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AOL slow to grow in Japan

It has been a year since America Online launched in Japan, but the service doesn't seem to be taking off as quickly as the firm had hoped.

Can signing on 100,000 members in Japan be considered a milestone for the world's largest online service?

That's the question many America Online watchers are asking ever since the online service marked its one-year anniversary in the country it had hoped would become its second-largest subscriber base.

But 100,000 Japanese subscribers, a sliver of AOL's 1.3 million total international members (2.4 million including CompuServe members), may be nothing to scream about.

Up to this point, AOL has yet to make significant inroads in Japan, which is considered to have vast growth potential with its high volume of PC owners and Internet-hungry enterprises.

"It has been a difficult economic environment in Japan," said Jack Davies, president of AOL International, alluding to the country's recent economic woes and the resulting slowdown of PC sales.

Instead, a year after launching AOL Japan, the company has lagged behind local companies currently dominating the market.

Nifty Serve, a joint venture between Fujitsu and trading house Nissho Iwai, currently leads online services in Japan with close to 3 million subscribers. NEC's BigGlobe follows with more than 2.5 million subscribers.

Kate Delhagen, an analyst with Forrester Research, noted that "100,000 is a very small percentage.

"Clearly they don't have the same marketing momentum as they have here," she added.

AOL Japan is a joint venture between the online service, Japanese trading firm Mitsui & Company, and publisher Nikkei. AOL owns a 50 percent stake in the venture, Mitsui owns 40 percent, and Nikkei owns the remaining 10 percent.

AOL Japan's subscriber numbers pale in comparison to the service's more successful international ventures in Europe, which are produced under a partnership with media firm Bertelsmann. AOL Germany, the company's first and largest international venture, has seen its subscriber base grow to 550,000 since launching in November 1995. AOL United Kingdom now lists 400,000 members.

But even with the lagging Japanese numbers, some analysts are not ready to count out the online heavyweight.

Brian Oakes, an analyst at Lehman Brothers, said AOL's growth in Japan has been relatively strong, when compared to the growth in the United States over the same period.

"If you look at how long it took AOL to reach 100,000 domestically, AOL Japan has been much faster," said Oakes, who added that he believes the online service has yet to blossom to its potential. Instead, he noted that he has seen signs that AOL Japan is picking up momentum and beginning to nip at the heels of the market leaders.

Oakes pointed to three factors that have kept him happy: First, although overall subscriber numbers are lower, numbers for customer retention in Japan are better than any other country in which AOL offers service. Second, last December the service signed on more new subscribers than Nifty Serve, according to AOL. Third, on average AOL Japan has enjoyed a 70 percent usage growth from month to month since its launch.

Regardless, what remains to be seen is whether AOL Japan can sustain its growth for the next few years to gain a foothold in the market. Up to now, AOL Japan has maintained the same focus in marketing tactics as it had been using in the United States, such as direct mailing target customers and making deals with PC makers to bundle AOL software.

"We aren't wed to any specific marketing tactics on a global basis," Davies said. "Our goal is to get AOL software in the hands of our target customers for them to experience AOL. That's been the key to our success in all other markets.

"We're optimistic that Japan will, over time, be our largest market outside the U.S.," he added.

Nonetheless, Delhagen still wondered why AOL's second-largest market has become only its third fastest-growing subscriber base.

"Why is it going slowly?" she asked rhetorically. "Is it a lack of resources? Or is something inherently not working in their business model?"