The Net Market of the August Moon

Whether you think of it as 10,800,000,000,000 (10.8 quadrillion yen) or as merely $100 billion, the B2B opportunities in Japan are tremendous. Calico Commerce intends to be a major power behind that flow of currency by providing tools to build net marketplaces, and has announced the opening of Calico Japan K.K., a wholly owned subsidiary. Calico Japan will sell localized versions of Calico Market Maker and Calico Advisor. Yoshiyuki Tanaka, who previously launched and served as Managing Director for TIBCO's Japanese office, will pilot the new company.

Calico Market Maker is an application for building a net market, including relationship management, catalog, and transaction processing features. It is built from a base that Calico acquired when it purchased connectinc.com(See "Connect to Sport Calico Label"). Calico Advisor exhibits one of Calico's core strengths - the configuration and sale of complex products. Advisor assists in the selection of assemble-to-order and pick-to-order products. Calico also has a similar product for configuring engineer-to-order products, as well as tools for enabling business-to-consumer e-commerce, but these are not part of the initial product offerings for Calico Japan. Both products are Java-based, although Calico's original product was a Microsoft solution.

Calico has vertical specializations in telecommunications, retail and high-tech and industrial manufacturing. The company has also seen a recent increase in interest on the part of dot-com customers.

Calico is getting off to a relatively early start in Japan. US Bancorp Piper Jaffray recently observed that the major B2B firms have been slow to penetrate the Japanese (and other international) markets. Commerce One has been the leader in building e-commerce relationships (see "Commerce One: Everything but Profits"); this paid off recently with the announcement of its MRO marketplace built and operated jointly with NTT Communications.

In January, 2000 VerticalNet and Softbank Commerce Corp., a wholly owned subsidiary of Softbank Corporation (Tokyo Stock Exchange 9984), announced creation of a company to replicate VerticalNet's strategy of building and operating vertical marketplaces that are augmented by content and community services.

However, Calico's model is different from each of these. Calico does not in general host or participate in the markets that its software is used to build. This gives it a potentially much wider market, and it makes its money up front instead of depending on transaction fees that have so far been somewhat elusive for other companies. Flush with capital from its October 1999 IPO the company is well positioned to make a significant impact in Japan, and its specialization in procurement of complex products and assemblies is likely to be especially appreciated there.


Japanese businesses interested in becoming Net market makers will definitely appreciate the appearance of a powerful product in their market. North American and other companies will be interested in this development for three reasons.

First, those that have interest in extending their operations to Japan or working with Japanese partners will see possible advantages to using Calico software as a base.

Second, the experience that Calico gains by developing its Japanese company will be invaluable as it continues to expand internationally.

Finally, Calico needs to build up its customer base. In the last fiscal year, ending in March, ten customers accounted for 61% of its revenue - and half of that derived from only two customers.
In addition, the company derives just over 50% of revenues from services. Neither of these metrics from last year is necessarily an indication of future performance, but an expansion into Japan should help improve both. The result would be to enhance the company's stability.

There's an obvious danger that rapid growth might strain the company's resources, but while that's something potential customers should always be concerned about, the upside to this situation is that should this happen to the Japanese company it won't be likely to have much of an impact in North America. On the other hand, effort that the company puts into building training programs for alliance partners and developers will be of benefit on both sides of the Pacific.

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