I spent last week in Tokyo visiting our colleagues at SoftBank Corp. and Yahoo! Japan, including its new executive team.
For decades, Japan’s advanced infrastructure and consumer technology has been a harbinger of what’s to come in the US. Our investment thesis at SoftBank Capital, including our current focus on the mobile web, has been driven by these dynamics.
Below are some observations from my recent trip.
Mobile payments have been prevalent in Japan for many years, driven by Sony’s FeliCa RFID smart card system. NFC adoption is looming, but the broad installation of FeliCa readers will require dual functionality for some time.
FeliCa technology is used with phones and contactless cards, including the popular Suica system. It was first accepted for public transportation, which then drove adoption by many taxis, vending machines, convenience stores, and restaurants.
The technology was originally embedded in Japanese feature phones, or ketai. Since the iPhone does not include FeliCa, many users maintain a second handset just for mobile payments. The new CMO (that’s Chief Mobile Officer) of Yahoo! Japan actually hacked a FeliCa chip into his iPhone case.
Public transportation in Japan solved the adoption hurdle and led to a proliferation of payment readers at point of sale. Without the same level of public transport use domestically, the US is likely to need billions of dollars in incentives from large corporations to get mobile payments off the ground.
US-built applications are quite popular in Japan, as app stores have facilitated access to the Japanese consumer. Shibuya and Shinjuku train stations in Tokyo are the 2nd and 3rd most checked-in stations globally on Foursquare. Late in the evening in Japan when the US sleeps, photos trending on Instagram and songs trending on Soundtracking are often from Asian users.
The most dominant Japanese built applications are typically developed by larger corporations or startups from countries like Korea. However, competition is emerging from a nascent startup community in Tokyo, where a number of accelerators have popped up. Despite advanced infrastructure and hardware, Japan has been less innovative globally on the software front. The emerging startup community is being fuelled by new angels from tech companies like SoftBank, Yahoo! Japan, GREE and DeNA. These startups, many of which are mobile-centric, are targeting not just Japan but the broader web community.
Accessories & Appcessories
I visited multiple SoftBank stores, which have the feel of an Apple Store with the added charm of SoftBank’s corporate mascot Otousan, an adorable white dog. Featured products at all stores included the iPhone and iPad, which SoftBank first distributed in Japan, many Android devices, and WiFi services including the world’s leading 4G offering at 76Mbps down and 10 Mbps up. On top of these core products, the array of items available to enhance your smartphone aesthetically and functionally is an early adopter’s dream.
Device accessories are abundantly available in Tokyo. Displays of device cases seemed endless at stores in the famous Akihabara electronics district. SoftBank stores sell hand-carved wood iPhone cases for as much as $300. Japan’s trendy Harajuku girls accessorize their colourful outfits with trinkets that attach to phone covers or plug into audio jacks.
Appcessories, devices and accessories designed to work seamlessly with smartphone apps, are prevalent as well. A few favourites were Omron’s Wellness Link pedometer and Bandai’s SmartPet, which turns your iPhone into an interactive pet. The Pogoplug, built by our San Francisco-based portfolio company, was one of the domestic products on prominent display.
Virtual Social Networks
The vast majority of Japanese social networkers do not use their real names. Virtual personas are developed with the help of avatars and other digital representations of a user’s desired identity. Homegrown social network Mixi and mobile gaming platforms GREE and DeNA were built with this social structure.
Twitter has emerged as the leading social network, with around 30 million registered accounts. While most users still use a pseudonym, sites that revealed the Twitter handles of celebrities helped drive massive adoption. The most followed Twitter user living in Japan is SoftBank Corp. Founder and CEO Masayoshi Son, with over 1.6 million followers via @masason.
Despite Twitter’s current dominance, many Japanese consumers expect Facebook to become their leading social network in the next year. Facebook accounts in the country recently surpassed 10 million, which is double what they were six months ago. Multiple users claimed the growth has been driven not by college students but businesspeople, who are using Facebook in the way US consumers use LinkedIn, real identities included.
We’re seeing the inverse in the US, where a number of social experiences on the phone, like our portfolio companies Mocospace, Piictu, and Thumb, are helping users make new connections via fake or embellished digital personas. Second Life should have catered to this behavioural demand, but perhaps it took the required simplicity of mobile to yield a more broadly adopted social experience.