Joi Ito's Web

Joi Ito's conversation with the living web.

From my column in Japan Inc.:

- I'm in the process of restructuring my business development company into a more scalable incubator.
0 November 29 was the Mothers launch party.
- On December 2, Taiga Matsuyama of the Bit Valley Association asked me to make a few comments at the Bit Valley meeting.
- A few days later, at the Net Vision meeting, Tetsuya Isozaki from NetYear made a very interesting comment.
- Also this month, I attended an interesting meeting where a government agency lined up Masayoshi Son, George Hara, myself, and various other outspoken venture people and started talking to us about its plans to set up a fund to give money to VCs.
- The National Land Agency study group on culture in Tokyo has been focusing on what sort of digital cultures exist in the city.

From my column in Japan Inc.

December felt like incubator month for me. I'm in the process of restructuring my business development company into a more scalable incubator. It appears that everyone is thinking about the same thing. Idea Labs announced their IPO and I have talked to several incubators recently, and it appears that the VCs are also interested in anything incubator-related. At the monthly Net Vision meeting, I spoke with Yoshito Hori from Globis, Kiyoshi Nishikawa of NetAge, and Satoshi Koike of NetYear about how to collaborate between incubators to build a venture community network.

November 29 was the Mothers launch party. There were quite a few people, and the CEOs of more than a dozen firms registering to IPO on Mothers were called onto stage to be introduced. The scary thing was, I knew most of them. In fact, the whole party was a bunch of familiar faces. The current network of entrepreneurs here is a small group of people. I think that the gating factor for Japanese Internet ventures is not the market, or the availability of capital, but the availability of entrepreneurs.

On December 2, Taiga Matsuyama of the Bit Valley Association asked me to make a few comments at the Bit Valley meeting. It was the first one I had attended, and there were over a thousand people - lots of young entrepreneur wannabes and prowling VCs. It looked like sharks at a tuna convention (a wry but accurate metaphor originally coined by Michael Backes). I think the reason why everyone is starting Net incubators is that somebody has to manage the interaction between the sharks and the tuna, or else someone's going to get eaten. In my remarks, I said there are now great opportunities to raise capital and build a company of substantial value, but that the focus should be on where one will be after the venture bubble goes away. Anyone who builds a real company in the next few years will prosper; anyone who thinks that an IPO on Mothers is the sole goal is sadly mistaken. Many of us will have our companies valued on a multiple of revenues. Later, investors will start asking about earnings. The key is to be ready to restructure the company as the capital markets change. Use the bubble to build value.

A few days later, at the Net Vision meeting, Tetsuya Isozaki from NetYear made a very interesting comment. He said the current Internet bubble in Japan was a mere $20 billion. In comparison, the real estate bubble that brought the Japanese economy down in the late '80s was worth several trillion dollars. The real estate market, however, operates in a tightly interconnected fashion, whereby any drop in values instantly echoes nationwide (and it did!). In contrast, in Internet space, any one auction site, for example, that goes out of business will not cause the others to do likewise. Isozaki calls this "foam" rather than a big bubble. He suggests that any possible negative impact on the economy from an individual "bubble" bursting was very small compared to previous bubbles.

Also this month, I attended an interesting meeting where a government agency lined up Masayoshi Son, George Hara, myself, and various other outspoken venture people and started talking to us about its plans to set up a fund to give money to VCs. Son took the lead in beating them up, with George and I lending support. Our point? It's no longer necessary for the government to be handing out money to venture businesses; there's enough capital around. What the government should be focused on is deregulation to allow these new businesses to operate freely.

The National Land Agency study group on culture in Tokyo has been focusing on what sort of digital cultures exist in the city. Obviously, Bit Valley and Shibuya form one cluster, but there are other clusters, including Aoyama/Omotesando and Akihabara. I believe there is no single "town" in Tokyo specifically suited for the Internet venture community. For instance, the trading companies and government agencies built Otemachi to suit their specific business and social needs. Anyway, I pointed out to Fumio Nanjo, a curator and city planner, that Internet companies were communities with very different needs, like low cost office space, space to network and socialize, and restaurants where staff can have productive meetings. He thought it would be interesting to talk to one of the local municipal governments about hosting our community and designing itself to our needs. This is the opposite of previous development projects - like Odaiba, the big land reclamation project in Tokyo Bay once touted as a "teleport" -- where the design is based on some individual bureaucrat's whim, without any input from the future inhabitants. Anyway, I may make this my next big project.

