There are industry regulations put in place by the Japanese government which continue to shape Internet development. Regulation of an industry in Japan is common. The government has for a long time put props in place to ensure the health of small resellers and retailers. This stems from the same concern the government has in protecting its farmers. The Ministry of International Trade and Industry, MITI, tries to keep these smaller ventures surviving. According to Shige Saitoh, Japanese Web Business Manager for Netscape Communications, this has led the markets to end up in oligopoly situations, where 3 to 6 or so dominant companies have had control for 20 to 30 years.1
The demographics of the Japan Internet user are very heavily weighted toward males (83.4% in the Yahoo/Nikkei survey).2 On the other hand, the highest growth rate now is among women. Students, technical specialists, and office workers make up almost 3/4 of all users by profession, and almost 80% were between the ages of 20 and 40. 55% of the users surveyed were unmarried.
The economy in Japan has been relatively flat for several years. Most industries have been coming under great pressure recently. Banks and securities companies have needed government support, stocks and real estate prices have slipped, and unemployment in Japan has reached record highs near 5% in a country so proud of its work ethic.
What cultural aspects of Japan have shaped its Internet trends? In addition to the work-enhancing utility of basic information, there is a very playful element. In this great kingdom of gadgets, the Internet has also begun to see its share: recently, the Internet refrigerator was announced, a joint effort between SGI, Netscape, and others. And the "Internet as toy" mentality is very strong, as animation, games, and puzzles showing off flashy technology such as ActiveX, abound on Japanese web pages.3
For all of these and other reasons, though it has many things in common, the Japanese Internet bears no close resemblance to any other national Internet space. Indeed, it can probably be said that every nation's Internet space has begun to display its own character by now, with Japan perhaps being the most noticeable.
At its core, the Japanese Internet is smaller than that in the U.S. It's architecture is not one of massive overlapping "backbone" providers, the pancake model, but of a few very busy exchanges, "nodes", to which all the networks have a link. Call this the subway model (all rail lines lead to Tokyo Station).
The 4 major exchange points in Japan are the JPIX, MEX, NSPIXP-2, and IMnet.4
Optical fiber cables are provided by JPIX to connect to the customers' equipment. The following services are offered by JPIX: FDDI up to 100Mbps (1.2 million yen/month -- about $9000); FFDT up to 200Mbps (1.9 million yen/month); and Ethernet up to 10Mbps (700,000 yen/month). An equipment colocation service is also available. Daily average traffic volume on JPIX has risen to about 90Mbps by mid-September, 1998.6
Today the MEX Network consists of one Network Operations Center (NOC) each in Tokyo, Osaka, and Fukuoka. Each NOC switch has a bandwidth capacity of 155Mbps. In the future, OC12c capacity (622Mbps) connectivity is planned.
MEX Internet services are ATM-based. Leased-line connection service is also available. Customers can take advantage of MEX's Multi-Lateral Peering Agreement with NSPIXP-2.
Built upon WIDE's actual operating experience from NSPIXP-1, it was designed to be a faster, higher-performance, reliable switch. At the time, ATM was identified as the superfast switch technology of choice, but in reality had not been sufficiently tested. So FDDI was selected instead for the Digital Equipment GIGAswitch, core of NSPIXP-2.8
Built with 2 DEC GIGAswitches in June 1996, NSPIXP-2 was first used in October of that year. Soon, however, the Internet's rapid expansion highlighted the need for more capacity, and in April of 1997, 2 more GIGAswitches were added. Service Providers' routers whcih interfaced with these GIGAswitches were built in a dual-home fashion for redundancy.
With a peak traffic rate today at upwards of 600Mbps, Japan's NSPIXP-2 is even greater than the Chicago NAP.9
And the traffic there has been rising steadily: In January 1998, the traffic fluctuated between a daily high of 400Mbps and low of 100Mbps. In September 1998, traffic through NSPIXP-2 is varying from 210Mbps to 625Mbps.10
The list of members connecting through this network reads like a veritable who's-who of Japanese academic and governmental research. There are several peering agreements listed, including NASA/NSI in the U.S. and the Genome research network (worldwide).
IIJ (Internet Initiative Japan) has a complete network coverage of Japan, and operates the 245Mbps link to the U.S., a reliable, redundant series of backbone lines.13
Based in Tokyo, the A-bone currently maintains a single 100Mbps connection to Japan, through which U.S. bound traffic is also routed (via IIJ), and 2 - 4 Mbps connections each to Malaysia, Singapore, Indonesia, Philippines, Thailand, Hong Kong, Taiwan, and Korea. Expansion to Vietnam, China, India, Australia, and Europe is also planned.15
Besides NTT, there are still over 2000 ISPs in Japan. Mitsubishi is the 2nd, and SONY So-net is the 3rd largest after NTT. But the market is becoming increasingly consolidated. PSINet, the major U.S. company, for example has just acquired 2 small Japanese ISPs.18
Most big companies have already adopted the Internet. Future growth will come from the SOHO customers (SOHO = small-office, home-office). As opposed to the traditional small company SOHO, it is the second, U.S. type small venture, more technology-oriented, which makes up the new big growth Internet market in Japan, says Saitoh.
