GREE

Benjamin: GREE is Japan's second largest social network (founded in February 2004). Japan's second largest operator, KDDI, invested $31 million in July 2006 to develop a mobile version - marking its entry in the "mobile community age".

YAHOO! DAYS 

Benjamin: The third major site is operated by Yahoo! Japan (under control of the holding company Softbank) and is named Yahoo! Days, roughly based on Yahoo! 360. More is expected to develop, as Softbank bought out Vodafone's operations in Japan and got control of its 15 million mobile phone subscribers.

Masashi: In Japan, Web 2.0 services introduced by Yahoo! Japan are not doing so well - many of the key Yahoo engineers have moved to Hatena, GREE and other companies

In addition, Google's presence in Japan is very weak. Yahoo! Japan controls 20-30% of the search market - the rest belonging to a variety of local players. Though Adwords and Adsense are widely used, other Google services have few users and little recognition. Interestingly, quite a few Japanese startups are hoping to build Web 2.0 businesses like Google.

HATENA 

Benjamin: Hatena is a blog and social bookmarking service, quite similar to del.icio.us.

Masashi: Hatena Bookmarks has grown to be Japan's largest Social Bookmarking service. It has diversified into other services, such as Hatena Diary (Blog service). Overall, Hatena is a service more directed to the IT-literate.

EC Navi

Masashi: EC Navi is the second largest price comparison engine after Kakaku.com ("price.com"). Thanks to its automatic price collection, it now has Japan's largest number of registered goods. With the recent opening of the EC Navi Lab, the site has started to offer Web 2.0 features like social bookmarking and cooperating with other existing price comparison sites. A majority of its users are girls and young women.

DeNA

Masashi: While DeNA is the third ranking auction site, its mobile service which opened a few years back has achieved a tremendous success. Its quick gathering of users had a lot to do with its cooperation with the mobile affiliation site Pocket Affiliate. Riding on the success of its mobile auction site, its new site "Mobile Game Town" is growing rapidly. Offering free casual game including SNS elements, this new type of community site has grasped the interest of young users. Revenues come from the huge traffic and advertising revenues from affiliate networks. The "Mobile Game Town" service started in February 2006 and in 156 days (July) achieved 1 million users. This service targeting students and housewives has three points of interest:

(1) High quality mobile games with avatar, diary, BBS (forums)

(2) Fast growth as an all-free content site The most distinctive feature of the mobile community site is the ability to post to the diary and forums, with the same ease as when sending regular emoticons-rich mobile emails (Japan more or less dropped SMS in favor of rich mobile email in early 2000). With this ability to post anytime and from anywhere, users can react and see reactions from others at a much faster pace than when using a computer. In addition, the use of avatars increases the capacity to show emotions in messages. Service usage increases through word-of-mouth and its current monthly pageviews averages 1.5 billion per month (about 52 million daily PV).

(3) The site is today the largest mobile community site in Japan.

DeNA process

Note: Japan's mobile advertising market is growing at a fast pace through affiliate marketing.

OTHERS

Benjamin: Startforce is a kind of "start page" service. Kizasi is a Technorati lookalike, showing what are the current hot topics in the bloggers community through a keyword ranking and an original chart - very easy to read. Hyakushiki is a social bookmarking service with a focus on hobbies and technology.

Why does Mobile dominate in Japan?

Benjamin: Why is there so much mobile action and so little on [PC-based] Internet in Japan? People do not have Internet in their DNA here and I don't buy the cultural explanations.

I think this situation has a lot has to do with: 

• Difficulty to get users to pay/monetize Internet services vs. clear payment systems and good revenue sharing with operators on mobile 
• Possible lack of exposure to foreign innovative services, due to weak English skills and self-supporting local market (Japan is the world's second largest economy, after all).
• Recent financial scandal with Japan's #2 portal site Livedoor creating a bad karma around Internet entrepreneurs.

Strong online advertising market

Masashi: Japan has the world's second largest GDP and its advertising market is maturing into a very large one. As the Internet is shifting into a primary advertising market, ad revenues for Internet companies are growing. On contrast to the US - and due to the limited number of large Internet players in Japan - a large share of online advertising goes to the dominant player Yahoo! Japan (a JV between Softbank and Yahoo! US and managed locally). Hence, the rise of advertising revenues of recent SNS services like Mixi and Gree has more to do with a lack of destinations for online advertising. 

IPO Market is hot

Masashi: IPOs from Internet-related companies are now coming, one after the other, with a PER often getting over 100. Expectations are huge in the case of such a famous service as Mixi - and the valuation has gone sky-high. The emerging individual investors market in Japan is also supporting this economic comeback.

In Japan, shares reach on average twice the price of the offering after the IPO. As a result, IPOs are a popular bet for private investors.

This second generation of entrepreneurs, who cashed stocks from the first wave of Internet companies, are very professional. As an example, GREE was created by former Rakuten executives.

The good shape of the IPO market stimulates in turn the Venture Capital industry, with large Japanese players like JAFCO investing with high company valuations. JAFCO (largest Japanese VC) set up last year a 100 billion JPY ($850 million) fund, while NIF SMBC (2nd largest) created this year a 60 billion JPY ($510 million) fund. Due to the size of those funds and the scarcity of valuable investment targets, the oversupply leads to pushing to high valuations.

Summary

My thanks again to Benjamin and Masashi, who have provided us with a great overview of the Japan Web market and its top apps. As always, there will be apps that we haven't covered, so I encourage you to add them to the comments. Also we'd love to hear your views of the Japanese Web industry, if you're familiar with it. And feel free to ask questions in the comments, as perhaps someone from Japan will answer it.

This post is part of Read/WriteWeb's continuing coverage of international Web markets. Other countries profiled so far have been Germany, Holland, Poland, Korea, United Kingdom, Russia, Spain, China, Turkey, Italy, Brazil and France.