Sharingtechnology Inc (TSE: 3989), Japan’s largest online matching platform for daily life services – H.E.R.O. Innovators Insights from CEO Keisuke Hikiji | H.E.R.O. HeartWare | 1 October

What do you do when urgent problems occur in your daily life? When you need a plumber to repair leaky pipes, an electrician to repair wiring, a caring specialist to handle your pet funeral, an expert to do piano tuning, a terminator to eliminate pest, and so on – do you know what to do or whom to call?

Sharingtechnology Inc (“STI”) (TSE: 3989) operates “Good Living 110” (, Japan’s largest online matching platform for daily life services that enables users to search, compare, and inquire about the optimal service provider in 7 key categories of 120 service genres related to services dedicated to solving common domestic problems in their daily lives, ranging from urgent matters (locksmith, pet funeral, glass window repair); reform, construction and repair (water leakage, piano tuning and repair); vermin (termite and pest elimination); housing-related (garden care, replacing tatami mats, electrical leakage repair); submission of lump-sum quotation (purchase of farm equipment, noise insulation work); IT (smartphone repair, PC repair); Others (signboard production, disinfection and odour elimination, taking over discarded cars, introduction of industrial doctors). 110 is the emergency police telephone number in Japan, equivalent to 911 in the U.S., 999 in the UK, or 144 in Switzerland.

STI partners with more than 3,000 service providers and member firms nationwide who are mainly handyman firms that can solve a variety of domestic problems, receives an average number of 2,700 inquiries per day, generates more than 1.7 million page views per month for the general platform website Seikatsu 110 and more than 2 million page views per month for its 200 vertical media websites such as “pet funeral 110”, “leakage repair 110”, and its 12-month (Apr 2017-Mar 2018) gross merchandise volume (GMV) is 7.9bn yen. Since STI first launched the Good Living integrated platform in 2013, more than 1.35m cumulative inquiries were received. STI also has its own 365/24/7 call center that is designed with a system to support its operation of multiple service genres and to increase the conversion rate of the inquiry traffic volume. STI also has its own proprietary ranking-based trading system to match member firms’ bidding price quotes, timeliness and other data in five stages to ensure higher conversion and customer satisfaction. STI has introduced since Aug 2018 the UBER-like MOVER service to match service providers and users with real-time GPS function and real-time schedule management function.

STI’s business model is able to generate a 26.7% operating profit margin on ROE (= EBIT/Equity) of 40% based on success-based matching fee as the main revenue generator (30% of the fee paid by the customer), as well as an introduction fee when STI introduces the user to the provider. Because STI does not charge a registration fee or any initial fee to firms that enter into an alliance, many member firms are attracted to register as service providers as the work referred from STI allows them to generate sales they otherwise would not have secured and they can make additional use of their tangible assets, such as equipment, as well as their intangible assets in turning idle time into income-earning time.

With its unique business model in connecting both service providers and the loci of demand, enabling member firms to enhance their capability to attract customers and the conversion rate through data analysis and improved call center managing ability, STI has been able to achieve exponential growth in its sales and profits, propelling a 125% increase in market value since its listing in Aug 2017 to US$330m. On 6 Aug 2018, STI announced that its cumulative 9M (Oct 2017 – Jun 2018) sales increased 151% yoy to 2.8bn yen and operating profit jumped 168% yoy to 828m yen, bringing its latest 12-month sales to 3.44bn yen (US$30.3m), operating profit of 920m yen (US$8.1m) and EBITDA of 1.03bn yen (US$9.1m). Management targets to achieve sales of over 7bn yen and recurring operating profit of 1.7bn yen in their medium-term management plan by the fiscal year ending September 2020.

“We solve problems that suddenly occur in daily life such as glass replacement, pet funeral, and troubles occurring every year in the fixed season such as termite extermination. Because few users think that they are willing to ignore or leave behind the problem, continuous demand is expected each year. Therefore, regardless of social conditions and changes in the surrounding environment, it is a market area that can generate stable earnings. There are a lot of users who do not know where and whom to contact when something goes wrong. On the other hand, there are countless service providers that solve ‘every day living problems’, including convenience stores. Until now, even if you search by telephone directory, flyer, or WEB search, the search for providers is very inefficient for the user, such as whether it matches the requested service or whether it can cope with the requested time. Many small businesses and individual business owners are busy with day-to-day operations and do not or cannot have a marketing viewpoint or advertising budget for their services or they still rely on the customer attraction method that utilizes the paper-based media in which the effects on sales are uncertain. There are also good local service providers who are not acknowledged, although they have sufficient knowledge and experience. It is our web platform that connects both. With our company becoming a hub, it is possible to efficiently match merchants to users’ needs. In addition, our system is designed to match member firms with high conversion rates. As a result, we can efficiently match member firms with user needs,” commented Keisuke Hikiji, the founder and CEO of STI who established the firm in Nov 2006.

