++ INDEX

- What's New -- Changing Web Business Models for Japan
- News -- Social security costs rise another 2.7%
- Web Content/Tech Job Vacancies
- Upcoming Events
- Corrections/Feedback -- PMCs are start of slippery slope
- Travel Picks -- Kyoto Tsuru-kame Garden, Kintaikyo Bridge in Yamaguchi-ken
- News Credits

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+++ WHAT'S NEW

It's always interesting to see how foreign business models that have
done well overseas by breaking new ground will do here in Japan.
Usually such businesses are from the sector most responsible for
shaking up our world these days -- the Internet. It's no accident that
most of these companies come from the USA, where extreme funding
opportunities allow them to buy massive numbers of online users with
compelling value propositions, and thereby leverage or disenfranchise
traditional service providers in the same sector. Think of the hotel
industry to see just what effect this can have. How many of you do NOT
cross-check Expedia, Booking.com, or Agoda.com when checking the
prices and room availability on a hotel's own website?

Another great example is Groupon, the couponing company that offers
subscribers a 50% or larger discount on restaurants, massages, and
other services, and of the remaining 50% takes half as a commission.
Groupon surged into the Japanese market with the purchase of a local
company, QPod, back in August 2010 and kickstarted (although a
now-defunct local player, Piku.com, started the scene here) a
discounting revolution in the restaurant business. Or, so they thought
at the time. However, the idea that a restaurateur would be happy with
just 25% of the normal pricing AND have to service new customers
chasing deals pouring in through the doors was just too much to ask of
this mostly conservative group.

Yes, Groupon is a great marketing idea for service businesses to get
attention, but unless it leads to repeat business the merchants
quickly realize that they are just fodder for Groupon's marketing
machine -- and thus the Groupon model is eventually bound to fail.
Groupon doesn't break out its Japan revenues in its financial reports,
but given that all of EMEA is not doing well and it is only expansion
in the USA that is carrying the stock, we imagine that Groupon is
going to have to change its model. Indeed, back in the USA, Groupon
has already admitted publicly that it needs to take a smaller share of
the revenue to continue attracting merchants. Numbers of 30%-40% are
being bandied around, instead of 50%. Eventually we think the
acceptable commission will fall to around 5%-15% -- much the same as
auction sites.

Groupon's newest service, a marketplace that lets local users search
for local deals, will most likely be more successful here, so long as
Groupon agrees to price that marketplace differently. Because the
buyers are local, instead of delivering hoards of deal chasers,
Groupon will instead be delivering to restaurants customers who are
more likely to be repeaters and thus be of long-term value to these
local advertisers. We wait with interest to see how things play out
for this new market.

[Continued below...]

---- ISETAN-MITSUKOSHI DEPARTMENT SURVEY - LAST NOTICE ----

TAKE THIS 5 MINUTE SURVEY ABOUT SHOPPING IN JAPAN AND WIN GREAT PRIZES

We would like to hear from you to improve Isetan-Mitsukoshi Department
Store's foreign customer service. Please take 5 minutes to complete
this survey and you could win a JPY10,000 Gift Card from
Isetan-Mitsukoshi (10 Winners) or a JPY1,000 Starbucks Card (150
Winners). Isetan-Mitsukoshi Department Store would make all possible
efforts to reflect your opinions and to make shopping experience for
foreigners a better one.

To read more details and take the survey, please go to:
http://ja.japantourist.jp/survey/isetan-mitsukoshi
-----------------------------------------------------------

[...Article continues]

Soon to hit our shores will be crowdfunding. In the USA, as we have
noted previously, "crowdfunding" is actually a misnomer, because out
of legal necessity companies operating such funding platforms had to
make the "funding" either a donation or a product/service purchase. So
in this respect the person providing the funds is essentially paying
for the entertainment of watching a company receive money, develop its
product, then either go commercial or go out of business. We never
really thought this would fly in Japan, it smacks too much of asking
the funder to be a sucker for unscrupulous or inexperienced business
aspirants -- and the chances of getting value for your money is low.
In other words, you could get just as much entertainment rolling a
JPY500 coin down Dogenzaka hill in Shibuya, and watch people run after
it.

Rather, what will make crowdfunding take off in Japan is the ability
for individuals to invest small amounts of money in real companies
operating under real laws and with real stock to sell. Yes, this will
by necessity involve more paperwork and take away some of the
convenience and spontaneity of crowdfunding sites, but in return it
will give the funder a real opportunity to get something in return,
and this is something that business-minded individual Japanese
(otherwise known as the nation's Mrs Watanabes) are used to.