From my column in Japan Inc.:

- On November 21, Shobi Gakuin hosted Infowar-a conference based on last year's Infowar symposium at Ars Electronica.
- I also went to Silicon Valley this month. I spent a few days at Infoseek, a day at a new school called Ex'pressions, where I serve on the supervisory board, and spent the rest of the time zooming around the Valley, catching up with old friends and meeting new ones.
- I spent some time at Be Inc., now shifting its attention to the Internet appliance market.
I've also been spending a lot of time working with my Linux team.
- I also met Mr. Honda of Plathome for the first time.
- Finally, I swapped e-mail with Richard Stallman, the founder of the Free Software Foundation.

From my column in Japan Inc.

Last month was yet another busy one. On November 21, Shobi Gakuin hosted Infowar-a conference based on last year's Infowar symposium at Ars Electronica. Shobi Gakuin has started a new school, working in the field of media and policy. This intersection between the arts and policy is very important. Having participated as a member of the jury in the .net category for Ars Electron-ica for the last five years, I have come to appreciate how important the work of artists is in pushing the envelope of technology and focusing attention on the social and political impact of technology. Ars Electronica has also put together a very good series of speakers and a wrap-up panel. This year, Ars Electronica is recognizing Linus Torvalds for his creation of Linux.

I also went to Silicon Valley this month. I spent a few days at Infoseek, a day at a new school called Ex'pressions, where I serve on the supervisory board, and spent the rest of the time zooming around the Valley, catching up with old friends and meeting new ones. Hector Saldana, co-founder of enCommerce and a former Apple exec, was my guide for most of the trip. Hector, several of his partners, and I have been trying to come up with a plan to network consultants to help startup companies globally. He introduced me to the idea of consulting for equity, which is becoming exceedingly popular as a business model. He introduced me to Jeff Webber of RB Webber-a very successful consulting firm that offers consulting services to startups in exchange for equity. He now manages funds as well. Jeff is a funny, smart, and practical fellow whom I would like to have known when I started my first company. I think Netyear's Sonny Koike, Kiyoshi Nishikawa of NetAge, and myself should strive to become the Jeff Webbers of Tokyo.

I spent some time at Be Inc., now shifting its attention to the Internet appliance market. The BeOS is, I believe, absolutely the best operating system for broadband multimedia and appliances. I won't get into the techie details here, but it is truly multitasking capable and highly optimized. It runs very fast and audio won't skip, even if the CPU is loaded at maximum capacity. It is perfect for low cost, home Internet devices that need to do audio and video. Anyway, I'm very enthusiastic about this OS, and I've agreed to join Be as their first advisory board member.

I've also been spending a lot of time working with my Linux team. We are putting together a Linux portal to help users figure out which software works on which hardware. There will eventually be a strong community component to this. Linux has taken off in the U.S., but is starting to slip in Japan. The main reason is that since it is not a commercial OS, there is no "official" support for it. The distribution companies like Red Hat and Turbo Linux provide some support, but they're unable to cover all of the hardware platforms and related hardware developments. We are setting up a group to try to provide some basic information so that people can start providing support. I think this may be key to saving Linux in Japan.

I also met Mr. Honda of Plathome for the first time. For those who don't know him, he's a legend in Akihabara-Tokyo's famous electronics shopping district. He's been pushing new technologies forever and was one of the key players in getting PCs, the Unix OS, and now the BeOS into the Japanese market. Needless to say, he is quite a character. He is currently the distributor for the BeOS in Japan as well as a leading figure in the Linux community. We decided over sake and yakitori in Akihabara that we will support each other in our ventures.

Finally, I swapped e-mail with Richard Stallman, the founder of the Free Software Foundation. Richard pointed out to me that what is now called "Linux" was just the kernel portion of the operating system-really just a small portion of the whole OS (some say 3%). When talking about the operating system, the correct thing to say is GNU/Linux. GNU stands for "GNUs Not Unix," and it is a freeware version of various Unix tools. I agree with Richard. The media have warp-ed the word "hacker" to mean computer criminal, when it really means someone who likes to make cool things on computers. The media have also warped the term Linux to mean the whole operating system, when in fact it is more accurately just the kernel. But, like with the word hacker, it's probably too late to reverse this.

