Can a small Japanese startup ride the smartphone wave to e-commerce success?

Can a small Japanese startup ride the smartphone wave to e-commerce success?

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Coach United’s CEO Nobuhiro Ariyasu

See the original story in Japanese.

Thanks to the progress that companies like Rakuten and Amazon have made in the e-commerce market, we can now easily purchase quality items for better prices online. But in Japan, the online retail market still accounts for less than 10% of the nation’s overall retail market, which means there’s still lots of potential for further growth.

One player out there is hoping to disrupt the Japanese market from a unique angle. Coach United is the Tokyo-based startup behind Cyta.jp, one of Japan’s leading marketplaces focused on private lessons. According to CEO Nobuhiro Ariyasu, their newly launched smartphone-optimized interface will be a turning point for the company, capitalizing on Japan’s increasing affinity for all things mobile. They plan to create a new kind of business where instead of selling just products online, they focus on ‘service e-commerce’.

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Cyta.jp provides users with information about 140 different private lessons (such as language learning, music study, or qualification acquisition) which are available at 3,000 locations around the country. Unlike other marketplace services which typically connect potential students to lesson teachers, the startup assures the quality of the lessons they introduce on the website by checking into who will teach or where it will take place. Since launching back in June of 2011, have served a total of about 20,000 users.

Shifting to Smartphones

Ariyasu explained the recent shift in their users’ preferences.

Smartphone access is rapidly increasing. It used to account for just 10% of all access, but it reached 45% back in June and has now surpassed desktop access.

Cyta.jp access statistics by browsing device (June 2012 - June 2013)
Cyta.jp access statistics by browsing device (June 2011 – June 2013)

As we reported several times before, smartphone access is increasing across many Japanese web services. Mr. Ariyasu believes in this trend, and is going to adjust his service accordingly.

We learned that people use smartphones during commutes and at home. Over the last two months, we’ve been focusing on developing a smartphone-optimized interface in order to provide [all] available features to smartphone users.

The startup isn’t selling physical products on side, but rather lessons in the form of a service. It requires a business strategy different from that of conventional online retailers. The company expects to standardize its strategy and expand business to other local community-based services. He adds:

We plan to allow users to book a local service using our website and consume it offline. These services include things like baby sitting, waterworks repair, and even decorative nail painting. Major e-commerce sites such as Rakuten or Amazon will not be able to sell these services online. But we believe consumers will want to buy them online.

This concept is somewhat similar to the group-buying service trends initiated by Groupon. It’s relatively easy to build a system that allows users to discover and find a service they may be interested in. However, in order to encouraging consumers to buy the service and give them a positive user experience, it probably requires a little more know-how. In fact, with group-buying services there have been difficulties in terms of how participating retailers delivered their services, often resulting in poor service quality.

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Cyta.jp has been trying to ensure quality by interviewing lesson teachers prior to hiring, or carrying out surprise inspections of lessons via ‘mystery shoppers’ (so to speak). It is through this extra effort that the company plans to be a leader in the service e-commerce industry.

Personally I was a little unsure if this quality assurance policy could co-exist with business scalability. But Ariyasu explained:

I don’t think a costly business is unscalable, it’s a bit of a misconception. In fact, group-buying businesses were using a bunch of people for sales, but their business were successfully scaled. Whether or not your business is scalable depends on the whether you can be persistently profitable, so you can receive funds and invest in the business to scale up when needed.

It will be interesting to see what kind of an impact Cyta can make. And it will be perhaps even more interesting to see if many other young startups follow in this sort of service e-commerce in the future.