Daiichi/AT&T Strategic Internet Business

Yoshitaka Senoo <senoo@daiichi.co.jp>
Daiichi Corporation
1-18, 2-Chome, Kamiyacho, Nakaku,
Hiroshima 730 Japan
Tel: +81-82-240-3431
Fax: +81-82-246-7736

Tommy Matsumoto <matsumoto@spin.ad.jp>
Jiro Mase <jiro@sys.attjens.co.jp> (contact)
AT&T Jens Corporation
No. 25 Mori Bldg. 1-4-30 Roppongi
Minato-ku, Tokyo 106 Japan
Tel: +81-3-5561-5770
Fax: +81-3-3584-0810

The annual growth rate of Internet users in 1995 has dramatically increased in Japan. Reachable hosts number over 160,000; and almost 1,500 organizations are on the World Wide Web (WWW), five times as many as last year. In addition, since AT&T Jens started the first Internet business in November 1992, Internet service providers have increased from 31 at the end of 1994 to 279 at the end of 1995. The volume of home PC sales has grown by 200 percent compared with 1994, and the rate of home PC use has increased to 11.6 percent. These movements help link home users to the Internet.

Growing home PC and Internet use produces the possibility of changing the relation between consumer and distributor. That means consumers now will be able to collect needed merchandise information, send purchase orders, and complete payment transactions at home through the Internet. Therefore, they do not need to come over to the shop or store anymore. In this environment, Daiichi's big challenge is not expanding existing store channels, but developing new channels that fit consumer behavior in the network era. Daiichi is now expanding its business by focusing on Internet utilization from the following points of view:

  1. External transaction.
  2. Internal transaction.
  3. Communication channel for consumer and clients.
  4. Interconnection to cable television (CATV) network.

1. Internet for external transactions

In the current book-order system, all transaction data with Stanford Publications International (SPI) are processed through the Internet. (Daiichi, AT&T Jens Corp., and SPI have cooperated to provide a foreign book mail-order system on the Internet since 1993. This was the first use of the Internet to transact business in Japan, and low cost and short delivery time are the essential reasons for its success.) In addition, merchandise information for CD-ROMs and many more foreign products will be introduced through the Internet in the near future. Currently, Daiichi is developing a catalog information distribution system for handling many kinds of related information. Its final goal is that all information transfers will be completed through the Internet. The catalog is one of the basic information products, but it used to be difficult to handle as electronic data. Now current computer systems handle many kinds of media, such as voice and graphic data, and send or receive these data through networks. In the future, data transactions between financial institutions, credit companies, and distributors will be done through TCP/IP.

2. Internet for internal transactions

Daiichi stores are now developing a new system for paperless internal transactions by intranet or the Internet. In addition to the product catalog, manual, and promotion material, any documents including figures and graphics will be electronically transacted through network. Daiichi has 302 stores in Japan; therefore, general meetings and even individual meetings are difficult to arrange. So we now are planning for an electronic conference system through the Internet.

3. Internet as a communication channel

Keeping contact with customers is very important for distributors. Daiichi expanded its online business from foreign books to PCs and CD-ROMs. Daiichi will utilize this online channel for customer support and maintenance in the near future. Provider business is one of the strategic movements for building a communication network with customers. Daiichi's Internet service started in November 1994, connecting to the Spin network, AT&T Jens' Internet service. The primary aim for the Internet business is offering low-price access (2,000 yen or $20) for PC buyers and building a two-way communication channel with customers. In the future, the Internet must become the main channel, but only 11.6 percent of PCs sold are used at home; so Daiichi is preparing KIOSK terminals in its stores for Internet access. The KIOSK terminal will have many functions as well as being used as an information station in town. IBM is now developing KIOSK terminals, and they will be set in stores in May 1996.

4. CATV business

Daiichi owns a CATV company called CC22 and joins HBS, HICAT, and CCV in the CATV business. The subscription rate for CATV is very low: only 12 percent for CC22 service. The reasons for the low rate are the following:

  1. CATV service has not been offered for long in Japan.
  2. The rate for satellite broadcasting subscribers exceeds 20 percent.
  3. Programs for CATV, especially for CS, are not very attractive in terms of amount or quality.

Interconnecting with the Internet will cover weak points for both CATV and Internet service. High-speed and low-price cable/modems handle huge amounts of data at low cost and with advanced technology. Also, CATV users can access any contents on the Internet, and CATV suppliers can broadcast any information to Internet users.

These merits help make CATV networks more attractive.

The time schedule and business plan for the above endeavors are as follows:

1. Foreign book distribution system - 4/94

Objectives:
Next steps:

2. Internet service provider - 11/95

Objectives:
Next steps:

3. Apply for KIOSK terminal - 12/96

Objectives:
Next steps:

4. WWW home page

Objectives:
Next steps:

5. Interconnection with CATV - 6/96

Objective:
Next step: