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Question Description

I’m working on a business question and need an explanation and answer to help me learn.

Hatsune Miku strategy question:

What sttaregy/strategies should Itoh follow to maximize Hatsune Miku’s longevity as a star and revenue generation from Crypton’s Hatsune Miku-related business?

Pipelines, Platforms, and the New Rules of Strategy
11/17/20, 02(26
STRATEGY
Pipelines, Platforms, and the New
Rules of Strategy
by Marshall W. Van Alstyne , Geoffrey G. Parker and Sangeet Paul Choudary
From the April 2016 Issue
B
ack in 2007 the five major mobile-phone manufacturers—Nokia,
Samsung, Motorola, Sony Ericsson, and LG—collectively controlled
90% of the industry’s global profits. That year, Apple’s iPhone burst
onto the scene and began gobbling up market share.
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By 2015 the iPhone singlehandedly generated 92% of global profits, while all but
one of the former incumbents made no profit at all.
How can we explain the iPhone’s rapid domination of its industry? And how can
we explain its competitors’ free fall? Nokia and the others had classic strategic
advantages that should have protected them: strong product differentiation,
trusted brands, leading operating systems, excellent logistics, protective
regulation, huge R&D budgets, and massive scale. For the most part, those firms
looked stable, profitable, and well entrenched.
Certainly the iPhone had an innovative design and novel capabilities. But in
2007, Apple was a weak, nonthreatening player surrounded by 800-pound
gorillas. It had less than 4% of market share in desktop operating systems and
none at all in mobile phones.
As we’ll explain, Apple (along with Google’s competing Android system) overran
the incumbents by exploiting the power of platforms and leveraging the new
rules of strategy they give rise to. Platform businesses bring together producers
and consumers in high-value exchanges. Their chief assets are information and
interactions, which together are also the source of the value they create and their
competitive advantage.
Understanding this, Apple conceived the iPhone and its operating system as
more than a product or a conduit for services. It imagined them as a way to
connect participants in two-sided markets—app developers on one side and app
users on the other—generating value for both groups. As the number of
participants on each side grew, that value increased—a phenomenon called
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“network effects,” which is central to platform strategy. By January 2015 the
company’s App Store offered 1.4 million apps and had cumulatively generated
$25 billion for developers.
Apple’s success in building a platform business within a conventional product
firm holds critical lessons for companies across industries. Firms that fail to
create platforms and don’t learn the new rules of strategy will be unable to
compete for long.
Pipeline to Platform
Platforms have existed for years. Malls link consumers and merchants;
newspapers connect subscribers and advertisers. What’s changed in this century
is that information technology has profoundly reduced the need to own physical
infrastructure and assets. IT makes building and scaling up platforms vastly
simpler and cheaper, allows nearly frictionless participation that strengthens
network effects, and enhances the ability to capture, analyze, and exchange huge
amounts of data that increase the platform’s value to all. You don’t need to look
far to see examples of platform businesses, from Uber to Alibaba to Airbnb,
whose spectacular growth abruptly upended their industries.
Though they come in many varieties, platforms all have an ecosystem with the
same basic structure, comprising four types of players. The owners of platforms
control their intellectual property and governance. Providers serve as the
platforms’ interface with users. Producers create their offerings, and consumers
use those offerings.
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To understand how the rise of platforms is transforming competition, we need
to examine how platforms differ from the conventional “pipeline” businesses
that have dominated industry for decades. Pipeline businesses create value by
controlling a linear series of activities—the classic value-chain model. Inputs at
one end of the chain (say, materials from suppliers) undergo a series of steps
that transform them into an output that’s worth more: the finished product.
Apple’s handset business is essentially a pipeline. But combine it with the App
Store, the marketplace that connects app developers and iPhone owners, and
you’ve got a platform.
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As Apple demonstrates, firms needn’t be only a pipeline or a platform; they can
be both. While plenty of pure pipeline businesses are still highly competitive,
when platforms enter the same marketplace, the platforms virtually always win.
That’s why pipeline giants such as Walmart, Nike, John Deere, and GE are all
scrambling to incorporate platforms into their models.
The move from pipeline to platform involves three key shifts:
1. From resource control to resource orchestration.
The resource-based view of competition holds that firms gain advantage by
controlling scarce and valuable—ideally, inimitable—assets. In a pipeline world,
those include tangible assets such as mines and real estate and intangible assets
like intellectual property. With platforms, the assets that are hard to copy are the
community and the resources its members own and contribute, be they rooms
or cars or ideas and information. In other words, the network of producers and
consumers is the chief asset.
2. From internal optimization to external interaction.
Pipeline firms organize their internal labor and resources to create value by
optimizing an entire chain of product activities, from materials sourcing to sales
and service. Platforms create value by facilitating interactions between external
producers and consumers. Because of this external orientation, they often shed
even variable costs of production. The emphasis shifts from dictating processes
to persuading participants, and ecosystem governance becomes an essential
skill.
3. From a focus on customer value to a focus on ecosystem value.
Pipelines seek to maximize the lifetime value of individual customers of products
and services, who, in effect, sit at the end of a linear process. By contrast,
platforms seek to maximize the total value of an expanding ecosystem in a
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circular, iterative, feedback-driven process. Sometimes that requires subsidizing
one type of consumer in order to attract another type.
These three shifts make clear that competition is more complicated and dynamic
in a platform world. The competitive forces described by Michael Porter (the
threat of new entrants and substitute products or services, the bargaining power
of customers and suppliers, and the intensity of competitive rivalry) still apply.
But on platforms these forces behave differently, and new factors come into
play. To manage them, executives must pay close attention to the interactions on
the platform, participants’ access, and new performance metrics.
When a platform enters a pipeline firm’s
market, the platform almost always wins.
We’ll examine each of these in turn. But first let’s look more closely at network
effects—the driving force behind every successful platform.
The Power of Network Effects
The engine of the industrial economy was, and remains, supply-side economies
of scale. Massive fixed costs and low marginal costs mean that firms achieving
higher sales volume than their competitors have a lower average cost of doing
business. That allows them to reduce prices, which increases volume further,
which permits more price cuts—a virtuous feedback loop that produces
monopolies. Supply economics gave us Carnegie Steel, Edison Electric (which
became GE), Rockefeller’s Standard Oil, and many other industrial era giants.
In supply-side economies, firms achieve market power by controlling resources,
ruthlessly increasing efficiency, and fending off challenges from any of the five
forces. The goal of strategy in this world is to build a moat around the business
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that protects it from competition and channels competition toward other firms.
The driving force behind the internet economy, conversely, is demand-side
economies of scale, also known as network effects. These are enhanced by
technologies that create efficiencies in social networking, demand aggregation,
app development, and other phenomena that help networks expand. In the
internet economy, firms that achieve higher “volume” than competitors (that is,
attract more platform participants) offer a higher average value per transaction.
That’s because the larger the network, the better the matches between supply
and demand and the richer the data that can be used to find matches. Greater
scale generates more value, which attracts more participants, which creates
more value—another virtuous feedback loop that produces monopolies. Network
effects gave us Alibaba, which accounts for over 75% of Chinese e-commerce
transactions; Google, which accounts for 82% of mobile operating systems and
94% of mobile search; and Facebook, the world’s dominant social platform.
The five forces model doesn’t factor in network effects and the value they create.
It regards external forces as “depletive,” or extracting value from a firm, and so
argues for building barriers against them. In demand-side economies, however,
external forces can be “accretive”—adding value to the platform business. Thus
the power of suppliers and customers, which is threatening in a supply-side
world, may be viewed as an asset on platforms. Understanding when external
forces may either add or extract value in an ecosystem is central to platform
strategy.
How Platforms Change Strategy
In pipeline businesses, the five forces are relatively defined and stable. If you’re a
cement manufacturer or an airline, your customers and competitive set are fairly
well understood, and the boundaries separating your suppliers, customers, and
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competitors are reasonably clear. In platform businesses, those boundaries can
shift rapidly, as we’ll discuss.
Forces within the ecosystem.
Platform participants—consumers, producers, and providers—typically create
value for a business. But they may defect if they believe their needs can be met
better elsewhere. More worrisome, they may turn on the platform and compete
directly with it. Zynga began as a games producer on Facebook but then sought
to migrate players onto its own platform. Amazon and Samsung, providers of
devices for the Android platform, tried to create their own versions of the
operating system and take consumers with them.
The new roles that players assume can be either accretive or depletive. For
example, consumers and producers can swap roles in ways that generate value
for the platform. Users can ride with Uber today and drive for it tomorrow;
travelers can stay with Airbnb one night and serve as hosts for other customers
the next. In contrast, providers on a platform may become depletive, especially if
they decide to compete with the owner. Netflix, a provider on the platforms of
telecommunication firms, has control of consumers’ interactions with the
content it offers, so it can extract value from the platform owners while
continuing to rely on their infrastructure.
As a consequence, platform firms must
Networks Invert the Firm
constantly encourage accretive activity
Pipeline firms have long outsourced
within their ecosystems while
aspects of their internal functions,
monitoring participants’ activity that
such as customer service. But today
may prove depletive. This is a delicate
companies are taking that shift even
governance challenge that we’ll discuss
further, moving toward orchestrating
further.
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complement or entirely replace the
Forces exerted by ecosystems.
Managers of pipeline businesses can fail
activities of once-internal functions.
to anticipate platform competition from
external networks that can
seemingly unrelated industries. Yet
Inversion extends outsourcing:
Where firms might once have
furnished design specifications to a
known supplier, they now tap ideas
successful platform businesses tend to
move aggressively into new terrain and
into what were once considered
they haven’t yet imagined from third
separate industries with little warning.
parties they don’t even know. Firms
Google has moved from web search into
are being turned inside out as value-
mapping, mobile operating systems,
creating activities move beyond
home automation, driverless cars, and
their direct control and their
voice recognition. As a result of such
organizational boundaries.
