AOL Still Facing Uphill Climb in Japan

TOKYO (02/08/2000) - When America Online Inc. announced plans to launch its service in Japan, the U.S. parent was full of hope for its new baby.

AOL declared in 1996 that it wanted to make Japan its largest international market in "the next few years." And because 80 percent of Japan's 6.7 million online users at the time were going online through proprietary services, things looked pretty good. Today, nearly three years after the service's 1997 launch, AOL Japan is about to sign up member number 400,000.

That's a little less than executives intended to have at this stage. Naohiko Kumagi, president of Mitsui (a partner, along with Nihon Keizai Shimbun, in AOL Japan), told a press conference in 1996 that AOL Japan wanted to have a million customers soon. John Barber, managing director of AOL Japan, attributes the shortfall to Japan's "very different market. With the exception of AOL and Microsoft," he says, "there isn't a single major ISP that isn't owned by a telecom carrier or PC maker."

Japan's largest ISPs, which serve most of the country's 17 million Internet users, do indeed benefit greatly from such affiliations. The two leading ISPs, AtNifty and Biglobe, are operated by Fujitsu and NEC, respectively, and have more than 6 million members between them. They get prominent desktop position on new personal computers. Telecom carriers, which already have millions of customers, can promote their own Internet services every month on the phone bills they send out. In this group, NTT leads the field, while competing carriers DDI and KDD are strong contenders.

A potentially bigger problem for AOL, though, is its low brand recognition."When people talk about the Internet they talk about (Sony's) So-Net, Biglobe and Nifty. Not many people mention AOL," says Koji Nagatsuna, a senior analyst with Gartner Group in Tokyo. "Such being the case, their marketing strategy is not working well at the moment.

"So the strategy is changing. Instead of mass-marketing, AOL Japan is now aiming at niche groups. It has targeted the growing number of Japanese women in their 20s and 30s who have personal computers, and the company says it's starting to see a shift in its user base toward this group.

AOL Japan is also eyeing the cellular market. With more than 4 million people already using interactive cellular services based on wireless application protocol and on NTT DoCoMo's iMode service, AOL's Barber sees this as a sector that can't be ignored."

Getting AOL onto a cell phone is a natural extension of our AOL Anywhere strategy," he says. As part of that plan, the company is now working with Tegic Communications, which it recently acquired, to produce a version of AOL Instant Messenger for cellular users.

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