The Japanese Are Coming

From International Herald Tribune In Japan, mobile data giants look overseas.

Seems logical. After you have mastered an industry in one country, try expanding.

In February 1999, Index was rolling out a horoscope site for i-mode, NTT DoCoMo's new mobile phone Internet service.
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Since i-mode opened the floodgates of mobile data, it has become a rich vein for Japan's young entrepreneurs. The thousands of Japanese companies in the mobile content industry are generating an estimated total of ¥300 billion in annual revenue. Fifteen of the companies are listed on Japanese stock exchanges, with a total market capitalization of ¥790 billion.
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Some emphasize ring tones, like Dwango, while others focus on mobile games, like Sammy Net and G-Mode. Index offers everything from ring tones to fortune-telling and mobile-commerce sites. So does Cybird, which is known for a mobile site listing wave conditions at various beaches.
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"If you have customers coming into the stores, they are going to say, 'Does it play that game I saw advertised?' or 'Does it play that music?"' said Chris Moore, the general manager for content at Vodafone KK in Tokyo. "They are narrowing down the choice of handsets as to what type of content that handset is going to deliver and which one is going to be the best experience for them."
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But several analysts say the Japanese mobile data business has already seen its best days as far as growth is concerned. Revenue that was once doubling and tripling each year has slowed to single-digit percentage gains.
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"Typically when you see big growth, that is when a new handset is invented or when the phone generation changes," said an executive at one Japanese mobile carrier who asked not to be identified.
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Strong content growth has come in recent years - when camera-equipped phones were introduced, for instance, and when KDDI unveiled the first downloads of commercial music.
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To counter slower growth at home, Index and other mobile data companies are tapping into overseas locations, where the mobile data market is just beginning to grow. Some also are trying to add cell-based services like electronic money or TV.
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In August, Index acquired 66.6 percent of the shares of 123 Multimedia, a French company that makes content for cellphones, PCs and televisions, for ¥15 billion. A year ago, Index bought Haiku, a French mobile data provider, and Mobliss, a Seattle-based mobile technology company. For-side.com, a Japanese content provider listed on the Jasdaq market, recently acquired MobiVillage, a French mobile technology company.
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In a crowded cellular content market, Index is the largest in terms of sales and profit.
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"Index is ahead of the pack" in the mobile data space, said Motoharu Sone, an analyst at UFJ Tsubasa Securities in Tokyo. "It successfully captured growth in overseas markets, which are growing rapidly."
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While others have failed at creating local operations from scratch - like Cybird, which recently folded its Korean subsidiary - Index succeeded by buying local companies, he said.
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"After all, as a content provider, your relationship with the carrier is going to count heavily, and you have to keep local culture in mind" in creating content, Ogawa said. Referring to mergers and acquisitions, she added, "It would take too much time for us to learn the local games, so we figured it would better by doing an M&A."
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The 123 Multimedia deal seems to have paid off, at least for now. In December, Index took the French company public on the EuroNext market, raising ¥6.6 billion. Thanks in part to acquisitions like 123 Multimedia, Index expects sales this year to rise to ¥78 billion this year from ¥39 billion last year and pretax profit to reach ¥7.2 billion.
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Ogawa said she believed that the company's growth would come from retail operations that sold, among other things, perfume and fashion accessories as well as from mobile services linked to television broadcasting. She said Index had developed a system that would let TV viewers order goods by pressing buttons on their phones during a program or participate in interactive quiz shows, for example, using their phones.
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But success is not guaranteed. "Their main line of business is not growing as fast as it once did," said one technology fund manager at a Japanese asset management firm. "And overseas businesses are not as easy as you might think."
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