Marketing is no longer just about
creating internally managed
shape-shifting, a platform can abruptly
transform an incumbent’s set of
competitors. Swatch knows how to
outbound messages. It now extends
compete with Timex on watches but
to the creation and propagation of
now must also compete with Apple.
messages by consumers
Siemens knows how to compete with
themselves. Travel destination
Honeywell in thermostats but now is
marketers invite consumers to
being challenged by Google’s Nest.
submit videos of their trips and
promote them on social media. The
online eyeglasses retailer Warby
Competitive threats tend to follow one
Parker encourages consumers to
of three patterns. First, they may come
post online photos of themselves
from an established platform with
modeling different styles and ask
superior network effects that uses its
friends to help them choose.
relationships with customers to enter
Consumers get more-flattering
glasses, and Warby Parker gets viral
exposure.
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your industry. Products have features;
platforms have communities, and those
communities can be leveraged. Given
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Information technology, historically
Google’s relationship with consumers,
focused on managing internal
the value its network provides them,
enterprise systems, increasingly
and its interest in the internet of things,
supports external social and
community networks. Threadless, a
producer of T-shirts, coordinates
Siemens might have predicted the tech
giant’s entry into the home-automation
communication not just to and from
market (though not necessarily into
but among customers, who
thermostats). Second, a competitor may
collaborate to develop the best
target an overlapping customer base
product designs.
with a distinctive new offering that
leverages network effects. Airbnb’s and
Human resources functions at
companies increasingly leverage the
wisdom of networks to augment
internal talent. Enterprise software
Uber’s challenges to the hotel and taxi
industries fall into this category. The
final pattern, in which platforms that
giant SAP has opened the internal
collect the same type of data that your
system on which its developers
firm does suddenly go after your
exchange problems and solutions to
market, is still emerging. When a data
its external ecosystem—to
set is valuable, but different parties
developers at both its own partners
control different chunks of it,
and its partners’ clients. Information
sharing across this network has
improved product development and
competition between unlikely camps
may ensue. This is happening in health
productivity and reduced support
care, where traditional providers,
costs.
producers of wearables like Fitbit, and
retail pharmacies like Walgreens are all
Finance, which historically has
launching platforms based on the health
recorded its activities on private
data they own. They can be expected to
internal accounts, now records
compete for control of a broader data
some transactions externally on
public, or “distributed,” ledgers.
Organizations such as IBM, Intel,
set—and the consumer relationships
that come with it.
and JPMorgan are adopting
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ledgers to be securely shared and
Focus.
Managers of pipeline businesses focus
vetted by anyone with permission.
on growing sales. For them, goods and
Participants can inspect everything
services delivered (and the revenues
blockchain technology that allows
from aggregated accounts to
individual transactions. This allows
firms to, for example, crowdsource
and profits from them) are the units of
analysis. For platforms, the focus shifts
compliance with accounting
to interactions—exchanges of value
principles or seek input on their
between producers and consumers on
financial management from a broad
the platform. The unit of exchange (say,
network outside the company.
a view of a video or a thumbs-up on a
Opening the books this way taps the
wisdom of crowds and signals
trustworthiness.
Operations and logistics
post) can be so small that little or no
money changes hands. Nevertheless,
the number of interactions and the
associated network effects are the
traditionally emphasize the
ultimate source of competitive
management of just-in-time
advantage.
inventory. More and more often, that
function is being supplanted by the
management of “not-even-mine”
THIS ARTICLE ALSO APPEARS IN:
HBR’s 10 Must Reads 2017
inventory—whether rooms, apps, or
Book
other assets owned by network
$24.95
participants. Indeed, if Marriott,
Yellow Cab, and NBC had added
View Details
platforms to their pipeline value
chains, then Airbnb, Uber, and
YouTube might never have come
into being.
With platforms, a critical strategic aim
is strong up-front design that will
attract the desired participants, enable
the right interactions (so-called core interactions), and encourage ever-more-
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powerful network effects. In our experience, managers often fumble here by
focusing too much on the wrong type of interaction. And the perhaps
counterintuitive bottom line, given how much we stress the importance of
network effects, is that it’s usually wise to ensure the value of interactions for
participants before focusing on volume.
Most successful platforms launch with a single type of interaction that generates
high value even if, at first, low volume. They then move into adjacent markets or
adjacent types of interactions, increasing both value and volume. Facebook, for
example, launched with a narrow focus (connecting Harvard students to other
Harvard students) and then opened the platform to college students broadly and
ultimately to everyone. LinkedIn launched as a professional networking site and
later entered new markets with recruitment, publishing, and other offerings.
Access and governance.
In a pipeline world, strategy revolves around erecting barriers. With platforms,
while guarding against threats remains critical, the focus of strategy shifts to
eliminating barriers to production and consumption in order to maximize value
creation. To that end, platform executives must make smart choices about access
(whom to let onto the platform) and governance (or “control”—what consumers,
producers, providers, and even competitors are allowed to do there).
