May 6 th , 2013 Harry Takeichi

1. ATIE 2013 New Delhi Cloud Impact in Japan ~ Government, Carriers and Vendors ~ May 6th, 2013 Harry Takeichi

2. Can Japan end ‘Lost Decades’?ABENOMICS is making psychological upturn LT Interest Rate 0.73% 0.32% (Nov.13, 12) (Apr.5, 13) J-Yen/1USD Rate 79 99 (Nov.13, 12) (Apr.24, 13) NIKKEI Stock Average 8,661 13,766 (Nov.13, 12) (Apr.23, 13) 58.9% 25.3% 43.8% • Fiscal: Big Gov’t Investment in infrastructure • ( 2 Trillion USD for Resilient-Japan Project) • Monetary: BOJ targets 2% inflation by 2years • BOJ supplies double money to market • Growth: PM leads growth measures & deregulation • TPP, EPAs (EU, RCEP, China/Korea)

3. Economic Growth Scenario Unprecedented Experiment TPP, Japan-EU EPA Japan/PRC/Korea RCEP(ASEAN+6), TISA Government makes big public Investment to social Infrastructure Government Task Forces for Growth Kuroda, the Governor of BOJ explains 2% (inflation) in 2years, 2 times of money supply. - Drastic De-regulation? - Lower Corporate Tax? Ends Deflation? Promote ICT Solutions for issues i.e. Energy, Aging, Food and Environment • Spending & Investment maybe stimulated…. • but • Will competitive products & services emerge?? ICT Deployment to Social Infrastructure

4. Mikitani-Paper~ New Japan KPI Proposal ~ Mr. Mikitani, president of Rakuten, proposes new national KPIs for new business innovation by IT at the Council for Industrial Competitiveness New KPI Present  Target WEF ‘ICT Regulation Ranking’ • Repeal ‘Face to Face’, ‘Written Document’ Rules 42  10 or upper LTE 7.1M/s  World Fastest • Internet/ICT ‘Autobahn’ Policy - Speed (Fixed/Mobile) - Autobahn=no speed limit/no fees Almost Free (or Nationalized) 0.9mil 2mil -Number of IT engineers - Foreign IT Experts entry with working visa/year - Start-ups ratio • Encourage Engineers & Ventures • in Number / Quality / Tax 2,85220,000 3.2% 10% 25% by 2018 - Cloud Service % to Government IT spending - Government Service Cost /GDP • Cloud Service Expansion 23.1%  20% or less

5. Designate 25%($20Bil) of government services to shift to cloud in 2011 By 2015, 50% of Central Government’s new IT spending must be shifted to cloud Mikitani-Paper~ New Japan KPI Proposal ~ Mr. Mikitani, president of Rakuten, proposes new national KPIs for new business innovation by IT at the Council for Industrial Competitiveness Start-ups % (2008) Government Service Cost /GDP 11.1% Present Target By 2015 New KPI Present  Target 11.5% WEF ‘ICT Regulation Ranking’ • Repeal ‘Face to Face’, ‘Written Document’ Rules 42  10 or upper 20.3% LTE 7.1M/s  World Fastest • Internet/ICT ‘Autobahn’ Policy - Speed (Fixed/Mobile) - Autobahn=no speed limit/no fees 20.3% Almost Free (or Nationalized) 0.9mil 2mil 21.2% -Number of IT engineers - Foreign IT Experts entry with working visa/year - Start-ups ratio • Encourage Engineers & Ventures • in Number / Quality / Tax 2,85220,000 3.2% 10% 25.3% 25% by 2018 - Cloud Service % to Government IT spending - Government Service Cost /GDP • Cloud Service Expansion 23.1%  20% or less

6. Telecom Operators make Good Profits, Electronics Makers make Huge Losses (Source: Nikkei) non-manufacturing Manufacturing

7. Who is your rival?~ Interviews with Carrier Tops ~ ‘Verizon Communications’ as a cloud servicer ‘Silicon Valley’ as a innovative group of synergy ‘Customers’ as a fast-changing marketing target

8. Verizon Show at CES 2013~No Phones There~ Running shoes that Uploads runners data without smartphone Plug-in On Board Diagnosis (OBD) module that gathers various car data so that rental-car company monitors for efficient maintenance Foot ball helmet that uploads detailed data of shock for players so that a team can monitors their health Trash can in Allentown, PA, advises city sanitation department of the suitable timing to be emptied so that garbage truck routes can be optimized Heads-up PC that makes a worker`s both hands free

9. NTT DoCoMo keynote at MWC 2013~ $11B revenue from New Business in 2015~ Mr. Kaoru Kato (President, 2012- )

10. Why carriers move toward Cloud Network Concept has changed. Services are provided by Data Centers (not by network nodes) DC DC Application SW IAAS PAAS DC SAAS 2. Major OTT players own & operate dedicated DCs and backbone network, that push telecom carriers downto access conduit and deprive their revenues. Cache Server for popular video contents DC ISP IX DC ISP DC IX ISP Global WAN to connect own DCs Telecom Carrier Job Scope Peering with ISPs

