CEO Comments

Kaoru Hayashi

Representative Director,
President Executive Officer and Group CEO,
Digital Garage, Inc.

CEO Comment “Issue of new stocks and establishment of new media incubation strategy”

The period for issue of the new stocks, which followed the decision reached on 30th June to allow public offering, has soundly come to an end. I am taking this opportunity to make a brief statement regarding this undertaking as well as to present you with the updated and revised financial forecasts for the fiscal year ending in June 2011(PDF/Japanese).

The detailed information regarding the performance results will be revealed on 11th and 12th August during the announcement of and briefing on the accounts’ settlement respectively. At this time, with great satisfaction, I would like to communicate that the temporary drop in Internet advertisement and e-commerce payment solutions sales, which came as the aftermath of the March’s earthquake, has experienced a quick recovery. Consequently, financial performance is expected to have gone beyond our previous expectations. With Hybrid Solutions segment (business oriented advertisement and payment solutions) in the lead, Venture Incubation segment, bolstered by a favorable economic climate – rapidly growing on the global scale social media market – and surge in valuation, has also shown clear signs of recovery. As a result, in comparison to the previous year, net operating profit has risen by approximately 1.0 billion yen and ordinary profit by approximately 1.4 billion yen. Effectively, initial forecasts for the first-year of the Mid-Term 3-year Business Plan have been exceeded.

On a different note, I would like to point out that since the listing of our stocks in 2000, this has been the first time public offering has taken place and at present the amount of support from our investors is estimated to have reached 8 billion yen. (official announcement will take place in the following days). Information on how we are planning to effectively use these financial resources can be found in the statement regarding the issue and sales of stocks (PDF/Japanese). Essentially, these funds are indispensible for streamlined execution of our Mid-Term 3-year Business Plan as well as for securing a sustainable, long-term growth of our business. The raise of the social media, does not only entail replacement of traditional media but also expansion into completely new areas of everyday life and leads to emergence of new digital-social contexts. Digital Garage (henceforth DG) intends to be a frontrunner in embracing this phenomenon by striving to understand its complexity and becoming an active stakeholder in remolding of a social-digital landscape.

Moreover, in order to effectively manage the gathered funds, we have launched a project, which will become a strategic milestone for the next 10 years of our business. The key phrase of the project is ‘Creation and global expansion of the social media’.

Following the successful stories of and Twitter, a new segment (established on 1st July) responsible for continuous creation of novel Internet services – Media Incubation – is expected to play a leading role in securing DG’s future growth. Mikihiro Yasuda, a former Group CTO and Senior Manager at Technology division, assumed position of the division’s managing director and will be overseeing its operations. The new segment’s mission will not only be to support the introduction of promising foreign businesses to Japan but also creation of original DG services and their export to the oversees markets. Already the other day, we have launched a pioneering DG-native service – ‘Hirukai’ (, which gives its users an opportunity to share a lunch together.

As a foothold toward our global expansion, in July 2011 we’ve established a U.S. entity – Digital Garage US, Inc. (henceforth DGUS). Headquartered in San Francisco, the new office will become a strategic platform for further expansion of our business. Ian McFarland, who joined DG on 1st August, has become a core person in charge of the oversees operations. Ian, who remains directly accountable to MikihiroYasuda, will also be involved in the running of Technology division at DG and serving as the Group CTO. Up to now, Ian has worked as a Principal, and VP of Technology at Pivotal Labs, a company known for offering consultancy services regarding software development to such major internet companies as Google and Twitter.

There are two major tasks that we entrust Ian with. First one is to help us strengthen our foreign investments portfolio. We strongly believe that by combining the networking opportunities we received by partnering with a prominent Silicon Valley investors including Ron Conway together with Ian’s network of oversees engineers we gain extensive, first-hand access to information on the industry’s newest trends. Furthermore, as previously announced, DG Incubation (DG’s subsidiary), through participation in ‘SV Angel’ – a venture fund with Ron Conway as its primary strategic advisor – will be making investments in the promising Silicon Valley-based startup businesses.

Another important task of Ian’s is to continuously introduce cutting-edge technologies, particularly agile development software, to the daily operations of Digital Garage. Pivotal Labs, Ian’s previous workplace, has been actively promoting the use of agile development methodology – development and verification of software, which occurs in frequent, repetitive, short cycles and radically improves software quality and flexibility. Introduction of such technologies to the quickly evolving Internet environment makes it possible to timely and promptly respond to the external changes. I am positive that DGUS, through application of agile methodology to our core business areas, including development of the original services and incubation of the foreign portfolio businesses, will play a key role in considerable escalation of our future performance.

With strategic positioning of DGUS in the West Coast of the United States and DG co-founder Joi Ito-led MIT Media Lab in the East Coast, we are now more than ever before, in favorable position to freely grow our business on the global scale. Capitalizing on our oversees resources and networks, our goal to further improve our financial performance through operations of newly established Media Incubation segment has never seemed more achievable. I am confident that the limping US economy and expansive Yen will not overshadow our bright future. On the opposite, I believe that as far as the investments are concerned, this economic climate presents us with more opportunities than risks.

I am sincerely thankful to all of our stakeholders and investors for their continuous support and guidance. Please keep your expectations toward DG as high as you have always had.

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