Accessing the Information Revolution

Internet Bubble or New Market?
“Do you think the internet is a bubble?” I asked this question at Davos at the end of January this year. Seventy percent of the audience said, “Yes, we think it’s a bubble.” I asked the same audience, “Well, today’s PC market cap, and a few years’ later internet market cap, which one will be bigger?” The same audience answered—ninety-five percent of them—the internet will be bigger. Well, there is a simple mathematical consistency that one would like to see. Today’s market capitalization of the PC industry is $6 trillion and today’s market capitalization of the internet is only $1 trillion. Well, that’s a fact. The internet industry is only one-sixth of the PC industry today, but the same audience that says the internet is a bubble also says that the internet industry will be six times bigger within a few years than today. Well, I think it’s a good time to buy.

In Japan, the word “internet bubble” had not been used by the Japanese people until six months ago. In the United States, the same word, “internet bubble,” started being used three or four years ago because U.S. Nasdaq market made it possible for younger generations to create internet companies, launch IPOs [Initial Public Offerings] in the stock exchange, and grow very quickly. They were accepted by the citizens of America who injected the capital the companies needed to grow very quickly. In Japan such a market did not exist, so young generations with great passions and intelligence, with understanding of the new economy, the new markets, and new technology did not have the opportunity to provide their passions to society.

I have started the initiative of creating Nasdaq-Japan through a partnership with Franz Zarb, the Chairman of Nasdaq-U.S. We initiated a fifty-fifty joint venture creating Nasdaq-Japan. Now everybody talks about the internet. They say it’s a bubble. I am very glad to hear that because people are realizing that investors’ money is floating into this new market; there is new movement and new changes. So I would like to take it as a compliment because such talk means people are now realizing that a new market is coming.

Stock Exchanges, Information Exchanges, and dot.coms
In mankind’s history of half a million years, there have been three revolutions. The first revolution was the agricultural revolution, which demonstrated humans are the only species that provides food for themselves through their own creation. No other animal can create food for themselves. Mankind is the only species provided with the extension of muscles over 10,000 times. Finally with the thought revolution, mankind is the only species provided with the extension of brain power over 1,000,000 times. It’s a great extension of our own power. Wouldn’t you call it a revolution? I would like to call it a revolution.

The great expansion of economies without high inflation has happened once in the past—exactly at the time of the Industrial Revolution. Now, again, the new economy provides high growth without high inflation. You know why? Because it provides more efficiency; higher efficiency in productivity provides higher growth in the economy without inflation. That’s why we call it a new economy.

Fifteen to twenty years ago, people in the United States sentimentally said the U.S. once had the glory, but over the last twenty years United States has been having great success again—great expansion in the economy and so on—due to two changes. The first is financial. The stock exchange made it possible for risk money to flow into new industries. The Nasdaq is a good example. It provides massive capital to the younger generation and provides opportunity for them to grow. The second change is the internet exchange, which provides opportunity for people to exchange information and wisdom so that they can expand the society and the economy much more rapidly.

Neither of them existed in Japan. Japanese stock market regulations made it almost impossible for the younger generation of companies to launch IPOs. The average number of years which it took them to go public was twenty-five years. In twenty-five years the internet revolution will be over. Young Japanese companies could not get access to the capital market because it required three consecutive years of growth in profit. The Japanese banking community never provided capital to those young internet companies, because they require collateral, such as real estate as collateral or proven cash flow. Well, internet companies had neither of them, but they have a great business model that can change society. But Japanese society is changing. I would say that the spiritual discussion will vastly change when society’s infrastructure changes. In the last six months, it’s finally been coming. It is coming. So I am not too pessimistic. It took fifteen years of delay compared to the U.S., but finally the Japanese society has started to change.

The information industry did not start only ten years ago. It started hundreds of years ago through the analog information providers—the newspapers, radio, TV, all of these information industries, even telephone. These are all part of the information industry. The big change has happened in the last fifteen years because of the arrival of digital information industries. In the earlier stages of the information industry, first technology providers succeed, then service providers come along and increase their market cap. Then, in the third stage, the digital information technology providers, such as Microsoft, Intel, and Cisco, become very successful in market cap. In the fourth stage, the “dot.com” company, the pure internet service company, becomes successful. So I would like to say it’s not a bubble. It’s just a symptom of people realizing that a new economy, a new market is coming. It’s an early stage of the great success that’s going to come.

In the beginning of 1990s or the later years of the 1980s, the electronic hardware technology providers—the PC industry—had great success in market cap. Now, the dot.com company, the pure internet companies, are really taking off. The PC industry has grown sixty times over in the last ten years in the United States. I would say the internet industry will follow such a path. If you look at Japanese companies in 1987, fifteen or eighteen of the top twenty in terms of market cap were the commercial banks. Well, it’s no longer the case. Now, many of the information industry companies are having great success. In the U.S., it was only in 1995 that Microsoft came in the picture of the top twenty U.S. companies in terms of market capitalization. Now, in 2000, five out of the top ten and eight out of the top twenty are information industry companies. And this data is already a little obsolete. Cisco is now the largest in market cap in the world. I have been a member of the board of Cisco in the United States for a few years and the one who started Cisco-Japan as a joint venture six or seven years ago. At that time everybody said I was crazy. Well, history is the judge.

I am proposing five ideas to the Japanese government to change Japanese society by vastly expanding internet access throughout Japanese society. I think this is not only a subject for the Japanese society, but for everybody. The digital divide is an important issue. Just last month, the World Bank Group’s IFC and Softbank announced a joint venture to provide internet access to 100 developing countries—to provide the technology and the opportunity of the internet in those countries. In the last 100—200 years in the industrial societies, the time difference between earlier countries entering the Industrial Revolution and the later countries, has been about 100 years. Even today, there are countries without electricity, telephones, or automobiles. This time lag has made the difference in economic and social power among countries. I think in the third stage of the revolution, the new stage, we should not allow another hundred years of time lag develop between the countries. We should provide them with equal opportunities to the knowledge and the wisdom to get access. Bring them education; bring them an infrastructure; bring them into our community so that they can also participate and succeed in the next millennium. The children in those countries should have the same opportunity. The older generation is okay. But the youngest generations are innocent. They shouldn’t have any disadvantage. I think this is very important for all of mankind.