Kaneko is part of a resurgent wave of Japanese tech entrepreneurs–let’s call them the Samurai 2.0. They have seen the consequences of trying to shake things up too quickly in Japan’s tradition-bound business culture, but are trying again, this time with a lower-key style and new business models that exploit the nation’s cheap broadband infrastructure and advanced mobile phones. Last week, the movement achieved an important milestone: Mixi, a MySpace-style social network, pulled off a gangbuster IPO and saw its shares double on the first day of trading. As of last Friday, the company was worth $1.6 billion.
Another reason for hope: venture-capital spending, which sagged after the dotcom bust in 2001, is back and now exceeds pre-bubble levels. “The idea that there is no Internet innovation in Japan is a stereotypical view from people who represent old Japan,” says Yoshito Hori, managing partner of venture-capital firm Globis Capital Partners. “I don’t deal with those people. Eventually I think a new Japan will win.”
The consequences of the last round of dot-com overenthusiasm are still on display. This month in Tokyo, federal prosecutors began the trial of another high-tech luminary, Livedoor founder Takafumi Horie, who maintains that he’s innocent of inflating profits to boost shares in his once high-flying Internet portal. Before his public unravelling, the bombastic Horie was the country’s most visible Internet champion, appearing on TV incessantly, running for Parliament and provoking the wrath of the conservative business establishment with a hostile takeover attempt of the country’s largest broadcaster, FujiTV. Despite the Mixi IPO, since the Livedoor scandal erupted in January the Tokyo Stock Exchange’s “Mothers” index–home to most of the country’s high-tech startups–is down 50 percent. In a nation obsessed with reputation and tradition, Horie’s failed assault on Japan Inc. tainted entrepreneurialism itself.
Investors and observers burned by the Livedoor fiasco are still easy to find. They argue that Japan will never have a robust entrepreneurial culture, largely because established companies will squash changes that threaten their hold on power, and because the country’s brightest students are reluctant to risk their careers on untested firms. Joi Ito, a Japanese venture capitalist who concentrates most of his efforts in the United States, is one VC who remains pessimistic about Japan’s prospects. The biggest problem: recruiting. “For startups to find anyone who can do anything is simply too hard,” he says.
Yet there are good reasons for optimism. Start with the Mixi IPO. Thirty-one-year old Kenji Kasahara started Mixi in 1999, originally as an online press- release service and job bulletin board. Last year, he remodeled the company after social-networking firms like Friendster, offering users personal blogs and the ability to forge online connections with friends. His Japanese touch: Mixi members can see exactly who visits their page, an important feature for Japanese teens anxious to know how they’re perceived by peers. Mixi is now a cultural phenomenon, with 5.2 million users, up from 3.4 million in March.
Other Samurai 2.0 entrepreneurs are trying to follow in Kasahara’s footsteps–often by exploiting the country’s advanced 3G mobile-phone networks. Six-year-old online auction firm Dena flirted with bankruptcy after the bust, but now founder Tomoko Namba is effectively out-flanking auction leader Yahoo Japan with a service that works exclusively over mobile phones. Dena has nearly a million registered users who pay ¥315 a month (about $4) to bid on everything from clothes to jewelry over their handsets. Despite the Livedoor scandal and a fragile recovery after a decade of stagnation, Namba says: “I don’t see disaster at all. I see opportunity for us everywhere.”
A similar scramble is underway to send video over the Web, aided by high broadband adoption rates of 42 percent of Japanese households (higher than the 39 percent of U.S. households who have broadband.) Silicon Valley-based You-Tube has recently become a hit in Japan, with 6.4 million Japanese visitors to the site per month. Local Internet entrepreneurs have noticed. Usen, a 50-year-old cable and satellite company, recently joined the new wave by launching Gyao, a video distribution service that streams video and music to PCs and mobile phones. Usen chief Yasuhide Uno, the 42-year-old son of the company’s late founder, says the biggest challenge for any video-minded startup is to acquire the rights to distribute popular TV shows, which are tied up in Japan’s murky network of talent agents and managers. “I go out drinking with them every night and try to convince them I’m the guy they can trust,” Uno says.
Trust–that’s a word you hear a lot from the Samurai 2.0. The country’s Internet leaders are quick to say that they’ve learned their lesson on compliance and financial transparency from the Livedoor scandal. Few defend Horie or his ally, investor Yoshiaki Murakami, who was arrested on insider-trading charges and pleaded guilty to violating securities laws. Online advertising firm CyberAgent, which recently entered the Web 2.0 arena with its Ameba blogging service, makes sure employees are reminded of Livedoor each day. CEO Susumu Fujita has put a new corporate mission statement on the wall of every bathroom, which reads partly: “Never forget the Livedoor incident. Remain a company of high moral standards which strictly adheres to compliance rules.”
Analysts and investors are buying into this honesty-tinged revival. Last year, $1.7 billion in venture capital was invested in Japanese firms, according to the Tokyo-based Venture Enterprise Center. That’s only half of the amount that flooded into booming China last year, and a fraction of the U.S.’s $22 billion VC tab. But for Japan, it’s a healthy improvement over the $1 billion invested in 2001 and the leaner years that followed. Japanese analysts, elated over last week’s IPO, are generally bullish. “The Mixi listing signifies there’s still major activity in the Net sector. We’re still generating new business ideas and models,” says Hiroshi Kamide, an Internet analyst at KBC Securities.
Indeed, despite their disavowal of Horie and his flamboyant style, the new entrepreneurs are quietly emulating some of the iconoclasm Horie was known for–like creating explicitly nontraditional business customs at their firms. For example, at pioneering Japanese blogging firm Hatena, meetings are conducted standing up and anyone can walk out if the subject matter doesn’t concern them. At the end of the year, employees rate each other’s performances. At the offices of Web consultancy Kayac.com, bonuses are decided by a roll of an oversize dice. The firm regularly takes its employees on surfing breaks or vacations together in Italy.
Struggling Japanese giants like Sony and Mitsubishi would never abide that–which is exactly the point. “You have to step off the beaten path or you’re never going to be able to do anything innovative in this country,” says Kayac CEO Daisuke Yanagisawa. For the Samurai 2.0, that could be a rallying cry.