On its new Uber-like MOVER Life Service to provide real-time matching, CEO Hikiji shared, “The current system was to inform the service provider after the online or call inquiry from the user and to contact the service provider again. When this new MOVER system is implemented since Aug 2018, we can grasp real-time the location information and schedule information of the member firms by using GPS information and new technology. You can grasp where each staff of our member firm is, and you can instantly match idle merchants that are located closest to the user, reducing lead time for the fastest response. By further improving matching efficiency, this has the effect of increasing profit by increasing the conversion rate and the user unit price rises greatly. Also, by arranging a nearby member firm store, it is now possible to provide services at a lower price, to dramatically increase affiliated stores that can respond to low-priced services such as replacing light bulbs and assembling furniture, which are in high demand but difficult to actively develop. We believe that demand for low-cost lifestyle services in a society with a declining birthrate and aging population will grow in the future. With MOVER, if there are multiple inquiries and jobs near the place where the provider is working on, it is possible to efficiently match based on these information and the provider can secure sufficient profit. With the operation of MOVER, not only every member firm but also every worker can do work orders, and we stand up as a platform for life services more than ever. We believe that it is our mission to build the only life service infrastructure in Japan that can provide speedy service at a lower price than anywhere. We will continue to develop services that meet the needs of life service markets while expanding service genres. In addition, we believe that there are many large companies developing B2C business that want these life service infrastructures, and only our company has this infrastructure to open up to them in new profit models.”

Attracted by STI’s unique platform, external partners are eager to forge business alliances to grow their businesses together. They include TEAR Corp (TSE: 2485) and Kamakura Shinsho (TSE: 6184) (in funeral services), Treasure Factory (TSE: 3093) (in reused goods), Mitsui Direct Insurance, LIFULL Group’s (TSE: 2120) LIFULL MOVE (in moving services):

  • 8 Sep 2017, STI enters into a business tie-up with Tear Corporation (TSE: 2485) ( which operates a network of 296 funeral hall and legal guidance services mainly in the Chubu, Kansai and Kanto districts, with the aim of increasing the number of service with benefits for Tear’s members who receive benefits and discounts at its 296 stores nationwide.
  • 19 Oct 2017, STI entered into a business alliance with Kamakura Shinsho (TSE: 6184) which operates the portal sites ‘Good Funeral’ (, ‘Good Buddhist Altar’ (, ‘Good Tomb’ (, ‘Heritage Inheritance Navi’ (, ‘Yahoo Ending’ ( and ‘Farewell Party’ website ( STI will introduce customers to Kamakura Shinsho through its online platforms to generate customer introduction fee. Information on about 800 funeral companies and 2,500 crematories allied with ‘Good Funeral’ will be included on sites operated by STI such as ‘Good Living 110’.
  • 20 Nov 2017, STI signed a customer referral contract with Treasure Factory (TSE: 3093) (, an online-to-offline retailer of reused goods such as furniture and home appliances mainly in the Kanto and Kansai region, including operating Cairiru (, a website for renting brand-name bags and accessories. STI will introduce customers to Treasure Factory through its online platforms to generate customer introduction fee.
  • 9 Aug 2018: Enters into business alliance with Mitsui Direct Insurance which has a GEICO-like business model in developing direct property & casualty insurance services through the Internet and telephone for individuals. Mitsui Direct currently offers its services to approximately 700,000 subscribers and the business alliance with STI is to match Mitsui Direct’s 700,000 subscribers to daily life services managed by STI’s platforms to improve customer satisfaction.
  • 14 Aug 2018: Acquires “Hikkoshi Cheki!”, which operates the website that allows users to gather information on moving and compare fees (,, for US$0.27m. In Sep 2018, Hikkoshi Cheki enters into a business tie-up with LIFULL MOVE ( of LIFULL Group (TSE: 2120) in Sep 2018. The LIFULL Moving website is registered by more than 100 moving  companies nationwide. This business tie-up builds upon the partnership with LIFULL MOVE to establish the moving price comparison website “Moving Over and Estimation Calculator King” where users can easily perform estimate comparison of multiple firms quickly.