Harnessing Spillovers
Positive spillover effects help platforms rapidly increase the volume of interactions.
Book purchases on a platform, for example, generate book recommendations that
create value for other participants on it, who then buy more books. This dynamic
exploits the fact that network effects are often strongest among interactions of the
same type (say, book sales) than among unrelated interactions (say, package pickup
and yardwork in different cities mediated by the odd-job platform TaskRabbit).
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Consider ride sharing. By itself, an individual ride on Uber is high value for both rider
and driver—a desirable core interaction. As the number of platform participants
increases, so does the value Uber delivers to both sides of the market; it becomes
easier for consumers to get rides and for drivers to find fares. Spillover effects further
enhance the value of Uber to participants: Data from riders’ interactions with drivers
—ratings of drivers and riders—improves the value of the platform to other users.
Similarly, data on how well a given ride matched a rider’s needs helps determine
optimal pricing across the platform—another important spillover effect.
Platforms consist of rules and architecture. Their owners need to decide how
open both should be. An open architecture allows players to access platform
resources, such as app developer tools, and create new sources of value. Open
governance allows players other than the owner to shape the rules of trade and
reward sharing on the platform. Regardless of who sets the rules, a fair reward
system is key. If managers open the architecture but do not share the rewards,
potential platform participants (such as app developers) have the ability to
engage but no incentives. If managers open the rules and rewards but keep the
architecture relatively closed, potential participants have incentives to engage
but not the ability.
These choices aren’t fixed. Platforms often launch with a fairly closed
architecture and governance and then open up as they introduce new types of
interactions and sources of value. But every platform must induce producers and
consumers to interact and share their ideas and resources. Effective governance
will inspire outsiders to bring valuable intellectual property to the platform, as
Zynga did in bringing FarmVille to Facebook. That won’t happen if prospective
partners fear exploitation.
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Some platforms encourage producers to create high-value offerings on them by
establishing a policy of “permissionless innovation.” They let producers invent
things for the platform without approval but guarantee the producers will share
in the value created. Rovio, for example, didn’t need permission to create the
Angry Birds game on the Apple operating system and could be confident that
Apple wouldn’t steal its IP. The result was a hit that generated enormous value
for all participants on the platform. However, Google’s Android platform has
allowed even more innovation to flourish by being more open at the provider
layer. That decision is one reason Google’s market capitalization surpassed
Apple’s in early 2016 (just as Microsoft’s did in the 1980s).
However, unfettered access can destroy value by creating “noise”—misbehavior
or excess or low-quality content that inhibits interaction. One company that ran
into this problem was Chatroulette, which paired random people from around
the world for webchats. It grew exponentially until noise caused its abrupt
collapse. Initially utterly open—it had no access rules at all—it soon encountered
the “naked hairy man” problem, which is exactly what it sounds like. Clothed
users abandoned the platform in droves. Chatroulette responded by reducing its
openness with a variety of user filters.
In 2016 private equity markets gave Uber
a valuation higher than GM’s.
Most successful platforms similarly manage openness to maximize positive
network effects. Airbnb and Uber rate and insure hosts and drivers, Twitter and
Facebook provide users with tools to prevent stalking, and Apple’s App Store
and the Google Play store both filter out low-quality applications.
Metrics.
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Leaders of pipeline enterprises have long focused on a narrow set of metrics that
capture the health of their businesses. For example, pipelines grow by
optimizing processes and opening bottlenecks; one standard metric, inventory
turnover, tracks the flow of goods and services through them. Push enough
goods through and get margins high enough, and you’ll see a reasonable rate of
return.
As pipelines launch platforms, however, the numbers to watch change.
Monitoring and boosting the performance of core interactions becomes critical.
Here are new metrics managers need to track:
Interaction failure. If a traveler opens the Lyft app and sees “no cars available,”
the platform has failed to match an intent to consume with supply. Failures like
these directly diminish network effects. Passengers who see this message too
often will stop using Lyft, leading to higher driver downtimes, which can cause
drivers to quit Lyft, resulting in even lower ride availability. Feedback loops can
strengthen or weaken a platform.
Engagement. Healthy platforms track the participation of ecosystem members
that enhances network effects—activities such as content sharing and repeat
visits. Facebook, for example, watches the ratio of daily to monthly users to
gauge the effectiveness of its efforts to increase engagement.
Match quality. Poor matches between the needs of users and producers weaken
network effects. Google constantly monitors users’ clicking and reading to refine
how its search results fill their requests.
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Negative network effects. Badly managed platforms often suffer from other
kinds of problems that create negative feedback loops and reduce value. For
example, congestion caused by unconstrained network growth can discourage
participation. So can misbehavior, as Chatroulette found. Managers must watch
for negative network effects and use governance tools to stem them by, for
example, withholding privileges or banishing troublemakers.
