AOL Sets Its Sites on Japan

Virginia Firm Racing to Catch Compuserve, Internet Providers

by Sandra Sugawara

Tuesday, February 4, 1997

TOKYO -- In Japan, yakuza gangsters, sumo wrestlers and sushi cooks have set up their own Internet home pages. Farmers are monitoring rice crops with the help of digital cameras and the Net, and the government has set up a page to try to tackle a problem of bullying in Japanese schools.

In short, Japanese are galloping online by the millions. So, who else but America Online Inc., the Dulles-based company that more than any created the online craze in the United States, has arrived here to push hard for a piece of the action?

Flying technicians across the Pacific, it's rushing to set up a Japanese-language service that it hopes will begin sometime this spring. The big question: Will its brand name, a powerful draw in the United States, count for anything in a country that so far has managed fine without AOL as it moves toward cyber development?

To launch its effort, AOL dispatched Bethesda resident John Barber to Tokyo six months ago.

Breaking into many other markets would be a lot easier. But AOL has to be in Japan, Barber said. About "45 percent of the PCs in Asia are in Japan. This is an obvious market to us . . . Not coming to Japan was never an option."

When he arrived, the 49-year-old online industry veteran had no staff and spoke little Japanese. In addition, he was new to AOL. He'd learned the business running General Electric Co.'s ultimately unsuccessful Genie online service in Rockville.

But he did have AOL's network technology, its vast marketing expertise, lively screen graphics and content that sells -- at least to U.S. audiences.

His mission was to figure out if AOL's service is a kind of "Big Mac and fries" that will take Japan by storm as is, or an oversized American sedan that will have to be considerably altered to fit Japanese sensibilities. The decision: Go for basically the same service, but in Japanese and with some cultural tweaking -- a greater emphasis on golf than football, for instance.

On a recent day, the 6-foot 6-inch Barber looked like an island of calm in a sea of frenzied activity, as the young, bilingual AOL staff of long-haired men and cyber-savvy women rushed around the room with an air of purpose. Standing in the middle of the office -- a modern, expansive room anchored by giant windows that catch sunrises over Mount Fuji -- Barber explained why AOL expects strong growth in Japan.

Japanese, Barber said, are ideal online denizens -- inquisitive, highly educated, with a strong sense of community and interest in trying new things.

AOL hopes also to benefit from strong backing from Japanese companies. Rather than going it alone, it has two key allies: Mitsui & Co., one of Japan's largest trading companies, which owns 40 percent of AOL-Japan, and Nihon Keizai Shimbun Inc., Japan's leading business daily newspaper, which owns 10 percent. The two partners put up about $60 million for the new venture. AOL, which owns 50 percent of the Japanese service, did not put up any cash.

In the United States, AOL has been in some trouble recently -- earlier this month, it offered credits or refunds to compensate customers who couldn't get on a system that had become overloaded. But that hasn't generated much publicity here and Barber said he doesn't expect the controversy to hurt much in this new market.

AOL is entering a market that already is growing fast, rather than being an important engine in getting it going.

Computer sales in Japan have surged -- by 33 percent, to 7.6 million units, last year, according to Dataquest Inc. And in the 12-month period that ended in June 1996, online users jumped by 2 million, to 5.73 million, according to the New Media Development Association, an association of Japanese companies.

The big problem for Barber is convincing Japanese that this icon of the U.S. online industry is needed in a country that is rapidly creating its own version of cyberspace. Already, Fujitsu Ltd.'s Nifty-Serve, an affiliate of the U.S. CompuServe Inc. service, and NEC Corp.'s Biglobe have a million subscribers. There are 19 services with more than 10,000 subscribers in Japan.

Another question: Do consumers want a commercial online service such as AOL, with its own fancy graphics and technology, or would they rather go with a pure-Internet service? Improved software has made the Internet a much friendlier place, so the ease of use and other hand-holding the commercial services give are less important.

"I think it will be difficult for AOL to lure customers away from Internet providers," said Kenji Okuda, a 34-year-old entrepreneur who is starting his own software company. "AOL is famous in the U.S., but I wonder why they are coming here now," when the Internet has already taken off, he said, standing in a personal computer store in Shinjuku.

Even 22-year-old Shinnosuke Tanaka, 22, who said he might be interested in AOL, said he was skeptical AOL's service would make it easier to cruise the Internet. But he said he might give AOL a try, if its price was comparable to those of Internet providers.

Much is riding on AOL-Japan's pricing policy, details of which are still being worked out, according to Barber. In addition, much of its content, which will deal with news, sports, restaurants, travel, games and entertainment, still is being developed. As AOL-Japan struggles to sort through these problems, the launch date was pushed from late 1996 to sometime this spring.

When the delay became known, some U.S. executives, long-time Japan hands, speculated that bureaucratic red tape was the cause. But Barber said that maneuvering through Japan's famed bureaucracy has not been a problem, especially with AOL's two Japanese partners.

Rather, the problems have been largely technical, some not encountered by AOL when it launched its European service a year ago. For instance, Japanese characters are larger than English roman characters and require software changes. Also, many Japanese modems require different software than U.S. modems.

Another problem has been the steep learning curve of the AOL-Japan staff. Barber said that in many cases, he hired designers and marketers with little online experience. Creativity and English fluency were considered more important.

Thus each week, new teams of AOL designers, marketers, network specialists and financial experts shuttle between Dulles and AOL-Japan's offices here in the opulent Tokyo Opera City Tower. They are scurrying to transfer as much knowledge about the online business as fast as they can. Special correspondent Akiko Kashiwagi contributed to this report.

ONLINE OPENINGS OVERSEAS THE POTENTIAL PAYOFF

America Online is eager to tap the online market in Japan, which has nearly tripled in one year.* AOL believes Japan will be its second-largest market after the United States and plans to launch service by this spring. AOL has 500,000 members outside the United States, with service in:

*Germany

*Britain

*Canada

*France

*Austria

*Switzerland

*Sweden Number of Japanese online 1995

2 million 1996

5.7 million * 12 months ended June 1995 to 12 months ended June 1996 SOURCE: New Media Development Association WHO'S BEHIND IT

Although AOL owns half of Japan-AOL, it did not put up any cash for the venture.

Percent ownership in AOL-Japan

AOL

50%

Mitsui

40%

Nihon Keizai Shimbun: 10% SOURCE: New Media Development Assoc.

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