【IR】GMO Internet Group Strategy 2010< 株主の皆様へ >

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Update History
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Last updated: May 11, 2010

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Contents
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■About GMO Internet

■Web Infrastructure & E-commerce - Business Areas, Services, Market Share & Strengths

(1) Domain Registration
(2) Web Hosting
(3) Ecommerce Solutions & Web Development
(4) Internet Security
(5) Payment Processing
(6) Web Site Brokerage
(7) Characteristics and Strengths of the Web Infrastructure & E-commerce Segmen
(8) Performance Results in the Web Infrastructure & E-commerce Segment
(9) Web Infrastructure & E-commerce Segment Growth Strategy

■Internet Media - Business Areas, Services, Market Share & Strengths

(1) Why We are in this Industry
(2) User Numbers
(3) Companies and Services
(4) Internet Media & Search Media
(5) Internet Media Segment - Strengths
(6) Performance Results in the Internet Media Segment
(7) Internet Media Segment Growth Strategy

■Business Performance, Outlook & Return to Shareholders

(1) Business Performance & Outlook
(2) Return to Shareholders

■General

■Disclaimer


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About the GMO Internet Group
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- The GMO Internet Group includes 48 consolidated subsidiaries (including 5 listed companies) and around 1,700 full-time and part-time employees. The business group is listed on the first section of the Tokyo Stock Exchange. (March 2010)

- Internet for Everyone has been our corporate slogan ever since we launched Internet business operations.

- In August 1999 we became one of the first Internet companies to execute an IPO in Japan. Today we are a comprehensive Internet group operating in two business segments, Web Infrastructure & E-commerce, and Internet Media.

- If you were to summarize in one sentence our business activities over the past twelve years you could say that we are the company who has most increased the number of websites in Japan, or the volume of information available over the Internet in Japan.


- The following images provide a look at what we do.
This is an overview of our Web Infrastructure & E-commerce segment.



We provide all the services necessary for businesses and individuals to communicate information over the Internet.

With Web Infrastructure & E-commerce segment contracts totaling around 1.8 million, we are a leading force in Internet infrastructure in Japan.



-There are two facets to our media business.

The first is;
Helping those who communicate information over the Internet to attract site visitors through:
(1) SEM Media (Developed and sold by the GMO Internet Group)
In the image below, the red box represents the space we provide for advertising. The orange box represents services we provide to ensure our customers websites are prominently placed in search engine search results.
(2) Internet advertising agencies
The blue box represents the space we sell for listing advertising.



The second is;
like television, we provide Internet users with services that are fun, free, and convenient. Advertising relevant to content is distributed to these services and we receive income anytime a user clicks on an advertisement.



- We are the only company in Japan to produce and sell all the services required by individuals and businesses to operate on the Internet.

- In Japan around 920,000 businesses and 880,000 individuals use our fee-based services. That is a total of 1.8 million customers. Globally our Internet security business has 20 million customers. There are 5.7 million businesses in Japan (including 2.85 million incorporated companies) (*4) so you can see how large a share we hold in the domestic market. (March 2010)


- We have four major strengths.

(1)The advanced technical resources that allow us to build almost all of our services from scratch.
(2)The sales and marketing power to sell the products and services we develop evident right throughout the group.
(3)Customer support recognized as an industry benchmark.
(4)The research strength that allows us to identify trends their infancy

An analyst report once stated that we were an organization made of steel. I would boast that our greatest asset is the formidable organization that supports all of the above.



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The Potential of the Internet
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What possibilities do you imagine for the Internet?

The impact and speed of the IT revolution can be likened to that of the Industrial Revolutions.

The First Industrial Revolution lasted for around 56 years and the Second Industrial Revolution continued for another 50 years.

Ten years into a third industrial revolution or the IT revolution, we recognize that we are still at the dawn of an era.

There is still much to look forward to from the Internet industry.



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Web Infrastructure & E-commerce
Business Areas, Services, Market Share & Strengths
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- We have two business segments. The segment responsible for the increase in websites I mentioned above is represented by the circle on the left in the diagram below, it is the Web Infrastructure & E-commerce segment.



