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What Japan can Learn From Silicon Valley Entrepreneurship

Jun-8/2003 "Seiron" Column from Sankei Newspaper


The 10-year Revolution Cycle

Once every decade, a company emerges in the U.S. IT Industry and changes the structure and dynamics of the entire industry. 1971, 1984, and 1994 marked the emergence of such companies, and it seems very likely that 2003 will be the year that produces the revolutionary of the decade.

In 1971, Intel developed the microprocessor technology and placed the capability of a huge computer system onto a single semiconductor chip.

In 1984, Apple launched a personal computer called the Macintosh and destroyed the preconception that computers were too difficult for the layperson.

In 1994, Netscape introduced the browser software to the general public, and enabled access to any information anywhere on the Internet; this opened the door to the Internet era.

Intel, Apple, and Netscape were all companies started in Silicon Valley. Now, another Silicon Valley startup is positioned to cause creative destruction in the IT industry. The name of this pioneer to the new era is Google.

Google was established in 1998 in Silicon Valley. The two founders were Stanford University students who developed a revolutionary logic to search the immense amount of information on the Internet. Fast forward four plus years, and now any Internet user knows Google. Everyone uses the company°«s service when looking for information, and the word °…Google°… has entered the English vocabulary as a verb meaning °»looking for information°….

The Four Revolutionary Qualities of Google

During that period, Google proved that advertisements related to keyword search results are much more effective than conventional media advertisements and turned that idea into a business. Google, still a private company, is expected to generate hundreds of millions of dollars in revenue for 2003. It may be possible to say that Google can create a business out of each and every possible combination of words on the face of Earth.

What distinguish Google from the run-of-the-mill Silicon Valley startup are the qualities it has which serves as an indication of the future of the IT industry.

First of all, Google°«s success has historical significance. Many Internet businesses generated a lot of hype, but failed to deliver, which led to the collapse of the bubble economy. Google demonstrated that it was possible to deliver upon the promises of the Internet.

Google also changed the economics of the Internet business by assembling its huge system from a large amount of used components. This was based on the insight that many company failures in the early days of the Internet were caused by expensive system development.

Furthermore, the company°«s management concentrated on building a profitable business before going public, and is still intent on remaining private despite having satisfied all the conditions for going public. This is a marked contrast to the thousands of °»dot-com°… companies that went public for the sake of going public before they had a solid business.

Last but not the least, Google is pursuing an organizational structure that no one has ever seen. The company cites °»hiring°… and °»technology°… as the drivers of its success, and hires only people of the highest caliber. Then they organize such talents into teams of 3 with no managerial layers, and connects them with state-of-the-art knowledge sharing tools

A $10B Market Cap

It is estimated that should Google go public today, its market cap would be 10 billion dollars. This valuation is almost the same as those of major Japanese IT companies such as FUJITSU and NEC. It is mind-blowing to see that a company with less than 1,000 employees, most of them young professionals in their twenties or thirties, will achieve the same valuation as a huge company with more than a hundred thousand employees on a consolidated basis.

I believe that Google°«s success will provide stimulation for entrepreneurs to reexamine and resurrect the various business ideas generated in the mid-°∆90s but were forgotten with the collapse of the °»dot-com°… economy. History repeats itself, so the IT industry, which has gone through experienced very hard times in 2001 and 2002, is now facing a new exciting era with a totally changed industry structure.

The assertions above may appear out of place in the °»Seiron°… column. While I apologize for this incongruence, please understand that it comes from my strong belief that Japan should, more than any other country, seek to be stimulated by the creative destruction driven by young talent, challenging of existing authority, and entrepreneurship°… that Google represents.

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