Actually, the same metamorphosis is going on in the USA as well, where
the Jumpstart Our Business Startups Act signed back in 2012 is
starting to take shape. Now everyone is waiting for the Securities and
Exchange Commission (SEC) to finish up on its rules so that the race
can start. Our best guess is that the crowdfunding provisions will be
in place mid-2014, and thereafter companies will be able to raise up
to US$1m on their favorite crowdfunding platform. Interestingly, VCs
will also be able to raise funds the same way, to make their own
investments outside the public marketplace. We'd love to see this kind
of VC come to Japan -- which we think is likely, since the Japanese
authorities seem to be indicating that they are going to model their
regulations on the JOBS Act. If so, we could see a major shake-up in
the volume and funding levels of start-ups in Japan by 2015.

The third business model we want to look at today (of course there are
dozens of others), is that of hotel booking websites in Japan. You
have the major players here such as Rakuten and JTB, while the foreign
interlopers are Expedia and Booking.com. When the two foreign firms
first arrived in Japan, they tried hard to break into the huge
domestic bookings market, but quickly found that it was almost
impossible to offer deals when the incumbent competitors had fifty
times the number of hotels to offer. Consumers want convenience as
much as they do price.

As a result, both foreign firms decided to stick to their knitting and
offer Japan's 17m outbound travelers great international deals,
through their substantial off-shore networks. Built on strategic
partnerships with most major travel sites, both companies now pretty
much control the outbound online hotels booking market. Where the
adjustment to Japan has come in for both of them is that they are now
reinvesting their local earnings to substantially build out their
inventory of local hotels as well -- with the eventual goal of having
a similar inventory levels to JTB and others, while using their
superior technology to whittle market share. Both companies are making
good progress in signing local hotels, and Booking.com in particular
has a large team out approaching Japanese hotels and ryokan. The
challenge is in getting the Japanese establishments used to the idea
of paying higher fees than the locals charge, but the benefit of
signing is that they can then tap into the flood of inbound foreigners
as a bonus.

What is common across these three examples is the fact that
"localizing" to be successful in Japan means first and foremost being
convenient and useful to the stake holders over a long period -- this
means building large inventories and easy-to-use websites and
purchasing methods. Then there is the need to keep margins acceptably
low so that there is no real reason for a consumer to go to a
competitor, thus creating a pool of loyal repeaters. Square is
learning this importance of this in their tussle with Softbank/PayPal
over the small merchant credit card payment systems business.

Perhaps lastly, it is fair to say that where foreign companies abroad
have traditionally made high margins and need to continue making them
to stay in business, then they need to be looking at customer sectors
that can afford the premiums involved and where loyalty once built is
strong. We think general consumers like pet owners fall into this
category, as do health and fitness fanatics. Conversely, small
business people such as restaurateurs definitely do not fall into this
category. Salesforce.com learned this reality the hard way a decade
ago. Rather, these small businesses are under extreme pressure from
competition and reduced customer spending, and unless the online
solution can make an immediate impact on their bottom line, they will
see any new business model involving their making a significant new
investment as buying snake oil.

In this respect, the idea of doubling down one's investment in
marketing in the hope of trading out of difficulty appears to be a
Western (perhaps uniquely American?) idea and is the antithesis to
Japanese small businesses.

**************

Sharp eyed readers may have noticed that the travel extracts we run at
the end of each newsletter seem to have changed domain names. That's
because they have. As of last Friday, JapanTourist opened a new travel
domain, www.japantravel.com. Although the JapanTourist team loves the
name it already had, they were unable to convince the current owners
of the dot.com version to part with their URL, and so started the hunt
to register or buy something else. The search turned up an impossibly
better name, considering the site is focused on inbound travel to
Japan, and the decision to switch was not difficult to make. Visits to
the old domain, www.japantourist.jp, still work, through redirects, or
you can go directly to the new domain at www.japantravel.com.

...The information janitors/

----------- THAI'S NEWEST DESTINATION - SENDAI ------------

On December 3, 2013, THAI launched flights to Sendai, direct and
non-stop from Bangkok. Sendai is the capital city of Miyagi
Prefecture, situated in the heart of the scenic Tohoku region. THAI's
new flights now operate non-stop from Bangkok every Tuesday, Thursday
and Saturday, with TG680 departing Bangkok at 23:59 and arriving in
Sendai at 07.55 on the following day. The return flights operate on
Wednesday, Friday and Sunday, with TG681 departing Sendai at 10:30 and
arriving in Bangkok at 15.40.

