April 2007 - Finding Success in Japan

 

ValueCommerce CEO Brian Nelson talks about the power of affiliate marketing, surviving the dot-com bust and the company’s lucrative deal with Yahoo Japan.

By Vitisia Paynich

ValueCommerce CEO Brian Nelson is on top of his game. Not only is his company one of the largest affiliate marketing businesses in Japan, but in February 2005, ValueCommerce sealed a lucrative cash deal worth ¥10.9 billion ($93.1 million) with Yahoo Japan. How did this native Southern Californian end up penetrating the online market overseas?

That’s what Electronic Retailer wanted to find out during a recent interview with Nelson. Not only did he elaborate on his pioneering Internet company, but he also discussed the impact affiliate marketing has had on the marketplace, how his company weathered the dot-com storm in 2001 and what the future holds for the Internet marketplace.

MAKING A MOVE
Born in Newport Beach, Calif., Nelson lived all over the United States during his childhood. His father worked in sales for IBM, which required the family to relocate often. However, at age 15, Nelson and his family made a huge move when his father accepted the vice president position in IBM’s Asia-Pacific division. This meant relocating to Tokyo.

Nelson attended two years of high school at the American School in Japan (ASIJ), graduating in 1985. He then headed back to the U.S. to start his freshman year at Whittier College in California. Nelson’s final three years of college were spent at the University of Southern California, majoring in business administration with an emphasis in entrepreneurship.

During his summer break, the college student returned to Tokyo to intern with Anderson & Co.

He graduated from USC in 1990 and made the decision to begin his career in Osaka, Japan. Through fellow USC alum Bill Totten, Nelson acquired his first job as a sales rep working for Totten’s computer software company called Ashisuto. Nelson confesses that at the time, he didn’t speak the language fluently. However, language barriers aside, he was determined to make a go of it. With an English-Japanese dictionary in tow, Nelson embarked on his sales calls only to discover that his awkward grasp of the Japanese language was merely the tip of the iceberg-little did he know that his physical stature would make an imprint.

“There I was, a 6’7” American with an English-Japanese dictionary trying to sell store owners computer software in their own language,” he notes. “So, they had fun with that, which gave me good early experience that led to my career in Japan.”

Nelson eventually left the company in November 1991 with valuable business training and a better grasp of the language. He soon landed a position in the sports management business at Ismac. He then went to work for Tokio Marine Medical Service Co. Ltd., a subsidiary of Tokio Marine & Fire Insurance Co. Next came a position at Gallup Japan, the research and polling company. Nelson recalls that, at the time, Gallup had entered into a joint venture with a local reach company, the Japan Management Research Association. He was tasked with handling sales and helping multinational customers acquire bilingual services in Japan. A promotion soon followed.

“As the sales and marketing director for Gallup, I was looking at opportunities to move back to the United States,” says Nelson. “And at that time, my family and I discussed it and made the decision to stay in Japan.”

However, he also decided that if he was going to settle permanently in Japan, he would return to his entrepreneurial roots and launch his own company. Thus, he resigned from Gallup.

PUTTING A FACE TO VALUECOMMERCE
“I focused on starting my own business in summer 1999, an Internet portal for shopping for goods that were not available in Japan,” he explains.

However, a meeting with a fellow entrepreneur would soon steer him in a different direction.

Tim Williams, a New Zealander, founded two Internet companies in the 1990s. One was an Internet venture, called ValueClick, and the other, TransPacific. Williams departed ValueClick in early 1999, but held onto TransPacific, which he transformed from a hosting company into an affiliate marketing entity. The next step: developing a software platform.

Meanwhile, Nelson continued laying the groundwork for his own company. “After writing my business plan,” he says, “I had talked to various people and one of those people, my friend Mark Saft, introduced me to Tim Williams.”

Nelson recalls that Williams was just completing his software platform.

He tried to talk Nelson into abandoning plans for starting his business and actually joining forces with him as the chief operating officer of his affiliate marketing company, the name of which was changed from TransPacific to ValueCommerce in November 1999.

Nelson agreed and officially came aboard the company in January 2000.

GETTING THE COMPANY UP AND RUNNING
Stepping into the COO role, Nelson confronted many challenges. ValueCommerce had no customers in early 2000, and he knew the company needed to generate sales very quickly. “Taking the experience I had from Gallup, my previous business relationships in Japan as well as those forged by Williams and other directors, we made sales calls to the larger Fortune 500 and Fortune 2000 companies,” explains Nelson.

ValueCommerce targeted the top brands in categories ranging from insurance to automotive.

“So literally, we were making sales calls every day for two to three months during the first quarter of 2000,” notes Nelson. “And using all of our spare time, which we didn’t have a lot of, we recruited and hired new staff for sales, marketing and technology to continue growing the business that first year.”

