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Joichi Ito – The a:c IMterview

October 27, 2004

Joichi Ito is founder and CEO of the venture capital firm Neoteny. He has created numerous Internet companies including PSINet Japan, Digital Garage and Infoseek Japan. In the US, he recently invested in Technorati, Six Apart and Flickr. He is currently VP of International and Mobile for Technorati and Chairman of Six Apart Japan. Joi has a number of personal characteristics that more VCs should possess: people like him, they trust him, and he’s gregarious, curious, and worldly.
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Joi in Helsinki
The a:c: Good Morning Joi
Joi Ito: hello
Joi Ito: (my blog is down… check joi.
ito.com
)
Joi Ito: we can start if you don’t mind
me multi-tasking
The a:c: Not at all.
The a:c: First, We’d like to learn more
about the Japanese Internet. To put it
in a larger context, how does the Japanese
market differ from the US build-up,
boom, bust and current reawakening?
Joi Ito: hmm..
Joi Ito: OK
Joi Ito: well, I helped start the first
commercial ISP
Joi Ito: I told them ISPs were
infrastructure
Joi Ito: but instead of building
businesses on the Internet, thousands
of ISPs sprung up
Joi Ito: mistake #1
Joi Ito: I’m not sure how different
this is from the US
Joi Ito: also the bubble was much
shorter
The a:c: I think similar
Joi Ito: so not a lot of .com’s
funded
Joi Ito: a few were and even fewer
survived
Joi Ito: they are big and making money
now
Joi Ito: Yahoo
Joi Ito: Rakuten
Joi Ito: Digital Garage and a few
others
Joi Ito: but bubble was shorter so
loss was shorter


Joi Ito: Japanese are more risk
adverse
Joi Ito: so people joining .com’s went
back to big business very quickly
after the bubble
Joi Ito: We called it B2C
Joi Ito: Back to Consulting
Joi Ito: also
Joi Ito: Japan is the 2nd biggest GDP
Joi Ito: most Japanese internet company
Joi Ito: (similar to the US in this way)
Joi Ito: are focused only on the
Japanese market
Joi Ito: so locally rolled stuff is
quite big
Joi Ito: eBay doesn’t exist in Japan
Joi Ito: Yahoo Auction rules
Joi Ito: Yahoo JP is majority owned
by jp
The a:c: And now do you see a similar
resurgence in Japan as you are seeing
in the US?
Joi Ito: not as big
Joi Ito: Japan has been consistently
IPOing companies
Joi Ito: even when the US slowed down
Joi Ito: there is a small surge
Joi Ito: but not as big of a bubble as
US
Joi Ito: Japanese seem to be less market
sensitive
Joi Ito: the investors don’t have
anywhere else to go.
The a:c: Are there companies or trends
in Japan that they can point to that
are doing things not yet surfacing in
the US?
Joi Ito: hmm…
Joi Ito: Well Japan is ahead in mobility
Joi Ito: the Felica card… contactless
IC card in phones by Docomo is quite
important and not available anywhere
else
Joi Ito: you can download money into
your card from your credit card or
bank and use it on trains or in shops
Joi Ito: phone as wallet often talked
about docomo executing
Joi Ito: on the other hand, they are
losing market share
Joi Ito: also, japanese operators are
going flat rate
Joi Ito: for data
Joi Ito: big change in policy
Joi Ito: esp with 3G coming
Joi Ito: as for internet…
Joi Ito: rakuten is a huge mall for
small businesses
Joi Ito: 6000+ shops I think
Joi Ito: they are doing what eBay does,
but with a differernt model
Joi Ito: eBay is designed for individuals,
but often used for small business
Joi Ito: cybermall didn’t work in the US
much
Joi Ito: but Rakuten is a huge cybermall
that works
Joi Ito: I’ll have to noodle a bit more
to come up with other examples
The a:c: Great. On the flip-side, what is
happening on the US Internet that is
slower to develop in Japan?
Joi Ito: blogging, web services (web 2.0),
venture capital…
Joi Ito: but to emphasize my thing about
JP…
Joi Ito: Wireless in the US sux
Joi Ito: Japan and EU rule
Joi Ito: it will take awhile before the
US figures out
Joi Ito: that it’s not about “cyberspace”
or “immersion” anymore
Joi Ito: it’s about the network becoming
part of the real world.
Joi Ito: Your mobile device should fade
in and out of your attention but be part
of your real world
Joi Ito: this pen and screen this is an
extension of the cyberspace metaphor
Joi Ito: immersion
Joi Ito: you should be able to be
connected with one hand and the
peripheral vision of one eye
Joi Ito: ;-_)
Joi Ito: but i think the open standard
business around blogging and metadata
is very exciting
The a:c: You mentioned Rakuten. One
name that rarely gets ink in the US is
Hiroshi Mikitani. We saw that you spent
time at his company (Rakuten) recently.
What can you tell us about his strategy?
Will he move beyond Japan?
Joi Ito: He has not moved outside of
Japan
Joi Ito: and is going very vertical
Joi Ito: buying a brokerage firm
(DLJ Japan)
Joi Ito: trying to buy a baseball
team
Joi Ito: etc
Joi Ito: buying all the portals
Joi Ito: I talk to him about
international
Joi Ito: but I have no idea whether he
is really going to do anything
Joi Ito: perfect example of the
Japanese market being too big to move
out, but too little to become global
Joi Ito: I like him and he’s a good
businessman
Joi Ito: but he is trying to OWN japan
before he moves out I think
The a:c: Given Mikitani’s ambitions,
could you see your friend Pierre
Omidyar and eBay putting together a
successful bid to buy Rakuten?
Joi Ito: no
Joi Ito: I doubt Mikitani would ever sell Rakuten.
The a:c: OK. You have made investments
in Flickr and SixApart, correct?. Why
are they financially promising?
Joi Ito: -)
Joi Ito: Six Apart was best in category
Joi Ito: so is flickr
Joi Ito: I invested in both before
institutional money went in
Joi Ito: Also invested in Technorati
The a:c: Another way of asking this is,
what are your top criteria for making
investments?
Joi Ito: good technology, first mover,
smart and execution oriented staff,
and no other VCs around in my round.
Joi Ito: I’m not a typical VC
Joi Ito: but they all say that
The a:c: Last question. For an exciting
company that has a number of potential
suitors, why would it choose to take
you as an investment partner? Suppose
we’re asking you to thump your chest.
Joi Ito: ha
Joi Ito: well…
Joi Ito: I’m investing very little
right now
Joi Ito: I’m basically saying no to
everyone
Joi Ito: so I don’t want to “advertise”
that I’m investing
Joi Ito: in fact, many deals are equity
or options for advice
Joi Ito: the main thing I add is that
I know the market, can set up
international very quickly and can
raise money
Joi Ito: but I’m pretty overextended
right now
Joi Ito: and only looking at deals from
very qualified leads
The a:c: This has been great Joi. Thanks
very much for your time and best of luck
with everything.
Joi Ito: cool
Joi Ito: thanks

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