The Ministry of Economy, Trade and Industry (METI) conducted "Research in IT Utilization in Japan 2008 (E-Commerce Market Survey)" to analyze the current state of the Japanese e-commerce market and trends in the Internet business in Japan, the U.S., and major European and Asian countries. The results of the survey are hereby released.

The present survey is the 11th of a series of annual surveys conducted since 1998 and covers e-commerce market activities from January to December 2008.

In cooperation with the Next Generation Electronic Commerce Promotion Council of Japan (ECOM; Chairman: Jiro Kokuryo, professor at the Faculty of Policy Management, Keio University), the survey team conducted interviews with companies and literature research from December 2008 to March 2009 in order to analyze the current state of the Japanese e-commerce market.

The team also identified and analyzed trends in the Internet business in Japan, the U.S., and major European and Asian countries by dividing the sector by type of information and communications equipment involved (PCs, mobile telephone terminals, car navigation systems, and IPTVs).

(1) Business-to-business e-commerce (B to B EC) market size

- Japan’s Internet-based B to B EC market was worth about 159 trillion yen in 2008, down 1.7% from a year earlier -

	2006	2007	2008 (change from 2007)
Market size	148 trillion yen	162 trillion yen	159 trillion yen (-1.7%)
EC ratio*	12.6 %	13.3 %	13.5 % (+0.2 points)

The B to B EC market in Japan was worth 158.86 trillion yen in 2008, down 1.7% from a year ago, posting a negative growth in value. However, the EC ratio (*), an indicator to measure the expansion of EC, increased 0.2 points from the previous year to reach 13.5%.

*EC ratio
EC ratio: The percentage ratio of e-commerce (EC) to all kinds of commerce.

(2) Business-to-consumer e-commerce (B to C EC) market size

- Japan’s B to C EC market was worth 6.1 trillion yen in 2008, up 13.9% from a year ago -

	2006	2007	2008 (change from 2007)
Market size	4.4 trillion yen	5.3 trillion yen	6.1 trillion yen (+13.9%)
EC ratio	1.3 %	1.5 %	1.8 % (+0.3points)

The B to C EC market in Japan was worth 6.89 trillion yen in 2008, up 13.9% from a year ago. The EC ratio, an indicator to measure the expansion of EC, increased 0.27 points from the previous year to reach 1.79%.

(3) Current state of the Internet-related business market in major countries

(i) Regions and types of business surveyed

Four countries/regions were surveyed to identify the current state of the Internet-related business market: Japan, the U.S., major European countries (mainly the UK, France, and Germany), and major Asian countries (mainly China, Korea, and Singapore).

The types of Internet-related business surveyed were not just limited to e-commerce but encompassed all kinds of Internet business (blogs, SNSs, etc.), which were divided into four categories of information and communications equipment: PCs, mobile telephone terminals, car navigation systems (CNSs), and IPTV terminals. Business trends in these four sectors, along with new services enabled by the convergence of different types of information and communications terminals, were analyzed.

(4) Outline of the survey results

(i) Overall trends in the Internet-related business market

The FY 2007 survey unveiled a trend in which consumer-generated media (CGM) based on the concept of Web 2.0 had become prevalent, creating services depending on consumer participation, such as YouTube and mixi, which are unlike traditional one-way services delivered by providers. These services, along with new services to complement them, came into widespread use.

A major trend in the Internet world identified by the FY 2008 survey is the availability of a wider variety of non-PC Internet access devices, such as mobile phones, CNSs/PNDs (personal navigation devices), and IPTVs. Typical examples of this move are Apple Inc.’s provision of iPhone services, collaboration between Google Maps and Nissan Motor Company Ltd. in CNS services, and collaboration between Actvila and TSUTAYA in services. These technologies have significantly increased people’s connectivity to the Internet in their lives.

(ii) Implementation of convergent services between different types of information devices

There are mainly two ways to implement converged services between different types of information devices, such as the PCs, the mobile phones, the CNSs, and the IPTVs:

1) Providing services that enable the same content to be displayed on multiple types of devices
2) Making devices capable of working in coordination with other devices according to the service process required

An example of the first approach can be found in Facebook, a leading SNS provider in the U.S. Facebook operates an SNS targeted at mobile users and offers the same services as available on its SNS site designed for PC users. Through their mobile handsets, users can browse Facebook, upload photographs and text, write messages on the site, and update their profiles.

An example of the second approach is a CNS service by Pioneer Corpation. On their PCs or mobile handsets, users can search for the destination or information on the area around it, choose the desired driving route, and store the information in the "Navigation folder", which they can access from their CNS devices.

(iii) Directions of the expansion of converged services between different types of information devices

Converged services between different types of information devices are expected to expand in two directions: vertical integration and lateral expansion.

