Business relationships in Japan

My team at BTLookSmart Japan

I had the pleasure of launching a business in Japan in 1999.*  My company was one of the early entrants in the business of search engine syndication, an industry that used to be dominated by Altavista, Inktomi, Fast Search and Transfer, and is now dominated by Google and Bing after many iterations in the business model over the past 20 years.

It was one of the most educational phases of my career.  The Japanese partnerships I built showed me that much of what I'd been taught in university about Japanese industry and business was wrong.  "Keiretsu" ownership structures across corporate entities is of course very influential in corporate shareholder structures there. But Japanese companies were not averse to partnering with foreign firms.  Japanese customers did not necessarily favor Japanese-made products over foreign products.  These myths were touted by Kodak against Fuji Film in their legal claim in the World Trade Organization of unfair market restrictions. (Read more on this amazing case on the analysis of the WTO complaints here.) When I was in university, I was spoon-fed some of these same myths by some representatives in the United States Congress who favored market-protectionism over enhanced global trade opportunities favored by the United States Trade Representative and the Clinton Administration.

What I learned in college that proved very true was that Japanese business hinges on relationships even over profit.  Surely this is primarily what Kodak had difficulty with and they thought they could leverage the international courts to pry their way into the market without putting forward much effort on the ground.  It is very difficult to sell in Japan if you don't invest a significant amount in the relationships that are essential to the fabric of society there. Fuji Film had invested tremendous amounts in social relationships and brand over the history of their corporate existence.  It wasn't mere "privileged access to shelf space in convenience stores" that determined Fuji's advantage in the market, it was hard work that established that market presence and it was the people of Fuji Film who had earned the trust of the customers over decades before Kodak showed up. 

One of my favorite memories in Japan was after my first year after launch of our search engine.  (The first year was tremendous fun as we slowly accumulated partnership after partnership by investing enormous amounts of time and resources building an exceptional Japanese product.) By 2001 We had a large number of leading Japanese portals powered by our search products, even with a new entrance by Google as a competitor. The time for this story was the beginning of our second year in market. It was time for our annual contractual renewals. (Contracts auto-renewed by mutual consent. But each year partners would review the terms and had the option to add services or restructure our deals if we jointly agreed.)  I was visiting each partner to gather their feedback on how we could make our services better and ask each if they would like to continue working with us. One of them asked if we could give them an xml feed option. We did, doing so helped us improve our services for all our partners at once. One of our partners asked if they could use both Google and LookSmart Japan's search features in a fused search function. We agreed. We also wanted to evaluate whether we might decide to use their "algorithmic backfill" for some of our projects or deployments.

But the most interesting meeting was with one of the largest telecommunications portals who informed me that they'd received a bid of 1$ Million guaranteed payment to switch from our search engine to another. I told them that I was unable to match the offer, as our business model was based on indexing services, not guaranteed payments. I thanked them for being such a good partner over the first year of our business there. I prepared to wrap up the meeting because I believed my not offering to match the bid would leave us at an awkward impasse. My counterpart smiled at me and said, (translated) "We're not going to accept it! After all, they never pick up the phone when we call them. You do. And you come to visit us and listen to our feedback. You have a quality product and service that adds to the quality of our portal. That's more valuable to us than a $1 Million bribe." I was completely stunned, flattered and honored that my partner considered my service to be worth more than a $1 Million buyout check.  We renewed our contract and they remained our partner until I left the company.

I've tried to dispel myths about Japanese culture when I've heard them and tried to encourage businesses to seek partnerships and distributions in Japan in spite of the difficulties Americans tend to anticipate there.  And I highly encourage anyone who is interested in learning about Japanese business and trade opportunities to explore the resources at the Japan External Trade Organization.  http://www.jetro.go.jp/  Japan is of course one of the largest trading partners with the United States.  But it is also one of the most enjoyable places I've ever done business.

*The company I launched in Japan was LookSmart Japan. We started as a branch of the global BTLookSmart joint venture headquartered out of Sydney, Australia. 

When I moved to Tokyo, found an office and started interviewing candidates for our "Gaishikei" foreign owned corporation, it was very important to our employees that we become a "Kabushikigaisha," a joint stock company that had a permanent corporate status rather than being a foreign firm operating in Japan but paying taxes elsewhere. 

British Telecom and LookSmart had originally formed their JV to distribute web directories and web search globally. We had offices across the globe. Our business was based on a B2B model giving smaller portals the ability to have an equivalent quality search experience to Yahoo's B2C destination portal model. Our company, by contrast, made it affordable for smaller websites to have site search without their customers having to leave their branded company website. We did not have a destination search portal like Yahoo, Excite, Altavista, HotBot, Lycos or Google. We wanted to grow our partners' search traffic on-site and thereby benefit from their growth while we sold premium services within the search engine itself that powered a broad base of other websites that served as the "front door."

I had good examples to follow of course. Previously SoftBank had licensed the Yahoo trademark in Japan and launched Yahoo Japan to become one of the most successful internet businesses in the country. Starbucks had conducted a market launch successfully without a JV strategy. The prominence of American-based companies establishing brand and service prominence in Japan demonstrated to me that our success was also possible. Working with JETRO at the Ministry of Finance, I was able to learn from local market experts on the best way to stage our company launch. And it worked. LookSmart Japan Kabushiki Gaisha achieved roughly 70% market reach before it was acquired by ValueCommerce Japan, which was majority owned by SoftBank group like Yahoo Japan. The LookSmart Japan tools our team built were integrated into Yahoo! Japan's "MatchSmart" content advertising engine. 

After my departure from LookSmart Japan, I joined Overture Services, which was acquired by Yahoo! Inc. for $1.63 Billion. Thereafter, I conducted business development across Yahoo properties across Asia. I returned to Japan to work on mobile advertising with Overture Japan, a wholly owned subsidiary of Overture Services. After my work in Tokyo to bring mobile sponsored search to Yahoo Japan's mobile portal, Yahoo Japan bought Overture's subsidiary from Yahoo Inc. There is never a dull moment in internet business.

 

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