- In this segment there are five services that stand out for the significant market shares they hold. Those services are denoted below by a star (*).



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(1) Domain Registration (*)
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- .com and .co.jp are examples of domains. A domain is an address on the Internet. We are the leading domain registration company in Japan.

- The domain business provides yearly service contracts so yearly growth is clearly visible.

- In the first three months of fiscal 2010, we reported sales of 570 million yen, a 5.4% year-on-year decrease. We currently have over 1.27 million active customers. (March 2010) This is a 39.9% year-on-year increase.

- The personal-use domain business is performing particularly well.

- We are now strengthening sales and running a campaign to attract new acquisitions of business use domains.

- Our cumulative market share in Japan is in the mid-forties (*1)
Our monthly market share in Japan is over 50%. (*1)

- We are overwhelmingly number one in this business area.



- Some of our Services:
onamae.com (discount-domain.com) http://www.onamae.com/
MuuMuu Domain http://muumuu-domain.com/

Three GMO Internet Group services are ranked in the JPRS (Japan Registry Services) top ten dot jp domain registration companies. JPRS ranks companies by number of registrations. (November 11, 2009)

http://jpshop.jp/list/gjp_list/gjp_pl1_01.html (Japanese only)

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(2) Web Hosting (*)
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- Web hosting services provide the rental servers needed to get web sites up on the Internet. We are the leading web hosting service provider in Japan.

- In the first three months of fiscal 2010, sales reached 2.27 billion yen, a 1.6% year-on-year increase. We currently have around 440,000 active customers. (March 2010) This is a 12.1% year-on-year increase.

- Personal-use web hosting services are performing particularly well. We are expanding both high-quality, low-priced services and high-quality, full-support, premium-priced services for business customers.

- Our cumulative market share in Japan is in the mid-forties (*2)
In this field we are also overwhelmingly number one.



Some of our Services:
iSLE http://home.isle.ne.jp/
RapidSite http://www.rapidsite.jp/
Onamae.com Shared Server SDhttp://www.onamae.com/service/shared/sd/
Marugoto Server http://www.marugoto-server.jp/
@YMC Rental Server Service http://www.ymc.ne.jp/
Lolipop! Rental Server http://www.lolipop.jp/
chicappa! http://chicappa.jp/?mode=top
heteml http://heteml.jp/


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(3) E-commerce Solutions & Web Development
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- Allow me to explain our e-commerce solutions (shopping cart) business.

- We provide a system with which anyone can easily build an online store. The difference between our service and Yahoo! or Rakuten is that we help customers to build actual online stores.

- In the first three months of fiscal 2010, sales were 460 million yen, a 17.0% decrease.　We currently have 41,537 active customers (March 2010), a 32.9% year-on-year increase.



- The following graph is a competitor comparison of the shopping cart market. We have emerged as number one in the market, and are continuing to grow.



Some of our services are:
MakeShop http://www.makeshop.jp/
Color Me Shop! pro http://shop-pro.jp/
Marugoto EC http://www.marugotoec.jp/

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(4) Internet Security (*)
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- SSL server certificates encrypt confidential business and personal information (names, addresses, telephone numbers etc.) to be transmitted over the Internet, provide proof of identity, and prevent against information leakage. SSL services are essential to e-commerce businesses.

- This is the domain of the GMO Hosting & Security Inc.(English) (Tokyo Stock Exchange, Mothers Market: 3788) subsidiary, GlobalSign K.K.

- In October 2006 we acquired GlobalSign NV, a certificate authority that has been issuing SSL server certificates in Europe for over ten years. Effectively this allowed us to make the important transition from certificate authority sales distributor to fully-fledged certificate authority, reducing costs and enabling us to develop authentication services that meet the specific needs of our customers.

- We have now established sales offices in the Europe, Japan, North America, China and Singapore, and we continue to expand sales globally.

- In the past, as a GeoTrust sales distributor in Japan we took the service’s market share from 0% to 30% in just four years. Now we are using the same selling power to actively build sales in the Japanese market and worldwide.