Finally, platforms must understand the financial value of their communities and
their network effects. Consider that in 2016, private equity markets placed the
value of Uber, a demand economy firm founded in 2009, above that of GM, a
supply economy firm founded in 1908. Clearly Uber’s investors were looking
beyond the traditional financials and metrics when calculating the firm’s worth
and potential. This is a clear indication that the rules have changed.
Because platforms require new approaches to strategy, they also demand new
leadership styles. The skills it takes to tightly control internal resources just
don’t apply to the job of nurturing external ecosystems.
While pure platforms naturally launch with an external orientation, traditional
pipeline firms must develop new core competencies—and a new mindset—to
design, govern, and nimbly expand platforms on top of their existing businesses.
The inability to make this leap explains why some traditional business leaders
with impressive track records falter in platforms. Media mogul Rupert Murdoch
bought the social network Myspace and managed it the way he might have run a
newspaper—from the top down, bureaucratically, and with a focus more on
controlling the internal operation than on fostering the ecosystem and creating
value for participants. In time the Myspace community dissipated and the
platform withered.
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The failure to transition to a new approach explains the precarious situation that
traditional businesses—from hotels to health care providers to taxis—find
themselves in. For pipeline firms, the writing is on the wall: Learn the new rules
of strategy for a platform world, or begin planning your exit.
A version of this article appeared in the April 2016 issue (pp.54–60, 62) of Harvard Business Review.
Marshall W. Van Alstyne (mva@bu.edu) is the Questrom Chaired
Professor at Boston University School of Business. His work has more than 10,000
citations. He co-authored Platform Revolution (W.W. Norton & Company, 2016),
the April 2016 HBR article “Pipelines, Platforms, and the New Rules of Strategy”
and the October 2006 HBR article “Strategies for Two-Sided Markets,” an HBR all
time top 50. Follow him on Twitter @InfoEcon.
Geoffrey G. Parker (gparker@dartmouth.edu) is a professor of engineering
at Dartmouth College and a research fellow at MIT’s Initiative on the Digital
Economy. He co-authored Platform Revolution (W.W. Norton & Company, 2016),
the April 2016 HBR article “Pipelines, Platforms, and the New Rules of Strategy”
and the October 2006 HBR article “Strategies for Two-Sided Markets,” an HBR all
time top 50. Follow him on Twitter @g2parker.
Sangeet Paul Choudary is a C-level advisor to executives globally on
platform business models and an entrepreneur-in-residence at INSEAD. He has
been ranked among the top 30 emerging business thinkers globally
by Thinkers50 and selected as a Young Global Leader by the World Economic
Forum. He is a co-author of Platform Revolution (W.W. Norton & Company, 2016)
and the April 2016 HBR article “Pipelines, Platforms, and the New Rules of Strategy.” Follow him on
Twitter at @sanguit.
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W14631
HATSUNE MIKU: JAPANESE VIRTUAL IDOL IGNITES GLOBAL VALUE
CO-CREATION
Timothy Craig, Philip Sugai and Lukman Aroean wrote this case solely to provide material for class discussion. The authors do not
intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names
and other identifying information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
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Copyright © 2014, Richard Ivey School of Business Foundation
Version: 2014-12-18
In March 2014, Hiroyuki Itoh, chief executive officer (CEO) of Crypton Future Media, Inc. (Crypton),
looked out his office window at the still snow-covered cityscape of late-afternoon Sapporo and reflected
on the journey that had taken him from founder of a music technology start-up in 1995 to creator and
“manager” of the world’s best-known virtual idol, Hatsune Miku. Crypton was already a leading company
in its core business of music software development and sales when, in August 2007, it released Hatsune
Miku, a singing synthesizer application based on Yamaha’s second-generation speech synthesis engine
Vocaloid 2. Users of the Hatsune Miku application could create songs by entering the melody and lyrics
into the program, after which the songs would be “sung” by Miku, whose picture was featured on the
software packaging.
Originally targeting professional music producers, the release of Hatsune Miku set off an unexpected
burst of creative activity by amateurs, who produced Hatsune Miku-based music, lyrics, artwork and
videos. And the users inspired each other. One user might create a song and post it on a site such as
YouTube or Nico Nico Douga. Another would then listen to the song and draw an illustration to
accompany it — typically of the Miku character. Another might build on these works by producing a
short animated video. The result was a hurricane of creation, re-creation and co-creation that showed no
signs of slowing down. Miku had over 110,000 released songs, 170,000 uploaded YouTube videos,
1,000,000 created artworks and nearly two million Facebook “likes.”1 This had made Hatsune Miku a
household name in Japan and, increasingly, abroad. A 2013 survey conducted in Tokyo of people
between the ages 12 and 39 found that she had a name recognition rate of 95 per cent.2 Overseas, Miku
outfits outnumbered those of any other character at cosplay events.3 She had 175,000 followers on Sina
Weibo and 270,000 followers on Tencent Weibo, Chinese versions of Twitter.4 In a “The Top Tens”
opinion poll that asked “Who is the best singer for the London Olympics Opening Ceremony,” Miku
ranked first, ahead of Lady Gaga and Justin Bieber.5 Miku herself, in her live-performance hologram
form, was slated to be the opening act for a month of shows in Lady Gaga’s Artpop tour starting in May
2014.6
Miku’s exploding popularity brought with it new business opportunities for the company that created her.
