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Japan' publishing industry just got a powerful new player. As the competition to deliver better books faster and cheaper via the Internet heats up, readers reap the rewards. Barry Brophy reports.

Japan's great obsession-book buying-has gone online. The country's publishing giants are in a flap over the Internet book industry, with Web browsers vying to replace the tangible variety that fill the aisles of the nation's bookstores. As the gap between technological innovation and the new economy begins to close, the world's leading online booksellers have inevitably attempted to consolidate their market share in this book-loving nation. Indeed, the prospect of a slice of this multi-billion-yen cyber-pie has attracted some big names both within and beyond Japan.

Owing to a dramatic jump in demand for home PCs and Net-ready mobile phones-PC sales rose by 85 percent last year, boosting Net penetration to 28.5 percent of all Japanese homes-it's close to boom time for the Internet in Japan. Recognizing the market potential, amazon launched their Japanese e-tailing business (www.amazon.co.jp) last Nov.

But the competition will be tough. Japan supports over 25,000 bookshops and while the recent proliferation of mega-bookshops has weakened smaller retailers, the larger retailers are zealously competing to shore up their tenuous market dominance through online retailing.

Market share
Amazon is aiming to take a significant portion of an e-commerce market that is expected to top $3.2 billion-Japanese sales have been pitched at between $75 million and $100 million in 2001. Around 190,000 customers in Japan have purchased products on Amazon's US site, generating sales of $34 million (out of $1.9 billion worldwide) in 1999.

According to Tokyo-based research firm e-Research, this remains an impressive figure considering that amazon is shipping products from abroad and that the total Japanese online book market was worth only $46 million last year. But e-Research predicts that online book sales could reach $1.8 billion by 2004. Amazon CEO Jeff Bezos is well aware of this potential. "Japan has been an important market for amazon.com right from the beginning. It has been our largest export market. Imagine what we might do with the local presence."

In a recent survey of Japan's Internet users, nearly half said they want to buy books or magazines online. "The book market is huge here (it's recognized as the world's second largest). Our site is customized for Japanese speakers. Later on we'll probably add CDs and videos to our catalogue," says amazon's Japanese head, Junichi Hasegawa. "Our company has the same system and interface as the amazon.com website with its proven reputation, but our service is localized into Japanese."

But amazon will have its work cut out to even share in that segment. For a start, one of Amazon's biggest strengths - discounted titles - will be hard to offer in Japan, where a 50-year-old regulatory structure designed to protect merchants against price competition prohibits large discounts. Luckily for foreign book buyers, however, these protections do not apply to foreign publications, and amazon is still able to extend significant discounts on English language titles.

The test of amazon's successful entry into the Japanese book market will be its ability to overcome some formidable competition. Kinokuniya is an 87-store retail chain that does about $3.3 million of business a month on its Internet site--covering some 1.2 million Japanese and 1.8 million foreign titles (www.bookweb.kinokuniya.co.jp). Additionally, and unlike amazon, Kinokuniya has branched from hardcopy to virtual book distribution. Not surprisingly then, the day that amazon.com launched in Japan, Kinokuniya announced it's teaming with Microsoft to sell e-books.

Such alliances are a common feature of the burgeoning online book market in Japan. German media giant Bertelsmann AG, for example, who already has a significant online presence through www.BOL.com, are operating their BOL Japan store as a joint venture with Japanese publishing house Kadokawa Shoten. "Japan is clearly one of the fastest growing Internet markets, according to BOL.com CEO Heinz Wermelinger. "The potential for e-commerce is impressive."

Added convenience
Contributing to the mix is Japan's largest convenience store chain, Seven-Eleven Japan, which launched an online bookstore with ubiquitous Japanese Internet investor Softbank in Nov. Yahoo! Japan also has a hand in that venture. Seven-Eleven Japan is expanding its e-commerce offerings with its 7dream website. www.7dream.com shoppers can browse through over 100,000 items, including music, flowers, and photo supplies, place their orders online, and then go to their local 7-Eleven stores to pay for and collect their purchases. As an antidote to consumer fears over credit card security, Japanese e-commerce ventures have established a system that allows customers to purchase items over the Internet and make payments in cash at convenience stores.

Distribution, critical for foreign companies venturing into Japan, is another potential weakness for amazon. In late Sept, one of Japan's most popular online shopping sites, Rakuten, unveiled a plan to sell books online next year in partnership with one of Japan's top wholesalers, Nippon Shuppan Hanbai. Nippon and another wholesaler, Tohan, collectively control about 70 percent of Japan's book distribution.

Amazon, apparently locked out by the top two, has partnered with a second-tier firm, Osakaya. But Hasegawa rejects claims by skeptics that the company's entry into the Japanese market at this time is ill conceived. "Its been said that we've come into the market too late and have entered the fray in haste, but we believe we opened with immaculate timing...The best time is right now because of the overall know-how that amazon has built up and we can localize that for Japan, and because of the growing awareness of online bookstores and the expanding market."

As evidenced by the substantial discounts already offered on English language titles-these savings are in part linked to an offer for free shipping and handling that will end on Jan 31-amazon is intent on tapping the significant foreign book market in Japan. Indeed, the online giant has not ruled out providing an English version of the order form on its Japanese site to allow Japan's foreign community to more easily capitalize on the savings. However, while neither amazon nor competing local book e-tailers currently offer English versions of their Japan sites, it is, for those with some Japanese reading ability, well worth trying to navigate the order form.

Virtual takeover
With amazon.co.jp planning to expand its product line beyond its 1.1 million Japanese and 600,000 English titles some time next year, it could be argued that this represents a big threat to smaller bricks-and-mortar retailers. Hasegawa does not, however, believe that the latter will be left out in the cold. "All we're doing is creating another segment of the market," he says.

Local publishers agree that diversity might be a good thing. "As people have different needs it stands to reason that there should be diversity in the way they choose and purchase books," says Kimiko Mitani, publicist for Tuttle Publishing. "Amazon.com has done a great job making Japanese people aware that foreign books are much more accessible than they may seem to be otherwise." Still, she remains cautious. "Japanese online retailers are also prominent, but with the launch of amazon.co.jp, their growth might be set back, particularly since amazon is already a household name among foreign books readers in Japan."

Mitani is confident, however, that the subtle art of bookstore browsing will survive the online boom. "The need for traditional book-selling media, namely bookshops, will never be diminished by the expansion of online book retailers. People must go there, look and compare actual copies." Nevertheless, while predicting "peaceful co-existence" between online retailers and traditional publishers/distributors, Mitani notes that the practice of online discounting, which is less possible at regular bookstores due to higher overheads, might give the online distributors an unfair advantage.

Such fears are justified in the context of amazon's aggressive entry, especially in terms of heavily discounted foreign titles, into the Japanese market. Indeed, the company expects its Japanese site to prosper in a shorter time than its US counterpart. "We make a decision on whether to invest in a new market from a long-term point of view," says Jeff Bezos. "The business may become profitable in Japan faster than it did in the US. That's because we will mobilize all the experiences and technologies accumulated in the past in Japan, and because we don't need to build up the business from scratch."

The ever-fluctuating fortunes and durability of the company worldwide suggest that amazon is perfectly capable of digging its heels in--but it will have to work extra hard to win top-dog status in the face of fierce local competition.


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