When asked about how his entrepreneurial journey and how he came to start STI, CEO Hikiji said reflectively: I was born in Aichi prefecture in 1985. It was around the age of 19 that I jumped into the business world. At that time I imported the clothing of a famous apparel brand of the United States which had no regular distributor in Japan and sold it online as a sole proprietor in 2004 when I was still a university student in Kyoto. At that time, the apparel were sold at 3,000 yen in America and 10,000 yen in Japan, but there were still many people who wanted them. I had longed for the life of a carefree backpacker when I was in high school. With the profits made, I fulfilled my dream when I was a first year college student, and I went on a trip to Asia alone. I went around Thailand, Vietnam and Cambodia. However when I started to live locally, I got tired of it in a couple of days. Perhaps the imagination was too swollen to actually live a life like this. I lived locally for about a month, but the feeling of finding more interesting things is rising and I returned home. I suddenly lost the dream that I have been holding on to. I want to find other goals but I cannot find it. I definitely did not want to do job hunting, getting a job without a purpose. I was born and raised in a relatively strict family, had a tough educational environment, but I could not go on studying. After experiences in the online business, I remained interested in the IT business. I passed the examination to enter an incubation facility managed by a venture house in the Aichi prefecture and became a member in 2006. I was surrounded by people of in their 40s to 50s and I was able to learn a variety of things related to entrepreneurship. At that time I did not understand well about management and challenged a variety of things and failed. By seeing various entrepreneurs, I became conscious of the way of life as an entrepreneur by touching various information. The period of 2006 to 2012 is road of trial and errors. I build marketing systems using questionnaires for restaurants, matching sites with sales representative services and companies wanting sales, and information services on mobile, but none of them worked out. There was still a little money left from profits I made from the net shop earlier which I use in the Nagoya’s subway advertisement for the information site and suddenly there were three cases of inquiries. After that, it evolved to become Net 110, a business that mediates various services such as the installation of internet business lines between residents and real estate offices nationwide which has certain success. I divested the business into spin-offs and sold them.”

“While operating the Net 110 Business and talking with real estate brokers, I noticed that it was difficult for many people to find the right daily-life service provider to solve unusual or rare problems or troubles interfering with everyday life, such as rain leakage, water leakage, extermination of termites, or building reform and repair. While some of this kind of problem needs urgent attention, it often was not easy to efficiently find an appropriate service provider, as such problems are encountered infrequently and often are urgent. Despite the widespread nature, often-urgent, unscheduled, unusual, or rare occurrence of need for these services, no major companies were chasing this sort of business, that was usually handled by small-scale neighborhood companies, but these tended to make little or no use of the internet to attract customers, and their existence often was unknown to people needing help. Taking advantage of the experiences accumulated, we started the current sharing economy project in 2012 called Ritz. There was a common know-how in connecting many member firm stores that exist throughout the country. After engaging in various types of Web businesses and the call center business, I conducted the matching business that connects service providers with users who need certain services. There were many cases in which the local providers who are not good at advertising their services were able to respond to our platform because the quality of matching service was high. Ritz was renamed Sharingtechnology Inc in 2015. By leveraging speed and the ability to get things done, I continue pursuing the optimal matching for all life services to deliver new value to both service users and service providers and business partners. I want to pre-read my sensibility and the flow of times and keep improving the world better and better. I want the workers to experience the excitement to create the future. I will continue to push forward with such thoughts in mind.”

Given the astroturfing (fake “grassroot” campaigns) problems that plagued reviews-based business models like Yelp and Dianping (SEHK: 3690), including fake reviews written by business owners and the manipulation of reviews based on participation in the ad program such as removing or suppressing negative reviews if they purchase advertising, the problem of ensuring consistent customer satisfaction is difficult to solve via the “online Yellow Pages” business model, which makes STI’s matching platform stand out even more. Intrigued by how STI’s matching technology work, we asked CEO Hikiji to elaborate and he was forthcoming in sharing the details: “STI’s proprietary trading system for matching services with those needing them is also a database of information on member firms and customers. Via the Sharing Place, member firms receive information on inquiries and referrals, and can make a bid for the work. As it is cloud-based, members can access it and obtain inquiry information from anywhere via PC or smartphone. The always-accessible matching service has resulting in the building up of a database in the Sharing Place, including trends in user needs and a track record by region and each member firm’s specialty and characteristics. We analyze order placement rates and other data for each service category, use the analysis results to quantify each firm’s competent service area and realize a high ratio of successful matching that satisfy user needs. Among the member firms that receive the information of the request via the Sharing Place, only the first responder can directly communicate with the prospective customer and submit a price quotation. If the customer accepts the offer and an agreement is reached, the member firm then provides the service and the customer pays the agreed amount to the firm. Subsequently, STI receives a part of the amount as a commission fee (pay-for-success fee) from the firm. From the perspective of the member firms, the work referred from STI allows them to generate sales they otherwise would not have secured, and to make more efficient use of their resources.”

“Through our rich database platform, we accumulate various data and we will match the member firms’ businesses in five stages for each service genre. The criteria are past sales performance, unit price of service, order booking rate, conversion rate, area of coverage in detail, customer satisfaction, etc. We analyze actual value such as order booking rate and other data for each service genre, assess each member firm’s competitive service areas based on the analysis result, and realize high matching proposal according to user needs. When the call center receive inquiries, we will send emails to the highest-ranking business operators, we will grant access to the client for the first operator to raise their hands. If the highest-ranked business operator does not return the inquiry after a certain period of time, we will send an email to the next ranking business. If it is a case that requires speed, this takes place every five minutes.“

“Through interaction with member firms, valuable information, such as latest customer trend and user needs, is absorbed and analyzed. We can therefore grasp what kind of needs exist outside our service areas and identify which of member firms can satisfy such needs, based on the registration data of member firms. As such, it is relatively easy for us to define and expand into a new service category and smoothly roll out its matching service.”