A typical example of vertical integration can be seen in Apple’s service model. This model depends entirely on Apple’s own products and services, from the PC (Mac) to content (iTunes) and devices (Mac PC, iPhone, and iPod) with the goal of providing comprehensive value.

The lateral expansion model can be adopted, for example, through the platform model, which intends to provide all service processes on multiple types of terminals in a consistent manner. Google’s delivery of various kinds of services on Android, the mobile operating system developed by Google, is another example.

(5) Current state of the Internet-related business market in major countries

(i) The Internet-related business market in Japan

- The PC-based Internet business is driven by EC and community sites. The mobile Internet is developing in a way unlike anywhere else in the world. The CNS and the IPTV are gradually expanding. -

a. Trends in the PC-based Internet business
CGM, especially EC and SNS, is the mainstream in this sector and continues steady growth. Following the economic downturn, more consumers are conscious of protecting their livelihoods and are therefore attracted to websites that gather word-of-mouth information as well as to stores stressing total savings that encompass merchandise pricing, payment methods, and shipping charges. In addition, there have been accelerated moves toward connecting online coupons with real stores.

Although the unit price per purchase is declining, the market size is growing due to the increase in the frequency of purchasing. As a result, the value of transactions at "Rakuten Ichiba" site was about 663.8 billion yen in FY 2008, a 123.6% increase from the previous year. It is enjoying brisk business despite the sluggish economy.

On the other hand, SNSs are becoming increasingly open and securing a role as a form of communication infrastructure, along with advances in their services.

b. Trends in the mobile Internet business
Japan is far ahead of other countries in terms of using mobile terminals as devices for commercial transactions, including those for EC and digital content delivery.

The use of Internet services, such as SNS and profile sites, as a means of communication has become completely established. They are developing as a unique means of communication especially among younger generations. When the same services are provided for both PCs and mobile phones, those for mobile phones tend to become more popular. This is demonstrated by the fact that the mixi site for PCs, which is operated by SNS provider mixi, receives 4.17 billion page views a month, while mixi Mobile, designed for mobile devices, earns as many as 10.13 billion page views a month.

c. Trends in the CNS-based Internet business
In Japan, where mounted-type multi-function CNSs are more common than other types, CNSs equipped with communications capability achieved widespread use early in the market. Currently, efforts are focused on advancing services by allowing users to search for detailed information on websites from their PCs and incorporate that information into their CNSs. For example, on Nissan’s CARWINGS navigation system, users can search for the best driving route to the destination on their PCs and send that driving plan to their CNSs via the Internet.

On the other hand, portable, low-price navigation devices (PNDs), which are mainstream in other countries or regions, are likely to move toward convergence with other devices, such as small PCs and mobile phones, if PNDs are to become loaded with functions overlapping with those of other devices such as these.

d. Trends in the IPTV-based Internet business
In line with the schedule for Japan’s complete migration to terrestrial digital broadcasting, IPTV services (services whereby a variety of content, such as digital TV programs, various information, and video on demand, is delivered to the TV screen via Internet Protocol) are rapidly developing. For example, Actvila Corp. started providing NHK-on-Demand in December 2008, a service through which people can view popular NHK programs on demand. This way, communications service providers, cable broadcast companies, and providers established mainly by TV manufacturers are aggressively offering TV services via the Internet.

(ii) The Internet-related business market in the U.S.

- The increased penetration of 3G terminals is accelerating the use of the mobile Internet. Services are evolving through the convergence of different information and communications devices. -

a. Trends in the PC-based Internet business
The B to C EC market was worth $130 billion in 2008, up 6% from a year ago. This suggests that the market is steadily growing, although more slowly.

Although the market is dominated by a limited number of major players like Amazon, some of them are attempting to open their platforms to small and medium companies.

As in Japan, CGM, especially EC and SNS, is in the mainstream in the U.S. However, leading players are searching for new revenue sources that can change their current business model which relies on advertisement revenue.

In the digital content sector, the distribution of broadcast content to PCs is gathering momentum.

b. Trends in the mobile Internet business
Although mobile EC is not as popular in the U.S. as in Japan, the advent of Apple’s iPhone 3G rapidly spread the use of third-generation mobile phones in 2008, the technology that the U.S. had lagged behind other countries and regions in adopting. As a result, leading service providers have enhanced their efforts in this sector.

One characteristic of this sector in the U.S. is that EC services based on the short message function of the mobile phone, instead of the Internet browsing function, are offered mainly by leading providers.

As in Japan, SNS and other community services are becoming increasingly popular primarily among young generations more accustomed to using mobile devices as a personal means of communication. For example, Facebook Mobile, provided by Facebook Inc., allows users to browse Facebook, post messages on other members’ sites, and update the profile via the mobile phone.

c. Trends in the CNS-based Internet business
Portable, low-price PNDs are in the mainstream. To offer added value, PNDs with communications capability have been introduced.