From my column in Japan Inc.:

- Last month, I wrote about the unauthorized access bill drafted by the National Police Agency that would finally make breaking into computers illegal in Japan.
- In the meantime, banks have decided that they don't want to take any risk.
- On the 18th of September, Austin Hill from Zero Knowledge Systems dropped by on his way back from the privacy conference in Hong Kong.
- Recently, I have been thinking about community and services on the Internet that support communities.
- Although there are various models of co-ops and other groups coming together for financial gain, I think that visionary and mission-driven communities empowered by the Net may be the next big thing.
- I had a chance to go drinking with the Bit Valley folks.

From my column in Japan Inc.

Last month, I wrote about the unauthorized access bill drafted by the National Police Agency that would finally make breaking into computers illegal in Japan. Since then, I've had further discussions with the police and with Mr. Yamaguchi, the director of JPCERT. To add to what I said last month, the bill is very much a "better than nothing" fix, but it isn't written in a very robust way. It gets things going, but still falls short. Remember that Japanese law is not built on a tradition of practical adaptations under common law. Instead, it's a highly complex interlocking edifice, and all the pieces have to fit precisely together. For instance, it is not illegal for someone to accidentally see something written on a piece of paper, and taking someone's bike for a ride and returning it is not "theft" under Japanese law, although someone could claim that some economic value was stolen during the joy ride. So in order to maintain this logic, it is difficult to make stealing information a crime, since the original information is left intact-the law interprets this as similar to looking at someone's notebook. Obvi-ously, digital information is not the same as physical objects, and accidentally looking at a notebook is different from an attack on a computer system, but the Ministry of Justice hates exceptions, and it looks like they will have to make a few in order to deal with computer crime.

In the meantime, banks have decided that they don't want to take any risk. If you look at any Internet banking agreement, you'll find that the bank places all the risk of theft of funds through computer networks on the customer. Debit cards in Japan do not have insurance either. If someone steals your debit card number and creates a forgery, they can steal money from your account and it is your tough luck.

On the 18th of September, Austin Hill from Zero Knowledge Systems dropped by on his way back from the privacy conference in Hong Kong. He told me that one of the major issues discussed at the conference was personal location information. Mobile phone networks in the U.S. are required by law to be able to provide location information to the police. Mobile phone operators in Japan are also working on how this information can be used for marketing. I can see many reasons why a customer would want to be able to use his or her location information for navigation and searching for information, but I hope everyone sees the risks of having location information available to a central authority. Imagine if someone kept a log of where your cell phone has been. You might start receiving annoying ads based on where you hang out - or think how easy a kidnapper's job would be if he knew your travel patterns. Don't believe the lawmakers when they say that law can protect your privacy. NTT employees have been caught illegally selling personal customer information before. Now that they can sell your location information, it's necessary to make it technically impossible for a bad employee to do this. So how does Zero Knowledge Systems help? It's a service that allows you to create e-mail accounts without giving out your identity. The ZKS system also uses strong crypto so that eavesdroppers can't read your e-mail. It will be interesting to see how this service will affect Japan's wiretap bill.

Recently, I have been thinking about community and services on the Internet that support communities. It appears no one has really found the perfect business model. When I say communities, I don't mean message boards on portal sites. I mean deep communities, like The Well. In Japan, although the Ministry of Finance wouldn't agree to provide basic tax exemptions as in almost all other countries, a basic nonprofit organization law has been enacted. I am interested in the notion that users of a Net-based service can set up an NPO and start or acquire a service that meets their needs, cutting out speculators, advertisers, and other middlemen unnecessary to a community that knows what it wants and can manage itself. It is likely that online communities can form around consumer activism or collaboration. The Linux community and its ability to produce software and coordinate members without a capitalist governance model is a good example. I had the opportunity to meet Linus Torvalds through a videoconference last month and his true lack of interest in money and his focus on fun really drove it home for me.

Although there are various models of co-ops and other groups coming together for financial gain, I think that visionary and mission-driven communities empowered by the Net may be the next big thing. Several people have approached me this month asking me to help them find a job that has purpose and vision. Many people seem to be interested in vision over gain, and I think the recent attention on growth, exits, markets, and gain may be stifling the need for visionary projects to "do good" rather than to "make money." Considering the exposure to NASDAQ risk that I already have, I'm going to hedge my bets and work on sustainable community projects. Together with my sister Mimi and my brother-in-law Scott Fisher, I've started a foundation in memory of my mother, called the Momoko Ito Foundation. It will focus on projects supporting the bicultural community here.