As of January 2014, 100,000 copies of the Hatsune Miku software had been sold.7 In addition, Crypton
licensed the rights to use Miku’s name and image to publishers, game makers, character goods producers
and advertisers. In March 2012, Nomura Research Institute estimated that sales for Hatsune Miku-related
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business (not counting software sales) since her release in 2007 totalled 10 billion yen (approximately
US$100 million).8
Until this point, Crypton had “gone with the flow.” Aware that it was fan power and the creativity of
amateur users of the software that had made Miku who she was, Itoh viewed fans and users as “partners”
to consult and work with and not simply as consumers to sell a product to. But as Hatsune Miku had
become big business with the potential to grow even bigger, he wondered whether it was time to take a
more proactive approach to maximize the revenue-earning potential of his singing star. And if so, what
was the best way to do that?
WHAT IS HATSUNE MIKU?
Hatsune Miku was a piece of software, a Vocaloid (a singing voice synthesizer), a hologram, a 16-yearold female singer, the world’s best-known virtual idol and the sum of hundreds of thousands of songs,
illustrations and animated videos that were created by her fans.
Released on August 31, 2007, Hatsune Miku was the third Vocaloid released by Crypton, following
Meiko (2004) and Kaito (2006). She was the first to use Yamaha’s Vocaloid 2 speech synthesizer, an
improved version of the original Vocaloid engine on which Meiko and Kaito were based. But Miku
turned out to be different from her predecessors. She took off, and did so in ways that her creators never
expected.
Crypton Future Media, Inc.
Crypton Future Media was established in 1995 in Sapporo, the largest city in Japan’s northern island of
Hokkaido, as a music software company. Founder Hiroyuki Itoh grew up in Hokkaido, listening to new
music on the radio — his hometown had no music store. He studied economics at university and created
electronic music as a hobby.9
Crypton started out by importing audio products but soon established itself as a leading distributor of
sampling CDs and DVDs, sound effect and background music libraries and musical synthesizer
applications. The company achieved a 60 per cent share of the Japanese market for sound effects for
games, anime and TV shows; a top share in the market for ringtone sounds for cell phones; and a top
share overall (16.6 per cent in 2012) in Japan’s market for sound-related software.10
Crypton licensed software to video game companies, musical instrument makers, broadcast media,
computer companies, local and national government institutions and educational institutions. It also
operated several Japanese mobile websites that distributed sound effects and ringtones.11 In 2014, the
company had 70 employees and over 100 business partners in the United States, Europe and other
countries around the world.12 Its motto was “Expressing ideas with sound.”13
Yamaha’s “Vocaloid” Voice Synthesizer Application
As a developer and seller of musical synthesizer applications, or “virtual instruments,” Itoh had long been
intrigued by the idea of a “virtual singing voice.” He explained:
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The human voice is an instrument too, right? But a human singing voice is very difficult to
synthesize. I knew that if we could make a computer software human voice instrument, it would
sell well. Because there’s a big need among music creators for the human singing voice. Just like
there was a need for many other kinds of musical sounds, which have sold a lot. But the
technology didn’t exist for this.
When Yamaha developed the Vocaloid technology to synthesize the human singing voice, that
created the connecting point. We said to Yamaha, “Let’s do a project together,” and the result is
our company’s product: software that sings songs, a virtual instrument that synthesizes the human
singing voice.
Yamaha’s Vocaloid software allowed users to create songs and have them “sung” by the software by
entering the lyrics and melody into the program. Specially recorded vocals of singers or voice actors were
used to create the singing. The result of Crypton’s collaboration with Yamaha was the company’s first
Vocaloid, Meiko, released in 2004, followed by Kaito in 2006. Both found moderate success, targeting
amateur musicians and music producers.
The Hatsune Miku Phenomenon and Collaborative Creation
In 2007, Yamaha released Vocaloid 2. This was an improved version of the original Vocaloid, with a
revamped synthesis engine and user interface and the capability to produce more realistic-sounding
vocals. Hatsune Miku was the first Crypton Vocaloid to be based on the Vocaloid 2 engine, so her vocals,
which were sampled from Japanese voice actress Saki Fujita, sounded better than the previous Vocaloids.
But Hatsune Miku was different in other ways as well, starting with the packaging. Itoh explained:
When we developed our first Vocaloid, this kind of software was new to the world, so we started
thinking about how we should package it. You could just make an ordinary package—call it
“vocal” or “Hatsune Miku.” But that doesn’t tell the customer what’s inside the box. You would
have no idea what this software does.
So we decided to give the product the name of a person, and put an illustrated character on the
package. The idea was to communicate that “you install this character inside your computer and
she sings songs for you.”
We weren’t thinking at all about creating an animation character. We develop software and music
technology. We have no interest at all in things like anime — we know nothing about it. The only
reason we put an illustrated character on the package was to communicate to the people who buy
it, in an easy-to-understand way, what the product does.
