Illustration by Phil Couzens
There is one thing three of America’s biggest web services—Ebay, MySpace and Facebook—have in common: Despite being household names in large parts of the world, almost nobody in Japan knows about them.
It’s not that they (and many other foreign web startups) have never tried. After all, the Japanese online market is one of the most attractive in the world. With 100 million web users, the county’s Internet population is the third largest on the planet (trailing only China and the U.S.).
And there’s a lot of money to be made here, too. Take e-commerce, for example. The B2C e-commerce sector alone grew by 13.9 percent to $67 billion in 2008 on a year-to-year basis, according to the Japanese government. The country currently boasts about 10 web-related, high-cap companies that are listed on the Tokyo Stock Exchange.
Yet only a handful of foreign Internet startups have ever managed to gain significant market share in Japan, i.e. Yahoo, Google, Twitter, and Wikipedia.
The majority, large web brands and niche players alike, are either shying away, struggling or failing. The problem for those startups centers around the fact that the web is frictionless and inherently global only “in theory.” In reality, there are plenty of barriers standing in the way.
One of the most common recipes for failure when attempting to globalize an Internet brand is underestimating the importance of localization, especially on the heavily mobile-centric Japanese web.
According to Japan’s governmental assessment, the general assumption is that more Japanese are accessing the web through their mobile phone handsets than through PCs. In other words, getting Japanese eyeballs without offering a special mobile website that’s tailor-made for Japanese cell phones is next to impossible.
But platform fragmentation is just one reason why Japan isn’t among the low-hanging fruit for foreign web startups.
Localization in general requires translating the site, tweaking its design, setting up international customer support, and other tasks.
Every localization process incurs sizable costs for young Internet ventures, the majority of which are run by just a handful of people with limited capital.
And most web entrepreneurs in the West consider the Japanese market in particular as being too geographically and culturally distant to bother creating a localized version (at least initially).
Even sufficient resources and flawless localization aren’t necessarily prerequisites for success.
One case in point is Facebook, an SNS startup funded with over $700 million, which still doesn’t offer an optimized version for Japanese mobile users. For the fixed PC site, the Facebook “crowd-sourced” the translation work to its Japanese users and received a localized (translated) version for free.
That was two years ago, and Facebook still has only about 1 million users in this country—a far cry from the 18 million members Japan’s homegrown social network, Mixi, boasts. The primary reason Facebook continues to struggle in Japan is the same reason Ebay pulled out of Japan after just a few months of trial and error: They were too late.
Facebook launched its Japanese version in 2008, four years after Mixi (which became Japan’s largest social network without the slightest competition from abroad).
Ebay entered Japan as early as 2000, but a five-month head start was enough for Yahoo Japan, by then widely regarded as a local brand, to establish Yahoo Auctions as the country’s leading online auction platform.
Next to missing the right timing, certain differences in online user behavior can be stumbling blocks, too. The way online identities are handled, as just one of many examples, is the reason why America’s biggest business networking site, LinkedIn, has been holding off on entering Japan for years now.
Unlike their American counterparts, Japanese white-collar employees usually shy away from posting resumes online for everyone to see. This Japan-specific phenomenon can also be observed on Mixi where member profiles are usually kept anonymous. Most Facebook or MySpace users, on the other hand, reveal their real names.
In some cases, foreign web companies that are aware of those cultural pitfalls opt to enter Japan with a local partner. But even this strategy has led to mixed results in the past.
Yahoo Japan incorporated as early as 1996 and partnered up with SoftBank to become Japan’s biggest website. MySpace, on the other hand, still struggles to build traction even though it was the world’s largest social network when it entered Japan through a joint venture with SoftBank in 2006.
Currently, all eyes in the Japanese web industry are on the next major foreign player to establish a physical presence in the country. As its first major foreign market target, Facebook has decided to come to Japan with a full team that consists of both business and technical staff. The world’s biggest social network counts over 400 million members now but, in Japan, it might be too late again to depose the local leader.
Dr. Serkan Toto is a Tokyo-based web industry consultant and writer for American online media network TechCrunch.