CEO Hikiji also shared their plans to expand into new service genres and increase the number of member firms to 25,000 service providers: “The sales of our Web business is calculated by the number of inquiry traffic × CVR (conversion rate) × user unit price, and these figures are steadily rising at each site. For example, pet funeral 110 generates an 80% yoy increase in traffic, 18% increase in CVR, 13% increase user unit price based on monthly sales in March 2018. In order to increase the number of inquiries, active investment is necessary and we are promoting measures to raise traffic by improving usability of the site, adding continuous content and content enhancement, optimizing WEB advertisement, etc, acquiring traffic without using advertising expenses. To raise CVR, we do A/B testing with the accumulated data to improve the efficiency of matching. To raise user unit price, we analyzed implementing various initiatives based on member firm store data. In the future, we will continue these measures and plan to launch about 28 new sites. Using over 80 million yen (US$708k) in making detailed website pages, we will expand the number of member firms at Good Living 100 which is currently 5,500 companies to at least 5 times the number of 27,500 companies.

When asked about the barriers to entry and competitive edge, CEO Hikiji summarized their three success factors: “It will not take overnight to gather more than 3,000 merchants nationwide into our platform. The presence of more than 3,000 member firm stores has become one strong entry barrier. By making an alliance with STI, member firms can attract more customers and obtain an opportunity to increase business and to make additional use of their tangible assets, such as equipment, as well as their intangible assets in turning idle time into income-earning time. Because STI doesn’t charge a registration fee or initial fee to firms that enter into an alliance, we are favorably received by many service providers. We have adopted a ranking-based system to give priority to member firms with a higher order booking rate, so that they are the first to be introduced to prospective customers. We give advice to member firms in order to boost their rates and are thus strengthening our Win-Win relationship. Another barrier to entry is the creation of a virtuous cycle based on the accumulation and use of data. The more matching services used, the more we can accumulate information on users’ needs and trends by region, information on affiliated stores, and the matching rate and profitability will improve. We can also directly attract users to the vertical media sites of each genre via the ‘Good Living 110’ platform and search engines such as Google. We also regularly disseminate useful ‘pearls of wisdom’ content for daily life to educate users to have some knowledge of the service details that will help when selecting the right service provider or observing the work performed by the selected service provider, and we are making efforts to enrich our lives.”

“The third barrier to entry is the call center operated by the company. When a call center worker receives a request for the contact information for a member firm, the appropriate-category caller-response questions are displayed on the worker’s computer monitor, which optimizes services and gives us consistent quality. The knowhow to receive telephone inquiries of several genres at one call center has been established. It is not easy to create such a call center. Even if we manage a new genre of vertical media site in the future, the existing call centers can be used. In this case, even if the company’s sales increase, the cost will rarely increase, so the marginal profit ratio is considered high. We continue to improve reception talk manuals, service menus, service pricing, etc., so that we can provide services that match user’s requirements. In Oct 2017, we invested 10m yen for a 4.76% stake in 6CNS which provides call center development and innovative service utilizing voice-emotion-recognition artificial intelligence (AI). For telemarketing operators, 6CNS utilizes Level 4 technology, Japan’s highest level in the Advanced IT Engineer Examination, has made its newly-developed AI engine learn Japan’s highest call center knowhow, and provides innovative services. The company is also studying themes such as language analysis by using recorded audio data (transcribing spoken words), customers’ voice recognition technology, voice synthesis technology, and dialogue engine technology. We are adopting more AI and targeting improvement in the conversion rate, making it even harder for others to compete with us. We believe that learning the big data accumulated by us will speed up development and lead to a significant cost reduction. Thanks to the above three success factors, STI has established competitiveness, which is hard for others to replicate. Daily-life service providers in STI’s focused categories tend to be small in scale, have a moderate local-region monopoly, and therefore be competitive in their small service areas. We believe that welcoming these firms to our network of service categories, we should be able to establish a sustainable monopolistic situation in these specific categories and realize high profitability.”