I had a chance to go drinking with the Bit Valley folks. We often get written up together by the press because of our physical proximity, but in fact I have had very little contact with Bit Valley until recently. I found it refreshing to spend time with so many energetic young people. I was also really pleased to find that we had very similar beliefs. Although we are all interested in setting up ventures and making money, we are also very interested in vision and doing the right thing. Many of the Bit Valley entrepreneurs were even more adamant about these post-capitalist ideas than I am. I don't see many of the Bit Valley types getting too excited about zaibatsu keiei (running a corporate conglomerate) any time soon. But it does appear that some of the zaibatsu types are very interested in Bit Valley-Hikari Tsushin has set up a "Hit Valley" center. On the other hand, this month, Digital Garage just launched a completely commercial site called WebNation, selling CDs and DVDs over the Net. "Click, Get, Smile!" and sell, sell, sell!

From my column in Japan Inc.:

I was on the National Police Agency (NPA) study group committee that put together the recent unauthorized access bill.
Next item on the Net security blotter was the Ministry of Justice's wiretap bill, clearing the Diet on August 12, likely as the result of pressure from the U.S.
What the Japanese Diet did not understand when deliberating the bill is that we are no longer in the days of analog wires, tapes, and headphones.

From my column in Japan Inc.

I was on the National Police Agency (NPA) study group committee that put together the recent unauthorized access bill. In the past, MITI has done most of the security-related policy work, setting up, for example, JPCERT-the Japanese version of the Computer Emergency Response Team-charged with tracking vulnerabilities and problems, and managed by the Japan Information Technology Prom-otion Agency (IPA).

This failed to address the fact that Japan did not have a law making computer breaking and entering-or even theft of computer information-illegal. As MITI was dragging their feet, the NPA got bashed at the Birmingham Summit for being the only developed nation without such a law, so the NPA took the initiative and put together a team to draft the bill. The NPA, which gets bashed when it tries to show any leadership, needed more political support, and the agency-often at odds with the Ministry of Posts and Telecom-munications (MPT)-took the odd step of joining forces with the MPT to get the necessary political backing to push the bill through.

As the midnight oil burned over the drafting table, the MPT and NPA allowed the shocked-to-be-left-out MITI onto the team, and produced a rather unusual three-ministry draft bill signed off by MITI, the MPT, and the NPA. Although I was on the committee and opposed it rather vehemently, a provision to require ISPs to keep logs for the police was still in the NPA's final draft version. A combination of the MPT's privacy concerns and MITI's desire to keep busi-nesses unencumbered by extra costs helped remove this provision from the final bill, which was passed by the Diet on August 13 and will be effective as of February 13, 2000. Now that the police have a law to enforce, the NPA and the various police forces are ramping up their cybercop resources.

So, some of the cops are getting smarter-but some are still pretty stupid. I was recently asked by Mr. Makino, the head of the Internet Lawyers Conference, to testify as an expert witness in a case in Osaka. The case involved the trial of a young man who had written a piece of software called FLMASK. FLMASK was a clever tool that allowed certain parts of graphic images to be scrambled into mosaics. The tool also allowed people to remove the mosaics, and the graphic image creator could add a password if desired. Obviously, it's a great tool for people running porn sites. Hardcore images could be uploaded, casual viewers would see suitably censored pictures, and anyone interested enough could see the goodies (presumably upon payment of a fee). The police didn't like this technical workaround of the porn laws, so they decided that FLMASK or no, a porn site was a porn site. They also decided that even if the site was offshore, it didn't matter. To make their point, they arrested and convicted one Mr. Maekawa who was operating a porn site offshore using FLMASK. That was rather disturbing for me, but when the Osaka prosecutors went after the author of FLMASK for having a link from his Web page to Mr. Maekawa's site (a user of FLMASK), under the premise that a link constitutes the running of a nonphysical pornography establishment (in Japanese mutempo fuzoku eigyo-the regulations regarding what constitutes mutempo fuzoku eigyo were expanded to include pornography on the Internet in April), it all became much too strange for me. This would mean that anyone who linked to some other site would be held responsible for the content on the linked-to site. I went and spent several hours discussing with the court and the prosecutors how silly it was to say that a link constituted active distribution of content which, in the case of banned images, constituted accessory to a crime. The verdict will probably come in January 2000.