11. NTT Invests to transform themselves to a CLOUD Player • ‘Driving for Service Creation Group’ • Focuses on Solution Services Creation • Expands Overseas Business (US$10B revenue by 2012) • Acquired Mr. Satoshi Miura (President, 2007-2012) • ‘Be A Valued Partner of Inter-service’ • Focuses ‘Global Cloud Services’ as its core business • Supports Business Model Innovation and Quality Life Style • Further expands Overseas business (US$20B revenue by 2017) • Acquired Mr. HirooUnoura (President, 2012- )

12. Acquisitions to be a Cloud Player US$2.5Billion by Century Link (2011) Ms. Meg Whitman (President & CEO) Mr. Lowell McAdam (Chairman &CEO) US$1.4Billion by Verizon (2011) Mr. Glen F. Post (CEO) US$1.6Billion by HP (2007) US$0.445Billion by Verizon (2007) US$13.9Billion by HP (2008)

13. ICT Value Shifts Rapidly Mobile BB Internet with intuitive UI smartphone Sharing Information Search Information Easy Access to Information Connecting A with B Delightful Experience - Impossible to Possible - Unaffordable to Affordable - More Human-front Services (ICT-innovated analogue services) - High Social Value Solution - Single Answer ( find my best one from crowdsourcing) - Intelligent Answer (avoid known failures) Utility IT Service (Public Cloud) Convenient Shopping Game Changer, Black-box - Creation of Industry, Market, Social Structure - Users can be Servicers by sharing their own resources Behavior / Preference Analysis & Target Marketing

14. Competition of Customer Experience~ Retail Market in Japan~ • Cost and After-Sale Service Centric • Networking local SMCs as decentralized warehouse • and sales-support resource • Strong ASKUL’s B2B (wholesale and logistics) • Yahoo’s attracting portal and auction Logistics Centric - minimum delivery time by its own huge warehouse - Support purchase decision by personalized line-up • Pleasure to make the most economical shopping • Pleasure to make the simplest shopping with the quickest delivery and long-tail line up. • Face to face interaction with real human clerks ease and pleases net- phobia customers • Human Service centric value • Shop clerks’ face to face support service • Internet order with pick-up / layaway at shop • outsourcing for home kitchen/fridge & store • Multi-purpose hybrid terminal • (ATM, Government Service, Entertainment tickets etc) • Pleasure like mall window shopping Active Tenants Centric - Ultimate support to tenant shops

15. Telecom Operators make Good Profits, Electronics Makers make Huge Losses (Source: Nikkei) non-manufacturing Manufacturing

16. Japan Electronics - Financials FY2011:1us$=80yen FY2012:1us$=94yen Consumer Electronics Consumer Electronics All-Rounder All-Rounder ICT ICT

17. 2012 Financial Fiasco Drives Them to Different Places Mr. Tsuga, president of Panasonic, targets $20Billion automobile related revenue in 2018. Assuming $70-80B of total Panasonic revenue in 2018, automobile and house related revenue is expected to consists its majority. Panasonic Net loss 2011($9,652M) 2012 Forecast ($9,562M) Mr. Okuda, president of Sharp, tries to change its culture of growth by one-strong-product. He aims to become a leading hitter from being a slugger (home-run hitter). Sharp Net loss 2011 ($4,700M) 2012 Forecast ($5,625M) Mr. Hirai, president of Sony, commits to revive original Sony DNA, which product stimulates peoples curiosity and move users emotionally. • Sony • Net lossNet Profit • 2011 ($5,708M) • Forecast$250M 1US$=80yen

18. Tough Paradigms for Vendors • Servers / Storages • 20% of servers sold world-wide is bought by • design servers and • manufacture them by ODM • Low power consumption is a key • ARM processor server  Intel, • SSD (Flash memory drive) HHD • Data Centers • Standardize specs of DC • => DC as commodity • DCs Interworking and service orchestration is key technology • Scale-out  Scale up • ( 15,000 servers/ 1 operator) DC • Terminals • Voice I/F on all things • Terminals For illiteracy • (48% of Indian people ) DC • Network Platforms • Generic LSI  Customized LSI • make 10GPS OpenFlow switch by themselves Application SW IAAS SAAS PAAS DC • Software Developer / Systems Integrator • Vendors deliver service  Deliver complete software • No more huge scale effort basis contract • Vendor continue to develop while it is on service (No user requirements. Nobody knows final specification) • Mashup and Customization service business will grow • Marketing • Real Value oriented •  Differentiate from competitors • Statistic Analysis of Point of Use • (Big Data) • Co-creation with partners

19. Conclusions Government: - Regulation reform for new business emergence & government cost reduction Telecom: - Cloud-infra (DC/Platform) Provider  Total Application Servicer Service: - Social value oriented - Human-orientedservice ICT Vendors: - Tough time for restructuring …. - Higher Technology  Service Value - Seeking for new value by vertical integration

20. Thank you नमस्तेNamaste Harry Takeichi takeichi@ciaj.or.jp