<<<< Japan High-Tech Update>>>>
A monthly review of the latest developments in Japan’s IT, telecom, and life sciences sectors

June 2002 - Volume V, Issue VI

Triangle Technologies is the leading Japan Israel business development and investment advisory firm
www.triangletech.com

Dan's Desk

From Triangle's CEO

+SKIN IN THE GAME

Well, the deals keep coming in, despite the "matsav" ("situation"). We closed the Given Imaging JV with Marubeni and Suzuken, the strategic alliance of Exent with Fujitsu (took over a year to do the deal), Intelligent Wave's $.5 mio investment in Cyota, and have a few strategic investment and marketing deals closing in June and July.

As we were finalizing one new Japan Desk contract the other day, the very prominent and experienced CEO of our new JD client thumped on the table (well he did not actually "thump") and said, "We dont want any Japanese partner that isnt willing to put some real skin in the game!!" That comment made me think about the importance of Skin In The Game (SITG) because my initial reaction to him was "Yeh, right on." But when I looked over the few dozen relevant deals we have done, the correlation between firm cash commitments - SITG - and sales revenues is not positive, not negative, but about ZERO. Our most successful deals in terms of sales did not have ANY SITG, and our two biggest flops DID have SITG. Our standard distribution deals have a MODICUM of SITG, and seem to be going quite well. HUH!?!?!

This made me think.... Every start up likes early revenues and the fastest way to rev up revenues is to get a partner to put SITG - it beats having to deliver (sorry, cheap shot). Seriously, when I dig a little bit deeper, I begin to think that SITG is a proxy for Something Else (SE), and that SE is the "motivation and ability to sell". So that SE, what we are REALLY looking for, are (no big surprises here):

Here is the catch - a lot of change in Japan is "relencremental" - relentlessly incremental (I just made that up). That means that small investments, subsequent trial and error on a small scale (remember, failure is bad), with initial small successes freeing up incrementally larger investments, larger successes, etc. etc.. When it works, it never stops, but keeps on rolling, for generations. Because it keeps on rolling, the Japanese affiliate sometimes outstrips its US counterpart (Yahoo?! Seven Eleven?). Innovation and investment come in later stages, when risk is moderate. The result is that if the marketing partner puts SITG, then they may not have other resources available for hiring sales and technical staff, demand creation, localization etc.. And the LATTER is can lead to failure. I have seen several such situations already - it is beginning to be a pattern.

So the REAL issue, the REAL SE (Something Else), then, is how to guarantee that your Japanese marketing partner is making the initial investment in the marketing and sales infrastructure, and how to assess his ability to keep the investment commensurate with the market opportunity, and then how to motivate your partner well.
More on this in the next DD's, and remind me to tell you about the Sucker Complex...

Good luck,

Dan

***ISRAEL-JAPAN NEWS***

+AUDIOCODES CLOSES WITH OKI ELECTRIC

Audiocodes, developer of VoIP transmission solutions, signed a cooperation deal with OKI Electric, Japan’s largest manufacturer of communication devices. Under the agreement, OKI will integrate Audicodes’ IPM-28 communication pane in its systems.

+HP INDIGO SELLS TO TOPPAN FORMS

HP Indigo has announced that it will sell 5 of its roll-fed printing machines to Toppan Forms, one of the world’s largest providers of knowledge management services and business forms.

+ZORAN AND NEC IN STRATEGIC PARTNERSHIP

Zoran Corporation (Nasdaq: ZRAN) and NEC Corporation announced that they have signed a strategic agreement in order to deliver high quality, affordable DVD recording solutions for consumer electronics manufacturers producing DVD recorders.

+NTT COMMUNICATIONS CHOOSES CHECKPOINT

Check Point Software announced that Japan-based telecommunications provider NTT Communications Corporation will incorporate Check Point Provider-1 and FireWall-1 into its new managed security "OCN FireWall Management Service”.

***BUSINESS NEWS***

+JAPAN MOBILE USERS FORECASTED UP 20%

According to Gartner Japan, the number of cellphone users in Japan is expected to grow by 20% by 2006, as operators expand their subscription base by keeping churn rates low. Subscribers are projected to reach 83.96 million in that period. Voice and data transmission generated revenues will also increase, Gartner Japan said.

+DSL USERS PASS 3 MILLION MARK

The telecommunications ministry said that the number of subscribers to DSL high-speed Internet access services has surpassed 3 million for the first time. The number of subscribers stood at about 3,020,900 at the end of May, an increase of 329,000 subscribers over the previous month.
The steep increase in recent months has been led by strong demand for ADSL services triggered by the Softbank Corp. group's launch in September of services at a basic monthly fee of 2,280 yen.

+KDDI GETS 334K NEW 3G USERS IN FIRST MONTH

KDDI, Japan’s second largest wireless network operator, has surpassed its initial projections by signing 334,000 3G subscribers in the first 30 days in which the company has offered 3G voice and data services.

+J-PHONE TO START 3G TRIAL IN JUNE

After twice postponing its 3G launch to December, Japan Telecom Co.’s mobile phone unit said it plans to begin offering a 3G service on a six-month trial basis in Tokyo and certain other areas in Japan on June 30. J-Phone said it would distribute two 3G handset models, and offer voice communication services, and data transmission services between personal computers handsets.