STI also undertakes an active M&A strategy in bolt-on acquisitions to integrate into its platform business model. We were concerned by the pace and number of acquisitions and the ability of STI to integrate these new businesses into its overall business model and strategy. We were surprised to learn that some of these new acquisitions have since proven themselves and done very well, especially Re-Abroad ( and, which operates the overseas study service site that places the applicants in language schools and was acquired on 7 Feb 2018 for US$1.19m, CEO Hikiji said: “By matching applicants with the free time and vacancies at language schools, we offer overseas study services at nearly half the prices of major companies. Since we acquired and integrated the company into our platform and technology, the number of applications has reached record high growth of 235% yoy in March 2018, 237% yoy in April, 352% yoy in May, 451% yoy in June, 452% yoy in July, 368% yoy in August. Re-broad’s latest sales at the time of M&A is 222 million yen and we target 400 million yen this year.”

CEO Hikiji added: “We did M&A with three strategies. Strategy A is expected to take advantage of the target companies’ WEB marketing expertise to anticipate short-term investment recovery. Strategy B aims to expand corporate value by making investment in high growth companies. Strategy C aims for stable business continuity with abundant net assets against purchase price:

Strategy A:

  • Idealink Co ( in Nov 2017 for US$2.12m. Idealink operates the matching platform website Franchise no Madoguchi or ‘Gateway to Franchise’ (, Credit Card Comparison Navi (, Credit Card Now which compares and ranks credit cards by their benefits ( For instance, we believe that Idealink’s users who want to be registered at the Gateway to Franchisees and STI’s member firms in the daily-life service category have many common features and that synergies can be expected in business management.
  • Apexy Co which operates website that publishes knowledge related to money and useful information ( closed in Apr 2018 for US$1.32m,
  • ArchiCloud interior construction comparative estimation website ( (Apr 2018).
  • As a result of these strategic M&As, the total value of acquisition is about 2.4 billion yen, the total net book value of the target companies is about 2.5 billion yen. The latest EBITDA for these 3 M&As is 127 million yen.
  • Another recent acquisition was iPhone emergency Kyukyusha repair website ( for 160m yen (operating profit 58m yen) which was closed in Jun 2018.
  • On 29 Aug 2018, we invested 70% in Discover Inc. which owns and operates movie and video shopping website ( STI is interested in “Discover’s product excavation power, EC site management knowhow and online market share”
Strategy B:
  • Re-Abroad Inc which provides consulting services for overseas studies ( and closed on 7 Feb 2018 for US$1.19m,
  • On 29 Aug 2018, we invested 30m yen (US$0.27m) in TAMA Co which engages in the planning, development, and operation of online games such as the baseball simulation game “Clash! The Strongest Professional Baseball Dream Battle”. TAMA has obtained the official license from Japan professional baseball organization.
  • On 19 Dec 2017, we acquired VISUALIZE Co ( which develops and operates game applications. It also provides content creation and consulting services for mobile phones. Visualize has many excellent engineers, development and operation of game applications, system. It is a company dealing with development, production, AI development etc. We plan to make use of IoT even in the residential-type private housing hotel business

Strategy C belongs to Denshi Print Kogyo and Meishi Consultant. The purchase price of the two companies is 1,800 million yen. On the other hand, the total of the two most recent book value of net assets is 2,520 million yen. The difference between the purchase price and the book value net worth is negative goodwill. The total average sales for the past three years was 2,460 million yen, the total EBITDA after adjustment (adjusted for the cost expenses required after the acquisition) is 165 million yen.

“Regarding M&A and new business, we are considering the ratio of annual operating profit that can be generated in the short term to the invested funds is around 30%, and this proportion for the WEB business under Strategy A exceeds 30%. Although the acquisition project seems inevitably invisible at first glance, by avoiding large projects, we avoid the risk of becoming irrecoverable with one big failure. Also, as a whole, we are doing projects that we believe are likely to cause growth in the core businesses are also generate steady cashflow. Since we can utilize existing knowhow in vertical media site and call center resources, the possibility of failure In the launch of a new genre site will be small, and even if it fails, it will be hard to think that it will result in financial damage.”

STI is also expanding into the Airbnb private housing hotel accommodation “minpaku” business. Japan’s long-anticipated home-sharing act went into effect on 15 June 2018, which legalized the renting of private properties as lodgings through services like Airbnb — a practice called minpaku in Japanese — but capped rentals at 180 days per year and required owners to install safety equipment, confirm the identity of their guests and maintain a guest registry, as well as obtain a municipal confirmation number. Local governments can also add their own rules. Airbnb, which was the focal point for practically all Japan’s home-shares, had about 62,000 properties listed in the country at its peak this spring. In early June, Airbnb stopped listing properties that lacked official permits or had not registered confirmation codes from local governments as required under the new law, and listings plunged to about 13,800 — roughly 80% below the peak. By June 15, the count had recovered to about 27,000 as some owners received confirmation keys and re-registered.