For ticket reservations, please visit www.thaiairways.com or call
THAI's Japan desk at 0570-064-015, or the international Contact Center
at +66-02-356-1111.
---------------------------------------------------------------

***------------------------****-------------------------***

+++ NEWS

- Secrets law is passed
- Figure put on cost of child abuse
- Square versus PayPal in Japan
- Social security costs rise another 2.7%
- High-end property firm to double assets in Japan

=> Secrets law is passed

In a sad day for freedom of speech and government transparency, the
Abe government has rammed through legislation that allows ministries
and agencies to classify 23 types of information as secret, and
disclosure of them punishable with prison, almost indefinitely. Abe
says that the measures are needed so as to ensure uninterrupted flow
of intelligence from the USA, but the measures passed are extremely
broad and threatening. Critics say that the vaguely-worded bill could
include almost any type of information and is likely to gag Japan's
investigative media. ***Ed: In particular, this bill could be used to
protect the likes of TEPCO should anything go wrong at the Fukushima
power plant -- which is definitely NOT in the public interest.**
(Source: TT commentary from aljazeera.com, Dec 7, 2013)

http://alj.am/1gh0YBY

=> Figure put on cost of child abuse

It boggles the mind to think how a researcher would draw the line on
related costs, but nonetheless, the first study of its kind in Japan
has found that child abuse costs Japan at least JPY1.6trn a year (as
of FY2012) -- mostly in the form of lost productivity by the victims
as they grow up. The methodology seems to follow similar studies
conducted in the USA and Australia, and includes direct costs such as
child counseling and welfare facilities, as well as indirect costs
such as suicides, mental care, welfare benefits, and the
aforementioned reduced productivity. Of the JPY1.6trn, a mere JPY100bn
is direct costs, with the rest being the indirect ones. (Source: TT
commentary from asahi.com, Dec 8, 2013)

http://bit.ly/198TwEO

=> Square versus PayPal in Japan

Merchant credit card transactions are increasingly moving on to mobile
devices, of which tablets and smartphones are the primary choices. To
allow merchants to process customer cards, the new low-end devices are
coming from two major suppliers: Softbank, which is selling PayPal's
smart-phone card readers, at 3.24% commission per transaction, and
Gurunavi and Sumitomo Mitsui Card, who sell and service Square's
readers for 3.5%-8% (depends on company size) per transaction. Both
companies are compelling choices for small merchants, saving them
about JPY200,000 on the cost of a normal card reader and clearing
service. ***Ed: This is a good article, with lots of detailed figures
on the credit card spending in Japan versus the USA.** (Source: TT
commentary from bloomberg.com, Dec 6, 2013)

http://bloom.bg/1ctHiaq

=> Social security costs rise another 2.7%

With statistics already two years old and therefore suggesting that
things are even worse today, the National Institute of Population and
Social Research has just announced that FY2011 social security costs
rose 2.7% over the year earlier, to JPY107.495trn (US$1.04trn). This
is equivalent to the spending of JPY841,100 for every man, woman, and
child in the country. The money was spent on pensions, medical, family
welfare, Tohoku relief, and other items. Pensions and health care for
the aged accounted for most of the increase, with health care in
particular increasing 3.5% to JPY34.634trn. Pensions accounted for the
bulk of the spending, though, at JPY53.623trn, up 0.2% over FY2010.
***Ed: Given that the dankai generation is now pretty much all
retired, we imagine that the numbers for JPY2013 will be up another 5%
at least.** (Source: TT commentary from asia.nikkei.com, Dec 7, 2013)

http://bit.ly/18gnxUC

=> High-end property firm to double assets in Japan

Interesting article in the Nikkei about UK real estate developer,
Grosvenor, and their plans to double their portfolio here in Japan to
JPY120bn. The company specializes in high-end rental properties, such
as the Grosvenor Place Kamizonocho next to Yoyogi Park, which
reputedly offers the most expensive apartments in Tokyo. Apparently
Grosvenor is bullish on Japanese high-end real estate because of
strong demand from both Japanese and other buyers in Asia. As the
Nikkei points out, prime residential real estate in Tokyo is actually
cheaper, at JPY7m/3.3m2 than Singapore (JPY8m/3.3m2) and Hong Kong
(JPY15m/3.3m2). (Source: TT commentary from asia.nikkei.com, Dec 6,
2013)

http://bit.ly/Iz1w83

NOTE: Broken links
Some online news sources remove their articles after just a few days
of posting them, thus breaking our links -- we apologize for the
inconvenience.