- We hold the second largest domestic market share, the business is continually expanding and we aim to capture the top market share within three years.


- We currently have 28,125 active customers. (March 2010) This is a 17.3% year-on-year increase.


Some of our Services:
GlobalSign:
http://jp.globalsign.com/international_site/

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(5) Payment Processing (*)
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- We provide payment processing services for the sale of products via the Internet. When users provide their credit card numbers to our customers we check the credit limit and process the payment.

- This is a Payment Gateway Inc. (Tokyo Stock Exchange, Mother's Market: 3769) service.

- In the first three months of fiscal 2010 sales reached 770 million yen, and ordinary profit was 270 million yen. (Payment Gateway Inc. figures revised to the GMO Internet accounting term) Sales rose 22.9% year-on-year and ordinary profit was up 20.6% year-on-year.

- Our cumulative market share in Japan is 15% (*1).
This is another business area in which we hold the number one market share.

- As long as the e-commerce market grows and the number of transactions continues to increase our earnings will also increase.

- We are also making efforts to cultivate the new recurring payments market. In 2006 we began providing services to NHK for the collection of license fees and we now provide services to the Tokyo Metropolitan Government Bureau of Waterworks.
We also helped to introduce Japan's first credit card payment processing service for tax payments in Fujisawa city, and in April 2007 we began providing services to Japan Post.

Osaka Prefecture has become the first municipal government to move their various application procedures online and we are now handling their payment processing needs. In addition, we have been contracted to mange credit card numbers for national pension insurance payments made by credit card to the Social Insurance Agency.
Most recently, the Kyoto prefectural government has confirmed it will adopt our public sector service to process credit card payments of “Furusato Nouzei”, a system that allows residents of Japan to allocate part of their municipal taxes to the city of their choice.

We have been successful in cultivating markets like the public sector that had not previously accepted payments by credit card.

- Government agencies are now considering accepting credit card payments for national tax, local tax and pension plans.
The recurring payment market will continue to be a growth area in this industry.



Some of our Services:
Payment-One http://www.payment-one.com/
Epsilon http://www.epsilon.jp/
CCS http://www.gmo-pg.com/service/product/
Asnal http://ww2.asnal.com/usr/com/

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(6) Web Site Brokerage
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Over the past few years web sites have come to be recognized as assets.
In October 2008 we entered the web site brokerage market with the acquisition of Japan’s number one web site brokerage business.
This acquisition further enhances our one-stop service and our line up now ranges from domain acquisition (entry point) to web site sale (exit point).

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(7) Characteristics and Strengths of the Web Infrastructure & E-commerce Segment
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- Overall the Web Infrastructure & E-commerce segment is overwhelmingly number one in its field. Despite being in competition with major carrier businesses, our domain registration and web hosting businesses boast leading market share, customer satisfaction, sales and profit.

- Each of the Web Infrastructure & E-commerce businesses have large customer bases. Building an economy of scale has given us growing operating profit margins. The operating profit margin on each of our products and services is 25%-30%.

- The Web Infrastructure & E-commerce segment has five exceptional features.

(1) A steadfast income model
Once a customer signs a contract we have a continuing source of income creating a stable income business.

(2) An industry that won't disappear
The Internet industry will continue to exist indefinitely. Take the example of the automobile industry. People get a new car about once every four years. However, even when cars change, the need for roads, traffic lights, parking lots, toll booths and other infrastructure remains. Imagine websites as the cars, ISP services as the roads, domains as the traffic signals, rental servers as the parking lots and payment processing as the toll booths. As long as the Internet continues to exist so will our business.

(3) People rarely change web service providers
Changing web or mail servers is a tiresome task that users rarely undertake.

(4) Customers don't stop using our services
Customer URLs and e-mail addresses are printed on the business cards they hand out every day. These are services that they don't stop using.

(5) Natural Cross Sell
The structure of our product and service range is such that there is a natural appeal among products and services. A customer who purchases a domain name cannot do anything with it unless they have a server. Approximately 15% (*1) of customers who use rental servers are using them for e-commerce purposes. Those users will then go on to use payment processing, security and shopping cart services. A certain percentage of those customers will also be interested in advertising support services.