CEO Hikiji commented, “Triggered by a surge of foreign tourists, a shortage of accommodations in Japan has become a serious issue. STI has taken this as a business opportunity and has launched a minpaku-type hotel business. Minpaku means rentals of vacant rooms in private residences to travelers. The Special Provision of the Japanese Hotel Business Law in National Strategic Zones, applicable to Airbnb-style rentals or minpaku rentals, was enforced in October 2016. This special provision enabled us to adopt a model for use of all rooms of a new apartment building as minpaku rooms. Minpaku operation requires a much smaller initial investment than that of conventional hotel operation and can generate ROI much earlier as the business can be launched in a short lead time. Personnel expenses can also be reduced by adopting a remote response system using IoT devices. This is therefore expected to be a highly profitable model and, in a sense, a new form of sharing.”

“Regarding the private housing hotel accommodation ‘minpaku’ business, we are taking the method to lease an entire existing apartment building that requires low initial investment, rather than holding our own property or constructing a hotel from scratch. By adopting a smart minpaku rental system, continuous presence of staff around the clock is not required, unlike hotels. Personnel expense therefore can be significantly reduced, to realize high profitability. STI will design interior of apartment units under the concept of a luxury hotel, using hotels in Scandinavia countries and tropical resort hotels as reference. By creating a ‘Instagrammable’ space with a nice bed, attractive wallpaper, curtains, and modest decorations, STI’s minpaku rooms will be appealing as photos on the reservation website. As a legal requirement of the minpaku-type hotel, the floor area is to be 25 m2 or more, which makes it much bigger than a typical business hotel room of 9 m2 or 13 m2, allowing a group of visitors to stay in one unit, and satisfying the typically higher area desired by many non-Japanese. We expect to attract families or group of friends on vacation in Japan among foreign inbound tourists. As a group of four visitors, who typically have to stay in two rooms, can stay in one room at our minpaku hotel, we will have a clear price advantage over conventional hotels. We use accommodation reservation websites, managed by other companies. Our experience has verified the importance of appropriate pricing in view of the demand and supply balance. We have the knowhow to do so in our existing business: to implement the Plan-Do-Check-Act (PDCA) cycle, based on some tentative theory and data tracking, and to think of cost-benefit performance in making choices.”

“Hotel occupancy rate and room rate highly depend on location. We therefore take full consideration of facilities in the neighborhood in selecting a property. We are planning to choose areas which are convenient for prospective customers and where existing facilities assure a steady occupancy rate. We estimate the investment required for the first project is around 38m yen, or 18m yen for leases for apartment houses and 20m yen for cost in interior finish work. We will be opening in January 2019 the private housing hotel residence with 27 apartment units on seven floors next to Universal Studios Japan in Osaka City where demand of visitors can be anticipated. Foreign tourists’ inbound demand is expected to expand significantly. We are anticipating our web-based reservation system will be favorably received and generate an increase in bookings as this type of use of the internet is where we are strong.”

The recent rebound and tripling in share price of Yelp (NYSE: YELP), the leading local business review site in the United States, from its lows in Feb 2016, has exacerbated the divergence in opinion about its business model – and has brought about a comparison with STI in the business model quality and growth potential, further highlighting the distinctive exponential edge of STI. Yelp was founded in 2004 by former PayPal employee Jeremy Stoppelman when he got sick and could not find recommendations for a doctor online. Yelp generates $897m of sales and $15.1m in EBIT supported ~200k local advertisers paying ~$400 a month to reach the 32 million Americans who have downloaded the Yelp app and the 75 million Americans who access Yelp content on their desktops. Yelp’s largest cost is the 3,300 person sales force, knocking on local businesses’ doors and trying to sign up new paying Yelp advertisers. Yelp spends approximately 50% of sales on sales and marketing, 15% on research and development and 10% on G&A, resulting in its low EBIT margin of 1.68% as compared to STI’s EBIT margin of 26.7%. Current market value is $4.1bn. Yelp had a complicated relationship with the small businesses, including fake reviews written by business owners and the manipulation of reviews based on participation in the ad program such as removing or suppressing negative reviews if they purchase advertising. Stoppelman had previously hired Goldman Sachs in 2015 to find a buyer but changed his mind.

Yelp recently moved from ~$4,000 annual contracts to no-term contracts with flexible pay-per-click budgets, significantly reducing the required upfront commitment and making the product easier to sell and trial. 80% of the sales force had been transitioned by the end of 1Q2018, and the program was fully rolled out in 2Q2018. Opinions were mixed on the changes, the cons of lower initial ARPU, higher churn in encouraging more trial behavior and higher revenue unpredictability and uncertainty weighed against the pros of improved customer acquisition cost leading to greater sales and marketing efficiency. The new customers acquired were believed to demonstrate a lack of commitment and indifference toward remaining on Yelp, as well as have seen pockets of already poorly perceived utility of the platform after only a few months, according to KeyBanc’s research. Yelp is also expanding the number of transactional features such as Request-A-Quote (RAQ) from a home service professional or book a restaurant reservation or spa appointment. KeyBanc’s research suggests that the new quote-request system was “years away from contributing incrementally.” Google is a direct competitor, with Yelp arguing that Google alters algorithms so rivals sink lower in search results, though Yelp claims most of the traffic now comes through the app minimizing Google’s ability to displace Yelp. Google unveiled new services in May 2018 to take on Yelp by adding personalized features for its mapping software on smartphone app that will give more direct access to retail businesses.