Online service companies are a big part of that. Nifty-serve has about 2.8 million subscribers, and NEC Biglobe around 2.5 million. But the future is with the ISPs. While customers are easily attracted to online services by fancy packaging, as they get knowledgeable about the Internet, they tend to abandon the Online services for the ISPs and a direct Internet connection.19
Most Internet users in Japan have their first experience at the office. But, they have open offices, with no privacy, so their feeling quickly becomes an urge to get their own PC and access the Internet from home in their own way on their own time.
A major roadblock to Internet growth and access is tied to government regulation: local telephone calls still don't have a flat fee. This results in a relatively high prevalence of ISDN as the access method of choice, both for home users, and small companies. With ISDN, rates are the same as basic telephone rates, only an initial equipment fee is extra. That means it's relatively cheap. And since there isn't really any cable TV infrastructure in Japan, ISDN is the only way to enjoy fast Internet access from home.20
The Yahoo! Japan survey of earlier this year has the following breakdown on how respondents access the Internet: Analog dialup 52.5%; ISDN dialup 19.7%; company or campus LAN access 21.3%; Dialup LAN access 4.1%; leased line 2.2%; and cable TV 0%.21 The trends since their survey of September 1996 have not been outrageous, but steady: campus LAN access is pretty constant (from 21.6%); dialup LAN access is markedly up (from 1.2%); ISDN access is up (from 10.1%); and analog dialup is significantly down (from 67.0%).
Of these, the Internet fax service is notable because of Japan's leading role in that area. Japan already dominates the world market for conventional facsimile machines. Now products are being released which promise to make it much easier for the end-user and may cause quite a stir in the world market.23
E-commerce, on the other hand, is way behind the U.S. In Japan, still only the computer industry has focused on online commerce. And, according to Saitoh, this is also very related to the regulation of each industry.24 For companies in regulated industries and in today's economic climate, there is little incentive to spend the money to move to a new direction. So their multimedia and Internet strategy sections do exist, but aren't allocated many resources yet to establish e-commerce operations.
A couple of counter-examples do exist, however. In the financial industry, which is now deregulated and Citibank, E-trade and others are trying to penetrate the market, companies are being forced to move toward the Internet. Likewise, the travel industry is also becoming active.
Another situation which tends to push companies toward the Internet for business purposes is the lure of "the next big market". A company which tries to establish a beachhead in a new market always tries to use direct marketing, in which case e-commerce becomes hot. "But basically, until full deregulation in terms of price and competition, I don't think companies will become serious about e-commerce."25
It is also their plan to develop a "total digital network" to allow usage of Internet services to anyone in the country "without being subject to the limitations of specific network infrastructures." This plan, outlined in the Ministry of Posts and Telecommunications' "Vision 21 for Info- Communications" white paper, calls for completion of the very-high capacity fiber-optic hardware by the year 2010.27
But private industry won't be waiting around for the government to improve Japan's networks. In one major deal, Global Crossing and Qwest Communications plan a joint venture to build and maintain a multi-gigabit capacity undersea fiber-optic cable linking Japan and the U.S. This cable system is expected to begin commercial service within two years.28
In wireline areas such as this, it is acknowledged that Japan will continue to lag the U.S. technologically, even in spite of the efforts of companies like IIJ, who has established a U.S. subsidiary through which it hopes to learn these technologies. But wireless is another story, an area where Japan has shown real leadership.
DoCoMo, the wireless branch of NTT, has been very successful, from both a business perspective and a technology perspective, and is largely responsible for Japan's advances in wireless technology. One example of this is PHS (personal handyphone system).29 A PHS card is similar to cellular telephone hardware, but for computing. "You can put it in a laptop PC, and get access from anywhere."30
Deeper into the playful, gadgetry spectrum are more examples of Japanese Internet leadership. First, Internet-in-the-car is alive and well in Japan. Need to look at a map, or read directions while driving? no problem. SONY has it.
Not only do they have Internet-in-the-car now, but if they have their way, pretty soon they will have the Internet everywhere. Many in Japan, and especially the consumer electronics industry, want to convert en masse to IPv6 as soon as possible. Why? Because they would like to start seeing each device they make have a unique Internet address as soon as possible. 31
But among the challenges facing Japan in the future are broadband access, ISP service and web content integration, and successful e-commerce. For broadband access, cable and satellite TV are without promise, and most telecom companies, with the exception of the wireless like DoCoMo, are facing price competition, leaving them without money for big technology investments, like building up fiber to the home. ISDN will remain the best option for the near term.
On the web business side in Japan, there are still no partnerships between web businesses and infrastructure companies. We don't see a deal like "AT&T powered by Excite", for example, that the U.S. has. And both shopping and compelling web applications are still sparse. So there is still difficulty building a successful business model in terms of gaining revenue. "And," Saitoh argues, "Japanese companies need to be operating Internet business as one of the strategic efforts" and not be concerned with the revenue side so much. But with today's tough economic climate, that's a tall order.