While Meiko and Kaito also had human names and illustrated characters on the package, character
development was taken further with Miku. After deciding on the name — “Hatsune Miku” came from the
Japanese words hatsu (first), ne (sound) and miku (future) — Itoh and his team searched the Internet for
an illustrator who could create the image they had in mind. Itoh explained, “We didn’t want a childlike,
typical Akihabara type character. We wanted something more like a robot, or an android — it’s a
Vocaloid. We wanted an illustrator whose drawings feel like ‘technology’ or ‘future.’ We found just such
a person, Kei, so we asked him to do it.”
The specs Kei were given were sparse: Miku was to be a 16-year-old girl, dressed like a high school
student and some part of her was to have some kind of technology. The latter turned out to be the
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computer-like panel on her arm, which was modeled after the legendary Yamaha DX7 synthesizer, widely
used by musicians in the 1980s. Itoh said, “I respect Yamaha’s technology so I wanted to put some motif
of their technology on our character.”
The Hatsune Miku software was an immediate success. In a software category where a product that sold
1,000 units a year was considered a big hit, 3,500 to 4,000 units of Hatsune Miku were sold in the first
two weeks following its release.14 Within three weeks, Hatsune Miku held a 30 per cent share of Japan’s
music-related software market.15 Selling at 15,750 yen, Hatsune Miku soon became the number 1 selling
software on Amazon Japan. In its first year on the market, 40,000 units were sold.16
What was surprising, though, was who was buying the software and how they were using it. Like Meiko
and Kaito, Hatsune Miku was aimed at, and initially marketed to, professional music producers. But it
seemed that amateurs and “otaku”17 were buying the software too and using it to experiment, create and
share. Songs written by amateur users inspired others to produce illustrations, remixes and 2D and 3D
animation. Word of Hatsune Miku spread via social media, and video-sharing websites such as Nico Nico
Douga and YouTube became places for collaborative creation. Some creators uploaded unfinished work
and asked others for ideas.
Crypton marketing director Wataru Sasaki described what came to be known as the Hatsune Miku
phenomenon, and Crypton’s response to it:
It’s spreading among peers through these sites — really, word of mouth. It’s become popular in
various countries [in such ways that] there really haven’t been any prior examples . . . . In a way,
it’s been a struggle to find out how to best work with such phenomena. We believe that it’s best
to get feedback from fans about . . . how best to handle things, how to do what’s best for the fan
base. We’re not in a hurry to make money on this.18
Crypton supported the growing popularity of Hatsune Miku and her community of fans and amateur
creators in various ways. The company published guidebooks and provided magazine support that showed
how to use the software and get the most out of Miku’s vocals. A freeware animation software program,
MikuMikuDance, was developed and released (independently, but with Crypton’s cooperation) to enable
users to animate and create 3D animation movies. In 2011, Crypton launched MIKUBOOK.com, an
English social network site for fans of music videos featuring Vocaloids, where fans can watch, share and
talk about Vocaloid videos.
As a result of this collaborative creativity and Crypton’s efforts to foster it, hundreds of thousands of
Hatsune Miku songs, illustrations and animated videos were created and posted on the Internet. Among
the 110,000 original songs that had been written for Miku, some were major hits. In May 2010, a Miku
compilation album, “Exit Tunes Presents Vocalogenesis feat. Hatsune Miku,” debuted at number 1 on the
Japanese Oricon album charts.19 In May 2011, the Miku song “World is Mine,” by Supercell, hit number
7 in the top 10 world singles rankings on iTunes the first week it was released.20 Supercell was an 11member Japanese band who, as amateurs, used the Hatsune Miku singing software to produce the vocals
for songs they uploaded to Nico Nico Douga. The popularity of “World is Mine” and other Supercell
songs led to a contract with Sony Music Direct and the professional release of their first album, titled
“Supercell,” in 2009.21
Following up on Hatsune Miku, Crypton developed and released additional Vocaloid characters,
Kagamine Rin/Len (December 2007) and Megurine Luka (January 2009), as well as Miku Append and
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Rin/Len Append add-ons that provided various colour tones to the voices. See Exhibits 1 and 2 for the
Crypton Vocaloid software product lineup and Vocaloid character details.
Items and Derivative Characters
One active area of secondary creation involved illustrators and animators portraying Miku and other
Vocaloid characters holding or wearing particular items. For example, one popular amateur Miku video
featured a funny-looking Miku, called “Hachune Miku,” waving a leek while singing the Finnish song
“levan Polkka.” Other fans and creators were inspired by this, and more and more illustrations and
animations showing Miku holding a leek appeared, until the leek became one of her signature items. Miku
could be seen holding one in many derivative works, including the SEGA video game “Project Diva.”
Popular items were often licensed for production as character goods.