- The infrastructure business is (1) stable (2) permanent and (3) a high margin business with a large market share. It is a price leader that continues to grow.

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(8) Performance Results in the Web Infrastructure & E-commerce Segment
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- In the first three months of fiscal 2010, sales reached 4.9 billion yen, with an improvement across all segments and a notable turnaround in access and ecommerce solutions and web development.

- Operating profit in the first three months of fiscal 2010 was 740 million yen, a 7.6% year-on-year increase. Growth in security and payment processing offset the continuation of a low pricing strategy in the domain business.





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(9) Web Infrastructure & E-commerce Segment Growth Strategy
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We have an extensive and diverse line up of products. The domain registry business (DotShop application) is closely linked to our ecommerce strategy. This section explains how.

(1) Strategy Overview
1) Ecommerce focused product strategy
2) Expansion from domestic to global marketplace

Here is why we have decided to move in this direction.



(2) Target Customers
According to our research, 5.4% of all websites are engaged in ecommerce. This market segment is where we are focused.



(3) Growing our Ecommerce Customer Base
There are two avenues for growing our ecommerce business.

Through our domain registrar and ecommerce solutions businesses we are already the most widely used ecommerce provider in Japan

With the global launch of registry business operations we aim to provide not only domain names but all-in-one ecommerce ready packages worldwide.



(4) Product Strategy

We provide domain, shopping cart, security, and payment processing services, all the tools required to establish an ecommerce shop.



We also offer store revenue-boosting services. In order to maximize revenue, ecommerce stores need to attract customers, achieve high conversion rates, and retain customers. We provide all the services needed throughout this cycle in an all-in package solution.



Two new marketing solutions have been established. Kuchikomi.jp is a product comparison site, and GMO Toku Toku Shop is an SEO optimized shopping site. Both sites exist to drive more traffic to our customers’ online stores.

We are the largest shopping cart provider in Japan providing online carts to over 40,000 customers. Going forward, we aim to expand our point reward program to more stores and increase the number of points in circulation.



It is our goal to provide high-quality, low-cost ecommerce packages to Japan and the world. By giving both online stores and their customers a positive ecommerce experience we will be able to grow the DotShop domain worldwide.

For 15 years we have operated as “Internet Department” to Japan, we strived to expand net infrastructure services, and we gained the leading market share in Japan. Going forward, as “Internet Department” to the world, the entire group is committed to acquiring DotShop.

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Internet Media
Business Areas, Services, Market Share & Strengths
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We advanced into a second business area directly after being listed on JASDAQ on August 27, 1999.

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(1) Why We are in this Industry
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There are two reasons why we are in the Internet media business.



(1) Synergy with the Web Infrastructure & E-commerce business
Customers who start up e-commerce businesses need advertising in order to increase sales. By providing search ranking services, SEO, SEM and other tools we achieve better customer satisfaction, capture more customers (cross sell) and achieve a higher profit ratio.

(2) Our Long term Plan (55-Year Plan)
We have a long term plan we call the 55-year plan. We plan to create an Internet group that by 2051 consists of 207 companies that are valuable to society and its people. In the Internet industry, the companies that succeed are the companies that can attract customers. Having our own media that attracts customers gives us an advantage over our competitors in virtually any market we enter.

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(2) User Numbers
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- The Internet has viewer ratings just like television. Internet Media segment services now have 29.16 million users (viewers) each month (March 2010) and we are the 6th largest media property in Japan.



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(3) Companies and Services
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- The Internet Media segment can be roughly divided into two businesses; the business of media “creation” and the business of media “sales”.

Media creation includes the following companies:
GMO Media Inc. http://www.gmo-media.jp/
JWord Inc.http://www.jword.jp/

Media sales are handled by the publicly listed company GMO AD Partners Inc. (Osaka Stock Exchange, Hercules Market: 4784) ,NIKKO,Inc. and GMO Internet Inc. (Tokyo Stock Exchange. First Section: 9449).