----------------- Travel Writing Rewards ------------------

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published for millions to read? Write about your travels in Japan and
get free rewards in return from www.JapanTourist.jp, the leading
English tourism website about Japan. Post your articles and photos to
receive points which can be redeemed for items such as traditional
Japanese food, T-shirts and even plane tickets. Whether sipping coffee
at a cafe, hiking a secluded mountain, or visiting an electric
festival, JapanTourist is the best place to relive your experiences
and receive gifts in return. Go to www.japantourist.jp for more
information and to read the thousands of articles written by
contributors.

www.japantourist.jp

***------------------------****-------------------------***

+++ WEB CONTENT/TECH VACANCIES

=> Are you in web content or engineering? If so, this section is for you.

** HIGHLIGHTED POSITION

- Experienced Sales Manager

If you have experience selling media, software, or other intangibles
and are bilingual (Japanese and English) and looking for a place to
grow, Japan Inc. Communications is looking for a sales manager to lead
its new media sales team. The role will be to develop the market for
our media products, the largest sites of their type in Japan, and to
grow the sales team to 6-10 people over the next 12 months. The role
involves selling to clients in Japanese, while English is the primary
language in the office. The position is open to anyone with 3-5 years
relevant experience. If a non-Japanese, then visa sponsorship is a
possibility for the right person.

Friendly team, interesting technology, incentivizing remuneration
package, and varied work are all part of the opportunity. Please send
your resume to info@japaninc.com.

** OTHER MEDIA POSITIONS VACANT

- Bilingual account manager for major tourism portal
(www.japantourist.jp), JPY3M - JPY5M
- Bilingual sales trainee for web media properties, JPY2.5M-JPY3M +
10% commission
- English-only experienced PHP Zend software developer, 5 years
experience, JPY3.5M - JPY5M

Interested individuals may e-mail resumes to: jobs@metroworks.co.jp.

-----------------------------------------------------------
***------------------------****-------------------------***

+++ UPCOMING EVENTS/ANNOUNCEMENTS

---------------- Start a Company in Japan -----------------

Entrepreneur's Handbook Seminar 15th of February, 2014

If you have been considering setting up your own company, find out
what it takes to make it successful. Terrie Lloyd, founder of over 17
start-up companies in Japan, will be giving an English-language
seminar and Q&A on starting up a company in Japan.

This is an ideal opportunity to find out what is involved, and to ask
specific questions that are not normally answered in business books.
All materials are in English and are Japan-focused.

For more details: http://www.japaninc.com/entrepreneur_handbook_seminar
-----------------------------------------------------------
***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

=> Last week in TT737, we postulated that Japan should turn to Private
Military Companies (PMCs) to get its overseas defence work done, since
getting changes to the Constitution to otherwise allow the nation to
do its own military forays abroad will take a long time. We don't
necessarily agree that Japan should move to a more militaristic
footing, but with China pushing the Japanese the way it is, we think
such a movement is inevitable.

In response, a reader in the USA points out to us that the assignment
of tasks to a PMC is the start of a slippery slope...

*** Our reader says:

I continue to enjoy and much appreciate your (almost) weekly updates
and insights into Japan. It contributes meaningfully to retaining a
sense of connection from my now long past 13 years there.

I was intrigued by your commentary on DaaS... and wanted to offer a
different perspective which, for many of us here in the US, is a
growing source of alarm and discomfort - that being the "outsourcing"
to private companies of certain core functions that were formerly the
exclusive domain of government. As you yourself noted, the U.S. is
leading the world in private contracting of military services. We are
also doing that with prisons and (under relentless pressure for the
last decade) to schools.

Unfortunately, we are learning in the U.S. that unregulated and
unrestrained capitalism does not operate for the benefit of the
greater society and that when corporatism is abetted by a political
system that falls under its thrall (Citizens United, campaign
financing, the K Street machine are all examples), it will follow the
dictates of its "DNA" which is to prioritize with some ferocity the
concentration of wealth for owners. Left to run its course they (the
"owner-class", the "one percent", call them what you will) become, de
facto, the government.

So... if you outsource military, prisons, and education you get:

a) A continuous state of "war" and military engagement globally and a
government financially unable by virtue of military spending to
prevent the descent of its middle class into the lower class.

b) The world's largest prison population (surprise) by far, not only
on a per capita basis but possibly in absolute terms, since we cannot
know China's.

c) An education system that sucks funding and resources away from the
public schools - which are all that is available in the inner
cities/low income zones where the non-owner class reside - and which
perpetuates the lowest common denominator standards for these
childrens' education and reinforces the opportunity divide. For those
who live in the "right" (pun intended) zip codes, Charter schools run
for-profit and service the children of the owner class with
well-trained, well-paid teachers and well-endowed facilities. The few
exceptions (low income area Charter or turned-around public schools)
are not slowing the relentless slide in educational standards and
outcomes nationally.