ValueCommerce is modeled after the same base structures for affiliate marketing in other countries, whereby an affiliate website is compensated via a finder’s fee for each visit to that site.

Nelson explains the major difference between his company during the early days and affiliate marketing companies in other countries was the payment structure. “Unlike other countries that had wide use of credit cards, in Japan, the system had to be created to allow for bank transfer, cash and post office payments, which were very normal in Japan. And so, the system had to allow for order approvals, in which payments could be made beyond just credit cards. That was one of the major differences,” he states.

SURVIVING THE DOT-COM BUST
As ValueCommerce entered the next year of operation, new challenges arose when the dot-com bubble burst in September 2001. Three months later, the bubble burst in Japan-around the same time Nelson stepped into the CEO position. “That’s when I really just had to focus on the cost base of the company and make sure that we could reduce the monthly burn rate that we had,” he states, “and continue to grow the revenues and profit of the company after reducing that burn rate to a manageable level.”

Nelson credits his management team and the cooperation of the support staff during that rough patch. What’s more, because the company acquired the large customer contracts in the early days, ValueCommerce eventually weathered the storm better than other Internet companies.

“Our customers had good budgets that continued beyond the tech bubble burst,” he adds.

ValueCommerce’s customer base comprises 50 different industries, 1,600 different e-commerce sites and 390,000 affiliate sites, which Nelson refers to as media. Where does the company fall into the mix?

“ValueCommerce sits in the middle,” according to Nelson. “We have those 1,600 e-commerce websites that contract with us and pay on a monthly basis commissions for all sales that we create for them. On the other side of that, we have the 390,000 affiliates (media) that work as re-sellers on behalf of those 1,600 e-commerce companies.”

The software platform that ValueCommerce developed works as a middleman to facilitate the contract between these two parties, allowing them to log in, create sales and marketing campaigns for themselves, make offers to the network of websites and start driving business that they can monitor live any time of the day.

The software also allows for flexibility. Customers can manage their own business, or they can leave everything to ValueCommerce to handle the workflow for those customers, which falls under its consulting arm.

He adds, “That consulting business along with our standalone application service provider system allows for two large customer bases that continue to grow.”

THE YAHOO JAPAN DEAL
Nelson explains that when you examine Japan and consider doing business in the country, you will see a very competitive marketplace-the second largest economy in the world. “We are number one in the industry, with about 20 percent market share out of about 50 different affiliate marketing companies in Japan. So, there’s a lot of competition.

“I think people eventually understand Internet advertising when they [comprehend] the basics of affiliate marketing and realize what a cost-effective model it is, because you’re only paying for the sales you actually receive,” Nelson explains. “So, once companies start using this pay-for-performance model, they want to continue using it forever. That’s very efficient and why I feel the market still has a long way to grow.”

In 2004, ValueCommerce already was doing business with several Internet portals, except for Yahoo Japan. “It was very natural that we would go and do business with them,” says Nelson.

During talks with Yahoo Japan, Nelson says ValueCommerce looked at ways to compete in the local market for shopping, which was a substantial business for Yahoo. However, he points out that Yahoo’s main focus always had been on auction and its main advertising on the portal.

Negotiations took about a year and two months, according to Nelson. He adds that, “In February 2005, we completed a tender-offer bid to allow Yahoo Japan to buy 49 percent of ValueCommerce.” The partnership deal produced a new service called Yahoo Auction Affiliate, which enables a website or blog owner to market auctions of items sold by retail stores and individuals. If a user completes one of these auctions, then the owner of the website or blog receives a commission.

Today, Yahoo Japan owns a 45-percent stake in the company. “We closed out last year with around $50 million in revenue and $5 million in profit,” Nelson notes, “and that was after starting on a base in 2000 of around $2 million in revenue and not being breakeven yet.”

The company also has grown in manpower with 225 employees working out of its Tokyo headquarters.

LOOKING AHEAD
Where does Nelson see the industry heading over the next five years? He believes the attention will shift toward product databases. “Everyone’s running as fast as they can to provide the best applications for product databases,” he contends. Those who sell product want to make their merchandise more accessible to markets around the world and enable global customers to make those purchases.

In addition, Nelson points out that today’s global consumers not only want to see the products they have searched for, they also want to be able to comparison shop for the same product throughout multiple sites from various countries, and base their buying decisions on price and quality of service. Lastly, they want to know that they can purchase those products with ease.

Nelson says, “By putting together those payment models with the logistics and the product databases, you can see the future for our industry and for the world.”

We would appreciate your feedback. To submit comments, please e-mail the magazine at [email protected].

 


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