  • Success-based matching business model unlike YELP: Unlike Yelp which is transitioning from a model of upfront fixed subscription that requires the incurring of high salesforce expenses to sell the ad package to the flexible pay-per-click to attract local businesses but yet creates higher churn and revenue uncertainty, STI’s business model is able to generate 26.7% operating profit margin on ROE (= EBIT/Equity) of 40% based on success-based matching fee as the main revenue generator (30% of the fee paid by the customer), as well as an introduction fee when STI introduces the user to the provider. Because STI does not charge a registration fee or any initial fee to firms that enter into an alliance, many member firms are attracted to register as service providers as the work referred from STI allows them to generate sales they otherwise would not have secured and they can make additional use of their tangible assets, such as equipment, as well as their intangible assets in turning idle time into income-earning time. By connecting both service providers and the loci of demand, member firms enhanced their capability to attract customers and the conversion rate through data analysis and improved call center managing ability.
  • Proprietary trading system for matching services closer to ANGI and a potential target for ANGI: STI’s proprietary trading system for matching services is closest to the business model at ANGI Homeservices (NASDAQ: ANGI), a subsidiary of InterActiveCorp (NASDAQ: IAC) who owns 86.4% of the shares. ANGI is a result of the 2017 merger between Angie’s List and HomeAdvisor and we believe is a far superior model to YELP. It aims to combine the best of the old-fashioned Angie’s List ratings directory with online matches between customer demand and service provider supply that HomeAdvisor helped pioneer. Its marketplace provides consumers with tools and resources to help them find local, pre-screened, and customer-rated service professionals, as well as book appointments with those professionals online or connect with them by telephone; and offers several home services-related resources. It generated approximately 18.1 million marketplace service requests from consumers with a 3-4% take rate. ANGI generates $84.4m in operating cashflow and ~$200m in adjusted EBITDA (adjusted for stock-based compensation) on revenue of $955m and has a market value of US$11.3bn. We believe STI would be a value-creating synergistic target for innovators such as IAC’s ANGI.

Our H.E.R.O. Innovators have something in common – they witnessed first-hand the problems that beset the masses and wanted to build a business to provide useful products and services. They want to build and scale their businesses so that they can give more. Only when we have the desire to give, then can we want to persevere in building something meaningful. This urge to build in order to give is their True North to scale the business and they work obsessively to realize this vision. Our H.E.R.O. is a fanatic with PQ (Purpose Quotient), remaining unwavering in her commitment to an idea larger than oneself in service of others. She also has GQ (Gratitude Quotient), demonstrating “Naikan”, which is a Japanese word that means “looking inside” to develop a natural and profound sense of gratitude for blessings bestowed on us by others.

Reflecting on STI’s journey and the exponential growth ahead, CEO Hikiji effused, “By establishing a system that automatically keeps growing by using an enormous volume of data that is accumulated day after day, our matching technology, the unique feature of our company, has also been evolving at an accelerating pace. We will continue to make great services indispensable to society in the future, and we are pleased to support you. We are supported by many stakeholders to result in our company now. With gratitude in mind that this support is the foundation of corporate sustainability improvement that all our employees take action and practice and fulfill our social responsibility based on our basic philosophy of ‘contributing to society with high quality matching’, we aim to be a company trusted by society through fair business practices.”

Intrigued and want to read more? Download this week’s H.E.R.O. HeartWare: Weekly Asia Tech News with brief highlights of the inspiring entrepreneurial stories of tech leaders in Asia whom we have been monitoring over the past decade in our broader watchlist of over 200 listed Asian tech companies and our focused portfolio of 40 HERO Innovators who reveal their problems and successes behind building the company. Inspired by Brandon Stanton’s photo-journalistic project Humans of New York which collects and highlights the street portraits and moving stories of people on the streets around us who were doing things that changed lives and made a difference in the city but often went unnoticed, we have curated a collection of Hear the Heart of the H.E.R.O. stories on our website which we aim to update with refreshing and uplifting new stories weekly. Please check them out and give us your valuable feedback so that we can improve to make them better for you.

It started with rethinking a few questions. Question No. 1: Can the megacap tech elephants still dance? Or is this the better question: Is there an alternative and better way to capture long-term investment returns created by disruptive forces and innovation without chasing the highly popular megacap tech stocks, or falling for the “Next-Big-Thing” trap in overpaying for “growth”, or investing in the fads, me-too imitators, or even in seemingly cutting-edge technologies without the ability to monetize and generate recurring revenue with a sustainable and scalable business model? How can we distinguish between the true innovators and the swarming imitators?