+KDDI, S. KOREA’S SK TO LINK MOBILE PHOTO SHARING,

Mobile phone users in Japan will be able to share still photos with their South Korean counterparts after the start of the World Cup. Japan’s KDDI Corp. and SK Telecom, the largest mobile telecommunications firm in the Republic of Korea (South Korea), will be the first firms in the world to offer international compatibility for photo transmission.

+E-COMMERCE RANKING REVEALS FEW SITES’ DOMINANCE

Nikkei NetBusiness released a ranking of e-commerce sites in Japan. The survey shows that most business fields are dominated by one Website. For example, Yahoo! controls about 75% of the market for online auctions, Rakuten Ichiba dominates online malls, and Amazon is the controlling force for online booksellers. Competition is rife is in home electronics and PCs, with the two leading sites controlling a combined 10% of the market, and in online music stores.

+SURVEY SHOWS REGIONAL GAPS IN INTERNET USE

A regional digital divide exists in Japan despite government efforts to spread Internet use, according to a recent telecom ministry survey on household consumption. The region with the highest concentration was Kanto, centered around Tokyo, with 53.7% of households reporting internet devices. Okinawa and the southwestern area of Kyushu reported the lowest concentrations, at 35.7%. The Kanto was followed by the Tokai region, (50.9%), the Kinki region (49.9%), and the Chugoku region (49%).

+FAST FOOD RESTAURANTS, GAS STATIONS USE HOTSPOTS TO WOO CUSTOMERS

Wireless LAN 'hotspot' providers are teaming up with fast food chains across Japan. McDonald's and Mr. Donut will use Softbank's services, while Mos Burger plans to expand its services with NTT Communications from the current 40 stores to 150 in June. Meanwhile, Sumisho Oil, in cooperation with @Venture, has launched Japan's first wireless LAN service at gas stations: drivers can receive 8 Mbps service free when they bring their PCs with WLAN cards. Sumisho is currently providing this service at two gas stations, and plans to expand it to all 300 gas stations.

+TOKYO SMART CARDS TO REPLACE CASH?

Japanese commuters have embraced smart contact-less IC travel cards, with two-thirds abandoning their old passes in the last six months. Japan's largest train company, JR East, hopes that one day, the cards will even replace cash. Since the introduction of the cards last November, 3.6 million out of the 4.5 million Japanese who use commuter passes on JR East's network are using smart cards.

+JAPAN RINGTONE MARKET $30 MILLION

According to the Japan Society for Rights of Authors, Composers and Publishers’ (JASRAC) annual report, consumers spent $30M in royalties (not including distributor fees and connect times) for ringer tone music for their cell phones. JASRAC says that users downloaded more than 60M tunes each month

+35% OF FIRMS MONITOR E-MAIL

According to the Japan Institute of Labor, over 35% of local companies monitor the e-mail records of their employees. Apparently 40% of the 267 companies surveyed said they have email usage policies and that 75% of these ban the private use of company e-mail.

***GENERAL TECHNOLOGY NEWS***

+GPS HANDSETS SET TO BE A HIT

KDDI’s new GPS handsets have been a hit since their inception in March. NTT DoCoMo, having seen these handsets’ popularity, is expected to follow suit and start marketing its own new GPS handsets.

+DOCOMO RELEASES INNOVATIVE NEW HANDSETS

DoCoMo’s new "504i" series phones beam data via infrared technology to other specially equipped handsets, multimedia devices and cash registers. These cellphones feature data transmission speeds of up to 28.8 Kbps, three times faster than current DoCoMo devices. Future models are planned to include cameras to compete with J-Phone’s services.

+DOCOMO TO TEST NEW VIDEO-CONFERENCING PLATFORM

NTT DoCoMo has announced that a DoCoMo-led consortium will conduct field trials on a newly developed FOMA mobile communications platform that enables numerous people to participate simultaneously in mobile videoconferencing. The trials will involve more than 35 companies from a variety of industries, with testing to take place May 31-September 30, 2002.

+KDDI, OTHERS SUCCEED IN IP COMMUNICATIONS BETWEEN 3G, WLAN

KDDI Corp., KDDI R&D Laboratories and Cisco Systems KK said that they have succeeded in testing seamless data communications between different wireless communication technologies in a running car. The test was successful in switching between KDDI’s 3G cell phone system and wireless LAN technology. IP data communication service continued seamlessly in a moving car equipped with a wireless LAN terminal connected to the in-car mobile router.

+KDDI STARTS FIXED-MOBILE CONVERGENCE SYSTEM

KDDI Corp. announced that it will start a new e-mail service, "EZ de Dion Mail," in early July, which links its Internet access service "Dion" and a browser phone service, "Ezweb”. With an EZweb-compliant mobile phone, users will be able to send/receive e-mails via his/her Dion e-mail account.

+USEN BROAD NETWORKS TO LAUNCH LOW-PRICED COAX-INTERNET SERVICE

Usen Broad Networks is planning to launch a new Internet access service by the end of 2002 that will use coaxial cables constructed for cable broadcasting service, and will be capable of transmitting at 30Mbps downstream and 1.5-10Mbps upstream. The monthly fee is assumed to be at a competitive level against ADSL services.