All of the above, however, is "good for business". More war means more
profits for Halliburton, Blackwater (Xe, ACADEMI) and a host of other
war profiteers masquerading as service companies. More crime (or
spurious incarceration) means more prisoners which means better
profits for the subcontracted for-profit prison operators. More
failure to deliver acceptable education by the strangled public school
system means more Charter Schools and diversion of tax payer dollars
into the hands of their private operators.

And, of course, since this is America, we don't have to wonder how
"appropriate" will be the compensation of the CEOs and senior
executives of these private contractors... nor how much money the
gnomes of Wall Street will earn from arbitraging their stock prices.

It is actually quite scary what is happening here. Not something to be
emulated. Japan has its own challenges with mobilizing its electorate
to tilt its democracy toward true national interest and history does
not show Japan being well served by an elevated collusion between the
government/military and industry.

Sorry for the rant.

BTW, just in case you have not already been hooked, I am sure you
would enjoy and find interesting the books of Daniel Suarez (Daemon,
Freedom, Kill Decision). Very thought provoking... and fun to read.

***------------------------****-------------------------***

--------- "Operation Philippines" Disaster Relief ---------

The Japan Emergency Team announces "Operation Philippines", its 89th
Disaster Operation since 1989 when the team was formed by 38 students
from Tokyo`s Chuo University. Typhoon Haiyan is the strongest Typhoon
to hit the Philippines. There have been over 5,000 confirmed deaths
and more than 11 million people have been affected by the disaster.

The team and partners are on the ground and are urgently requesting
emergency supplies including canned and instant food, powdered milk,
bottled water, tents, sleeping bags, used tablet and laptop computers,
towels, soap, shampoo, home medical kits and donated airline miles for
team members to travel to the area. In addition, individuals able to
spend a minimum of three days are asked to contact the team for
information on being a volunteer on site.

Cash donations can go to: Postal Furikae 00160 7 162438 Nihon Kinkyu
Enjotai, while supplies, airline miles, and other donations and
enquiries can be initiated by contacting team@jhelp.com.

-----------------------------------------------------------

+++ TRAVEL DESTINATIONS PICKS

=> Kyoto Konchi-in's Tsuru-Kame Garden
Prominent Garden Designers - 2 Kobori Enshu

Garden art is three-dimensional art. When we walk around a garden,
touching the trees, smelling the flowers, and enjoying it from various
angles, all aspects are a real pleasure. But when we look at a garden
from a room, it is just like seeing a picture scroll through a window.

Experts say that if it could be defined by a painting, Konchi-in's
Tsuru-Kame Garden would correspond to the "Wind and Thunder Gods"
(originally painted by Sotatsu Tawaraya) that was created at almost
the same period in history. Why? One key point is that both placed a
big open space between two important subjects.

Passing through the entrance, a stone pavement leads us to the outer
garden by a pond. Then we are brought directly toward the inner shrine
of Tosho-gu, where the hair of Tokugawa Ieyasu is enshrined. Tosho-gu
Shrine is a mausoleum where prayers are offered to Tokugawa Ieyasu
(the first Shogun of the Tokugawa Shogunate) in a way similar to the
great Nikko Tosho-gu Shrine. Here in Kyoto, there are stone steps that
lead down to Hojo Hall behind Tosho-gu. This brings us to Tsuru-Kame
Garden, which opens widely in the foreground...

http://en.japantravel.com/view/kyoto-konchi-in-s-tsuru-kame-garden

=> Kintaikyo Festival, Yamaguchi-ken
Traditional parade & event at Iwakuni's famous bridge

Kintaikyo bridge is one of the most famous structures in this part of
Japan. It has been rebuilt many times to keep the original design
which was built entirely of wood without the use of any nails. It was
most recently reconstructed in 2004 and was so expensive that there is
now a small fee to cross the bridge.

Annual festival held at the famous Kintaikyo Bridge in Iwakuni. The
highlight of the event is a reenactment of the departure of the local
daimyo, or lord, and his entourage for far-off Edo, a requirement of
the sankin-kotai system imposed by the Tokugawa Shogunate. The parade
of men and women dressed in colorful period costume usually cross the
bridge at around 2pm.

http://en.japantravel.com/view/kintaikyo-festival

***------------------------****-------------------------***

***********************************************************
END

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+++ ABOUT US

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Written by: Terrie Lloyd (terrie.lloyd@japaninc.com)

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