Next item on the Net security blotter was the Ministry of Justice's wiretap bill, clearing the Diet on August 12, likely as the result of pressure from the U.S. When the ACLU asked the CIA under the Freedom of Information Act whether they had been putting pressure on Japan regarding cryptographic or wiretapping policy, they received the standard "we can't tell you the answer," which usually means that they did (see my homepage for a copy of the CIA's letter).

What the Japanese Diet did not understand when deliberating the bill is that we are no longer in the days of analog wires, tapes, and headphones. We are in the age of link encryption, PGP, and secure phones. The wiretap bill talks about the interception of e-mail messages, but what it fails to address is what happens in the case of strong cryptography, which can't be cracked by the police. In the U.S., the National Security Agency (NSA) and the FBI have tried to ban strong crypto-it's very inconvenient when listening in on crooks' communications.

Japan does not have a spy agency per se, so no one here's been focusing on this issue, but the U.S. has been putting pressure on Japan for added leverage during domestic policy debates. I talked to various politicians about the risk of a wiretap bill forcing a restriction on cryptography, which would limit Japan's competitiveness in e-business. As everyone knows, cryptography is a key element in secure transactions. Any effort to restrict strong cryptography dramatically increases the cost and the risk associated with e-business, and will have a chilling effect. According to lawyer Makino, even though the bill passed, what was discussed in the Diet will have an effect on how the law is implemented. I spoke to several Liberal Democratic Party (LDP) members asking them to push the cryptography debate onto the floor, with no success. I gave a briefing to various Minshuto (ruling coalition) politicians about this subject and Mr. Toru Unno raised my question on the floor. I think the exchange went sort of like:

Q: What about cryptography?
A: (MITI guy) We will make our best effort to decipher the encryption. (Note: I don't think 'best effort' is good enough for most strong crypto.)
Q: Will you restrict the use of cryptography?
A: (MITI guy) No. We do not expect to restrict the use of cryptography at this time. (Although cryptography exports are already restricted on a regular basis.)

So, hopefully, this exchange will give us e-business cryptography users a head start when the police figure out that the wiretap bill doesn't help them in catching any criminal with a brain, because they will all be using PGP.

Date: Sun, 03 Oct 1999 15:37:04 -0400

From: "Wayne Silby"

To: Joichi Ito

Subject: Re: NPO Buyouts and Sustainable Communities

Joichi- I liked the article on NPO buyouts and Sustainable Communities. It echoes some of the concerns that I have about the Net. Basically, almost every major player is there to get your credit card in some manner or fashion. And you make a good point about not being able to attract the talent that is now so concerned with stock options during this gold rush.

Of course we are in the same boat and we have investors who want the big returns for the high risk. Given some of my social change background, we have some desire to focus on the non-profit market. I am thinking of going to some of the foundations in the US that might be able to bridge this issue by financing and manifesting some of our work in the collaborative tools space.

The added value of working in this space might be that nonprofit share a common do good mission as opposed to focusing on profits. Accordingly, though some may argue with this, they may be ripe for the knowledge management tools that could be applied ACROSS their different organizations without fearing the consequences of sharing knowledge. We have one such application in development that is about people sharing their contacts, using our GroupDOT platform.

But I don't know where the "governance" controls are. In the mutual fund industry the users own the fund but make a contract with the manager. This contract must be approved annually. Perhaps some kind of user group committee is created, which might include a few representatives from management, that approves the contract with the "managers." They take into account profit margins, etc. Of course there are standard models in the mutual fund industry and our Internet industry now has no such standards for proper community management. This user group might approve of the kinds of ads that are placed, how often, fees and charges for special services, and full disclosure and review of sensitive content issues. Occasionally the user group may even authorize extra charges for a new service that they want for their groups.

What is accomplished by the above is that you don't get a non-profit mentality going among the managers. They need ways to win and create value and take responsibility. And the big "win" for the managers is that the community becomes more trustworthy with these controls, which will eventually keep and attract the choice users. I am both chairman of Calvert Funds but also sit on the holding company board of the Management company. It's an interesting dynamic and balancing act. But $3 trillion dollars has been entrusted to mutual funds, partly as a result of this way that trust it built. Of course this is also monitored by the SEC, but generally it is a self regulating industry.

Thanks for allowing me to share this and you may pass on these remarks as you see fit. Again, the key for me is to focus on the "standards" that the user group oversight board might develop in determining what's appropriate for revenue generation from the community but maintains the proper level of integrity.

Wayne Silby