Internet Companies in Japan after the Collapse of the Internet Bubble -An Analysis of Internet Companies and their Cluster-

ABSTRACT

In the late 1990s, media reports spotted Internet companies in Japan as the up and coming lead-players in the IT industry. But soon after the collapse of Internet bubble in 2000, this positive evaluation was replaced by persistently negative reports on these companies, though with little understanding of their actual status and development. Similarly, areas in Tokyo that had attracted attention as Japan's "Silicon Valley" for Internet companies are today considered locations of little significance.

In contrast to such popular views, this study shows that the Internet companies that survived the collapse of the bubble still have high growth potential. The profitability of these companies has been improving, with many companies posting growth in both sales and profits for two years in a row in 2000-2002. Pure Internet players, such as intermediary and electronic commerce companies, have even begun to register positive profit numbers.

The highest concentration of Internet companies is found to be in the Minato ward, followed in second by the Shibuya ward. In these two wards are located more than 40% of all Internet companies in Tokyo. Nearly 30% are concentrated in the area spanning from Akasaka to Shibuya, forming the highest concentration in Tokyo. Another Internet company concentration is seen in the Kanda district, which encompasses the major electronics retail center Akihabara. This study, however, was not able to identify in these business areas significant distinctions in terms of business categories, start-up date, or business performance.

It is highly probable that the negative image of Tokyo's Internet companies after the collapse of the Internet bubble has been based on false impressions. Continued governmental support for the nascent Internet industry is important not just for Japan's IT industry, but also for the consumers and industries who will benefit from the increased conveniences brought about by developments in IT utilization.