Founders Ken Suzuki (l) and Kaisei Hamamoto (c) with chief journalist Rich Jaroslovsky (r)
Japanese news apps are engaging in a war that shows no signs of stopping. SmartNews, a strong contender to emerge victorious from the fray is already looking to bolster its position with an influx of non-Japanese users. The company launched an English app earlier this month and has taken up residence in the Digital Garage office in San Francisco. Tech in Asia met up with founders Kaisei Hamamoto and Ken Suzuki, along with prize hire and creator of the Wall Street Journal’s online edition, Rich Jaroslovsky, to talk about the history of the company, its transition to a global media firm, and its future plans.
With five million total downloads, SmartNews ranks behind Gunosy (six million) but ahead of Antenna (four million). That might all seem like chump change compared to Flipboard’s more than 100 million users, but news and curation startups are attracting outsized attention in Japan now. The companies are small but cannot be ignored. Investors who end up backing the right horse will get more than bragging rights. They get in on the ground floor of the next big cash cow.
For years, Yahoo Japan has been the go-to website of choice for millions of Japanese. In the mobile space, which the new apps are attacking, Yahoo Japan is pulling in 38 million monthly active users. Those users treat Yahoo Japan as their portal to the entire web, accessing news, weather, sports, ecommerce, and more. The company’s status as a port of entry has lead to numerous advertising tie-ups and a healthy bottom line. Yahoo Japan generated JPY 80.8 billion (US$753 million) from advertising last year.
The race is on to dethrone the king. Large corporations like KDDI have created startup-heavy alliances in order to draw traffic away. Startups specializing in news or curation find themselves flush with investor cash. SmartNews rode this wave and snagged US$36 million during a September funding round. Gree and Atomico, the two leading investors, have been very tight-lipped about the total valuation but Hamamoto confirmed to Tech in Asia that his company is now worth north of US$100 million.
Investors rewarded SmartNews’ steady growth. In February, it had three million downloads, 75 percent of which were monthly active users (MAU) and 38 percent of which were daily active users (DAU). By the end of September, the download number was up to five million. Hamamoto confirmed that the overall number of downloads is increasing faster than ever but MAU and DAU percentages are only slightly lower than they were in February. Therefore SmartNews should have a little less than 3.75 million MAU and 1.9 million DAU. He attributes the dip to a rise in casual (and more fickle) users that followed the early adopters.
SmartNews is also about to turn on a major new revenue stream, another point that likely resonated with investors. From December, the company will launch its own native ad network and has already brought on social network giant cum gaming giant Mixi to be a distribution partner.
Fumbling over personalization
SmartNews is riding high on a healthy valuation now but it arrived at this point after a major false start. In 2010, after Hamamoto left corporate work behind to set out on his own, he built a real-time web crawler for social media. In discussing the project with Suzuki, he realized that the product should be focused further on gathering news information. He built the service and called it Crow’s Nest.
Crow’s Nest won a variety of awards, including second prize at TechCrunch Tokyo in 2011, but it failed to retain users or acquire new ones. Not even an appearance at South by Southwest was able to turn the tide.
Hamamoto and Suzuki still believed they had the right technology, however. They decided to restart. Crow’s Nest had emphasized personal tastes but the new product – which became SmartNews – would gather information that would be important to anyone using it.
The revamped product would still crawl social media sites to determine the major stories of the day, but now it used a more advanced algorithm and natural language processing (the technology that allows computers to understand nuance in words) to categorize and rank universally important news.
That distinction proved to be the difference maker with users, and SmartNews was named the top news app of the year for 2013 by both Apple and Google. This time the accolades were not empty as reflected by the firm’s latest valuation.
The SmartNews product was turning heads, even Jaroslovsky’s over in America.
“The notion of the ‘daily me’ – the hyper personalized news report tailored to your specific interest was the holy grail. But people are coming to the conclusion that it was a false grail. What people think they are interested in ahead of time and what they are actually interested in can be completely different,” Jaroslovsky says.
Already a journalist of considerable repute as a former executive editor at Bloomberg and the first managing editor of the Wall Street Journal online, Jaroslovsky was looking for a new adventure when a friend introduced him to SmartNews.
Finding serendipity
“What I found most interesting is that [SmartNews] is not designed to appeal to an audience of one, it is designed to appeal to a broad audience. One of the hardest things to do in digital media is to provide serendipity – the user experience of “I didn’t know i would be interested in [this thing] but I am,” Jaroslovsky notes.
Providing that experience depends on technology but also available data. The SmartNews team already has the tech but sees the media-saturated US market as a way to strengthen their product and maximize its value. “We want to be a global company so after the US we will launch in UK, Canada and other countries,” Suzuki says.
The app’s US launch started with much fanfare. It was featured by Apple as one of the best new apps and rocketed to the number two spot in news apps. The initial excitement has cooled download numbers somewhat but the team maintains user signups are still trending up and the app remains in the top ten ranking.
As the app battles for recognition in America, it is Jaroslovsky’s job to get more content publishers on board but also to teach the computer how to be a better journalist. Every day someone in his team of five checks the story rankings for errors.
A glaring example from this summer was the surprise loss of Representative Eric Cantor, one of the most powerful politicians in America, in a primary election. The story was the leading news item on SmartNews at first but, a few hours later, a profile piece on his rival took center stage. Jaroslovsky corrected the ranking to put the story on Cantor’s loss back on top. For him, that was the real news of the day, the other story was important but as a supplemental piece.
The SmartNews algorithm might know how to determine what people need to read but it still requires Jarovlesky’s input to craft a proper news cycle. A program that can perform automated news collation and news cycle design seems like a prime candidate to eat real life jobs.
Jaroslovsky, who still remembers the “wrenching” transition from print to media, thinks differently. “Publisher after publisher we’ve talked to has said that this year is the tipping point [to mobile from desktop],” he says, adding that most publishers are scrambling to survive the coming changes. Not wanting to see the industry go through the same upheaval all over again is one of the reasons he joined the SmartNews team.
“For the last 20 years, one of my animating motivations has been to make sure that journalism has a future and to make sure that publishers and content providers who are trying to do a serious job are able to reach the audience they need to survive. SmartNews is extraordinarily publisher friendly […] it gives them a path to the future.”
See: Former Huffington Post editor-in-chief joins Japan’s SmartNews
If Japan’s SmartNews is just another news app, why is it valued over $100M?
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