Question No. 2: What if the “non-disruptive” group of reasonably decent quality companies with seemingly “cheap” valuations, a fertile hunting ground of value investors, all need to have their longer-term profitability and balance sheet asset value to be “reset” by deducting a substantial amount of deferred innovation-related expenses and investments every year, given that they are persistently behind the innovation cycle against the disruptors, just to stay “relevant” to survive and compete? Let’s say this invisible expense and deferred liability in the balance sheet that need to be charged amount to 20 to 30% of the revenue (or likely more), its inexactitude is hidden; its wildness lurks and lies in wait. Would you still think that they are still “cheap” in valuation?

Consider the déjà vu case of Kmart vs Walmart in 2000s and now Walmart vs Amazon. It is easy to forget that Kmart spent US$2 billion in 2000/01 in IT and uses the same supplier as Walmart – IBM. The tangible assets and investments are there in the balance sheet and valuations are “cheap”. Yet Kmart failed to replicate to compound value the way it did for Walmart. Now Walmart is investing billions to “catch up” and stay relevant. Key word is “relevancy” to garner valuation.

We now live in an exponential world, and as the Baupost chief and super value investor Seth Klarman warns, disruption is accelerating “exponentially” and value investing has evolved. The paradigm shift to avoid the cheap-gets-cheaper “value traps”, to keep staying curious & humble, and to keep learning & adapting, has never been more critical for value investors. We believe there is a structural break in data in the market’s multi-year appraisal (as opposed to “mean reversion” in valuation over a time period of 2-5 years) on the type of business models, the “exponential innovators”, that can survive, compete and thrive in this challenging exponential world we now live in. Tech-focused innovators with non-linear exponential growth potential are the most relevant multi-year investment trend and opportunity.  

During our value investing journey in the Asian capital jungles over the decade plus, we have observed that many entrepreneurs were successful at the beginning in growing their companies to a certain size, then growth seems to suddenly stall or even reverse, and they become misguided or even corrupted along the way in what they want out of their business and life, which led to a deteriorating tailspin, defeating the buy-and-hold strategy and giving currency to the practice of trading-in-and-out of stocks. On the other hand, there exists an exclusive, under-the-radar, group of innovators who are exceptional market leaders in their respective fields with unique scalable business models run by high-integrity, honorable and far-sighted entrepreneurs with a higher purpose in solving high-value problems for their customers and society whom we call H.E.R.O. – “Honorable. Exponential. Resilient. Organization.”, the inspiration behind the H.E.R.O Innovators Fund, (surprisingly) the only Asian SMID-cap tech-focused fund in the industry.

The H.E.R.O. are governed by a greater purpose in their pursuit to contribute to the welfare of people and guided by an inner compass in choosing and focusing on what they are willing to struggle for and what pains they are willing to endure, in continuing to do their quiet inner innovation work, persevering day in and day out. There’s a tendency for us to think that to be a disruptive innovator or to do anything grand, you have to have a special gift, be someone called for. We think ultimately what really matters is the resolve — to want to do it, bring the future forward by throwing yourself into it, to give your life to that which you consider important. We aim to penetrate into the deeper order that whispers beneath the surface of tech innovations and to stand on the firmer ground of experience hard won through hearing and distilling the essence of the stories of our H.E.R.O. in overcoming their struggles and in understanding the origin of their quiet life of purpose, who opened their hearts to us that resilience and innovation is an art that can be learned, which can embolden all of us with more emotional courage and wisdom to go about our own value investing journey and daily life.

As the only Asian SMID-cap tech-focused listed equities fund in the industry, we believe we are uniquely positioned as a distinctive and alternative investment strategy for both institutional and individual investors who seek to capture long-term investment returns created by disruptive forces and innovation without herding or crowding to invest in the highly popular megacap tech stocks, and also provide capital allocation benefit to investors in building optionality in their overall investment portfolio.

The H.E.R.O. HeartWare Weekly highlights interesting tech news and listed Asian emerging tech innovators with unique and scalable wide-moat business models to keep yourself well-informed about disruptive forces and innovation, new technologies and new business models coming up, and the companies that ride on and benefit from them in some of the most promising areas of the economy in Asia as part of our thought leadership to add value to our clients and the community. Hope you find the weekly report to be useful and insightful. Please give us your candid feedback and harshest criticisms so that we can improve further to serve you better. Besides the BATTSS (Baidu, Alibaba, Tencent, TSMC, Softbank, Samsung), do also tell us which Asian tech entrepreneurs & CEOs whom you admire and respect and why – we will endeavor to do up profiles of them for sharing with the community. Thank you very much and have a beautiful week ahead.

Warm regards,
KB | | WhatsApp +65 9695 1860


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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