Being a largely car-based society, the U.S. has seen the start of advanced information services for CNS that are partially integrated with the PC and the mobile phone, which is an action following the lateral expansion model. For example, Telenav Inc., a CNS application developer, offers the same applications for both PNDs and mobile phones, including smartphones and mobile phones provided by AT&T and other operators.

d. Trends in the IPTV-based Internet business
In the midst of a worldwide move toward digital broadcasting, IPTV services are proliferating in the U.S. as well, primarily driven by communications service providers and CATV companies. For example, subscribers to Fios TV, a service by communications service provider Verizon Communications Inc., can access via the PC their personal portals set up on the official website, which allow them to gather program information and bookmark their favorite programs. They can even program their recording schedule via the mobile phone.

Although some providers have already launched integrated services that enables the programming or recording via the PC and the mobile handset alike, this kind of service is still in its infancy.

The development of IPTV widgets is gaining momentum in the U.S., and is showing signs of expanding into a full-fledged movement in 2009.

(iii) The Internet-related business market in major European countries

- The mobile Internet, CNS and IPTV are all growing, albeit at different paces. -

a. Trends in the PC-based Internet business
Community services, mainly consisting of B to C EC and SNS, are the market driver across all the European countries surveyed. A unique trend in this region is that in some sectors of B to C EC, a majority of customers place orders on the Web and pick up the merchandise at real stores. For example, Tesco plc, the largest retailer in the U.K., operates both online and real stores and runs a business model in which customers can visit online stores to order items that are not available at real stores and receive them at a real store at the desired time.

b. Trends in the mobile Internet business
Although mobile EC is not as advanced in Europe as in Japan, SNS and other community services are attracting many users. The E.U.’s leading mobile operators Vodafone Group plc and Telefonica Europe plc’s O2 announced an alliance with the MySpace social networking website and with MySpace and Facebook, respectively. However, evolution in this sector varies from country to country.

c. Trends in the CNS-based Internet business
As in the U.S., the mainstream terminal in this sector is the PND in Europe. Although using the PND as an Internet access device has yet to become common practice, some providers have begun offering services whereby information is coordinated between the PNDs and PCs or mobile handsets. Navigation software developer TomTom NV provides real-time traffic information based on not only PNDs but also location information obtained from mobile phones through a partnership with Vodafone. These moves suggest the future possibility of service and hardware convergence between the PND and the mobile phone.

d. Trends in the IPTV-based Internet business
Just like in Japan and the U.S., IPTV services are becoming more prevalent in Europe along with the progress of migration to digital broadcasting, but the degree of prevalence varies from country to country. In addition, these services are still in their infancy. A major IPTV service provider in Europe is British telecom operator BT Group plc, which provides BT Vision, an IPTV-based triple-play service to deliver free digital broadcasts, free radio channels, and pay-per-view programs. The company is now working toward increasing the variety of available content.

(iv) The Internet-related business market in major Asian countries

- All communications equipment sectors are growing. Although the business is expected to expand explosively, especially in China, it is still in the infancy stage. -

a. Trends in the PC-based Internet business
In 2008, China’s B to C EC market was worth 128 billion yuan, up 129% from a year ago, continuing explosive growth.

The market was worth 11.7 trillion won in Korea, up 14% from a year earlier, indicating a steady growth.
In Asia, different countries are following different trajectories of B to C EC development. For example, in China, C to C EC is more prevalent than B to C EC because it provides a place for cross trading. In Korea, open market type operations that offer the marketplace function are thriving.

Meanwhile, SNS and other community services are attracting a huge number of users.

b. Trends in the mobile Internet business
Mobile EC services are provided mainly by large providers, although they have yet to be widely used. SNS and other community services are growing explosively, especially among migrant workers from rural regions, who use mobile phones as the primary means of Internet access. The market is expected to expand further. For example, Tx.com.cn, which runs the largest mobile communication site in China, projects a 1.5-fold increase in the number of subscribers a year.

c. Trends in the CNS-based Internet business
As in the U.S. and major European countries, the PND market is growing. Although the current mainstream devices do not come with communications capability, the convergence of the mobile phone and the PND has begun in Asia, just like in other countries and regions. An example of this convergence of terminals can be seen in Chinese PND manufacturer Routon Electronic Co. Ltd., which is pursuing closer coordination between the mobile handset and the PND. Routon’s system allows the user to operate all software applications running on the mobile handset on the PND via Bluetooth connection.

d. Trends in the IPTV-based Internet business
In all major Asian countries, IPTV services are growing with migration to digital broadcasting in view, although these services are still in their infancy. In Korea, Mega TV, operated by KT, has started new services in an effort to attract older generations who are unfamiliar with the Internet. Through these services, users can place orders and make their payment in a shopping program broadcast on IPTV by using the TV remote control, and even create a photo album on TV.

October 14, 2009

Information Economy Division, Commerce and Information Policy Bureau