Online Extra: What Yahoo! Inc. Could Learn from Yahoo! Japan

Like many young Japanese, Satsuki Saito spends much of her free time online -- and on Yahoo! Japan. The university sophomore logs on to the Web portal at least twice a day to check e-mail, read the news, and use its search feature to research schoolwork. Last February, she signed up for Yahoo Japan's broadband service, a bargain at $20 a month for a high-speed connection. "All my friends use Yahoo," says the 21-year-old Tokyo student, who became a devotee three years ago. "It's part of our life."

With such a dedicated following, it's no surprise that Yahoo rules supreme on the Japanese Web. In fact, it could give some lessons to Yahoo! Inc., which owns 34% of the company. Yahoo Japan is growing fast. Monthly visitors expanded from 15.8 million to 20 million in the past year, trouncing No. 2 Nifty, an Internet-access provider, with 12 million, according to the latest data from NetRatings Japan Inc. Yahoo Japan runs the largest online auction in the country, handling transactions worth an estimated $3 billion last year -- more than 80% of the market. Its broadband service boasts some 2.5 million subscribers, placing it just behind Nippon Telegraph & Telephone Corp.

All this helped Yahoo Japan's earnings hit record levels. In the business year ended on Mar. 31, net profits soared 106%, to $104 million, on revenues of nearly $510 million, up 88% over the previous year. Yahoo Japan CEO Masahiro Inoue is confident that the company can keep on delivering. "Everything is geared to pushing up profits and finding new ways to boost growth," he says.

What could go wrong? After a fast start, Yahoo Japan's broadband growth is slowing. The number of new monthly subscribers has dropped 34% since January, to 184,000 in April. Meanwhile, NTT added 196,000 new subscribers in April by slashing pricing and advertising heavily. More worrisome, Yahoo Japan is dependent on money-losing Softbank Corp., which holds 42% of the company's stock, to help fund its broadband expansion. Softbank vows to keep investing, but if it is forced to cut its cash outlays, that could put a crimp in the business. CEO Inoue isn't fretting: "We'll attract more broadband subscribers by offering new services," he insists, including paid movie and music downloads.

Inoue's overall strategy is to pioneer new services, and once he has a large market share, to reap big profits. Take e-auctions. Inoue took the plunge in 1999, and 2 1/2 years later, he had forced the local unit of eBay Inc. to close up shop. Consumers flocked to his site, which, unlike eBay, charged no commissions. Then, in April, 2002, a month after eBay's departure, Yahoo Japan began collecting 9 cents for every item listed, plus a 3% sales commission. Auction sales have more than quadrupled -- from $21.7 million, or 8% of revenue, in 2001, to $95.5 million, or 18.8% of the total, last year.

Now, if only Inoue could dislodge NTT as easily as he did eBay.

By Irene M. Kunii in Tokyo

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