- Allow me to introduce six of our services that are used by over one million people each month. (March 2010)


- The composition of Internet Media sales is as follows.

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(4) Media & Search Media (Media Development)
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- The Internet media and search media business is driving growth in the Internet Media segment.

- Sales in the search media business are predominantly derived from the distribution of advertisements to group media through our ad network business and SEM Media, the sale of keywords by services such as JWord and SEO services that help customers achieve a prominent position in search engine search results.

- In the first three months of fiscal 2010, SEM Media sales reached 1.67 billion yen, a 35.8% year-on-year increase. Ad network sales in the same period were 630 million yen, a 5.3% year-on-year increase.



- Because SEM media is developed in-house, gross profit rate is high, driving profits in the media segment. We transferred sales representatives from our advertising agency business to SEM media due to the impact of current economic conditions, particularly on recruitment advertising.

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(5) Internet Media Segment - Strengths
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- We have the advanced technology to develop services used by millions of people, the marketing force to attract large numbers of Internet users and the stable operational capability to give tens of millions of users an enjoyable Internet experience. These are our three strengths.

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(6) Performance Results in the Internet Media Segment
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- In the first the years of fiscal 2010, sales reached 5.2 billion yen and we reported a 540 million yen operating profit, up 26.1% year-on-year.

Profits were up in both businesses.



- Here is a breakdown of operating profit in the Internet Media Segment. Profits on owned & operated media in the Media & Search Media business are growing. The recruitment advertising business withdrawal is expected to reduce losses in Advertising Agencies.



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(7) Internet Media Segment Growth Strategy
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In March 2010 we launched the Social Apps Initiative to support development of social applications.

As you all know, the social apps market is experiencing rapid growth worldwide. However in Japan, many would-be application developers and engineers are constrained by a lack of funding, resources and web hosting technology. We established this project to provide support in these areas allowing developers to focus their attention solely on creating apps.



Three hundred people randomly selected from one thousand applicants participated in the project kick-off conference. The conference was a huge success with participation from major platform providers Gree, DeNA and mixi as well as Japan’s most widely recognized game magazine publisher, Famitsu.



We received proposals for over 550 application titles that came from all over Japan. After a rigorous evaluation by our panel of judges, 27 proposals were selected, and the apps are expected to be released within the year.

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Business Performance, Outlook & Return to Shareholders
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(1)Business Performance & Outlook
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- The following graphs represent performance in the Web Infrastructure & E-commerce and Internet Media segments since 2002. As these graphs show, there has been continuous strong growth in Web Infrastructure & E-commerce and Internet Media segment sales and operating profit.



Outlook for fiscal year 2010 is as follows.


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(2) Return to Shareholders
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- Our dividend policy aims to pay out 33% of consolidated net profit in dividends. As forecast, we paid out 6 yen per share in fiscal year 2009.


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General
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- With the stable income of the Web Infrastructure & E-commerce base we are maximizing synergy between this segment and the Internet Media segment.

- We will continue to build an Internet group that contributes to the growth of the Internet based on the concept “Internet for Everyone”

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Disclaimer
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* This presentation document includes predictions based on expectations, premises and plans for the future that are accurate as of May 11, 2010. These predictions may differ from actual results due to factors including changes in the global economy, competition and exchange rates or unforeseen events such as natural disasters. Some of the figures given such as market share are based on our own calculations. These figures may differ from research agency figures.

* Information published on this site is provided for information purposes only and does not constitute a solicitation of investors. Further, the results forecasts and other forward-looking statements contain factors that are uncertain. Please understand that actual results may differ significantly as a result of forces including economic conditions and market environment. No responsibility is accepted for any damage sustained as a result of actions taken based on this information regardless of the reason.

*1 Based on our own calculations
*2 Total number of GMO Internet Group rental servers divided by 789 000, the hosting service market estimate for the fiscal year 2006 by the Foundation for Multi-media Communications in their research report on the future Internet service use environment.
*3 NetRatings Property Report (March 2010)
*4 Ministry of Internal Affairs and Communications, Statistics Bureau