Similarly, many fans created derivative characters based on existing Crypton Vocaloids. The most
popular of these, such as Hachune Miku, were “officially recognized” by Crypton and were featured in
related products. Hachune Miku made appearances in the manga series “Hatsune Miku: Unofficial
Hatsune Mix” and the Project DIVA video game series and had her own officially licensed merchandise,
such as plush toys and key chains.22 Tako Luka (“Octopus” Luka) was a Vocaloid derivative based on
Megurine Luka. Tako’s creator, “Sangatsu Youka” (“March 8”), was inspired to create Tako Luka when
she realized that Megurine’s hair reminded her of an octopus. Tako Luka also appeared in Project DIVA
and in the form of licensed character goods.23
Live Concerts
Hatsune Miku also performed “live.” Miku performed eleven official live concerts, most of them soldout, at various venues in Japan as well as in Singapore, Los Angeles, Taiwan and Hong Kong. On stage,
Miku appeared as a hologram — a 3D image projected on a clear screen. Programmers choreographed
Miku’s movements for each song so that she strutted and moved like a real-life pop star. In concerts, she
was often joined by fellow Vocaloids Kagamine Rin and Len, Megurine Luka, Meiko and Kaito.
An American fan described a Miku concert he attended in Tokyo as “. . . extremely energetic. Despite the
fact that Miku is not physically on the stage, the crowd treated her as if she were, as if she were part of the
band.”24 That sentiment was echoed by keyboard player Jun Abe, one of the live musicians who backed
Miku at her gigs: “As you keep playing for Miku, you start to think you are a band member for a human
artist . . . the feeling is very unique.”25
A journalist for Anime News Network wrote that the illusion of Miku on stage was “impressive,” and
added: “Even more impressive is that every song on the set list was, obviously, fan-made — not a product
churned out by songwriters slaving away in Crypton’s basement, but the creations of genuine musicians
expressing themselves through the Vocaloid medium.”26
Itoh explained that putting on a Hatsune Miku concert was not as easy, or as cheap, as many people
assumed:
Miku doesn’t exist. She doesn’t eat so much and never gets tired. But she’s computer generated,
which means there are costs to generate her image. The rental fee for a hologram projector is
around $10,000 per day. In some concerts, we use two projectors, so that’s $20,000. In others, we
use four. The more projectors you use, the better the image. Concerts are costly.
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Also, fans want concerts to have more music, because Miku now has so many songs. But for each
new song we do in a concert we have to program her movements so they fit the music. That takes
time.
BEHIND THE HATSUNE MIKU
COLLABORATIVE CREATION
PHENOMENON:
CREATING
AN
ENVIRONMENT
FOR
Itoh felt that Hatsune Miku’s success owed a great deal to the collaborative possibilities that the Internet
age had brought and to the particular environment that Crypton had set up to help overcome copyright
barriers to sharing and building on others’ work.
Copyright Issues
Rights to the Hatsune Miku software and to Miku’s name and image were clear. Under the Character
Vocal Series license that came with Hatsune Miku, the software was considered to be a musical
instrument — like any music synthesizer — which produces sound: Miku’s voice. The license stated that
the software could be used to create vocals for commercial or non-commercial use and that copyrights to
vocals created belonged to the software user. Rights to Hatsune Miku’s name and image belonged to
Crypton; Miku’s name and image could not be used for commercial purposes, and Miku-sung vocals
could not be commercially distributed without Crypton’s permission.
The problem was how to create a flexible environment for amateurs to do secondary creation. Japanese
law strongly protected the rights of creators of intellectual property, including music, lyrics, illustrations
and animated videos. Secondary creation — the use of others’ music, lyrics, illustrations and animations
to create something new — could be viewed as copyright violation. Itoh found an answer in the Creative
Commons license.
The Creative Commons (CC) license was a standardized license similar to the General Public License
(GPL), a widely-used free software license that allowed a user to use, study, share and modify a piece of
software. The difference was that a CC license was for content, such as music, illustrations and movies.
Under a CC license, the content creator kept the copyright but allowed others to use and distribute the
work as long as they gave the original creator credit and abided by specified conditions. The license that
allowed the greatest dissemination and use of a work was the Attribution CC-BY license, which “lets
others distribute, remix, tweak and build upon your work, even commercially, as long as they credit you
for the original creation.” Other versions with stricter conditions included the Attribution –
NonCommercial CC BY-NC (non-commercial use only) and the Attribution – NoDerivs CC BY-ND (the
work cannot be changed in any way) licenses. 27
Itoh explained:
We had been very interested in and used open source and GPL long before Hatsune Miku,
because these allow our work of making computer software go way more smoothly than it would
otherwise. We had also been paying attention to CC for a long time because, as a company that
makes music software, how music gets distributed throughout the world is very important to us.
We thought Creative Commons was a very unique and useful mechanism.
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Piapro
In December 2007, Crypton launched Piapro — short for “peer production”— a site for sharing Hatsune
Miku-related content. On Piapro, users could upload their music, illustrations, lyrics and 3D models. In
doing so, they agreed to abide by the Piapro Character License (PCL), a “character” version of a noncommercial CC license crafted to be compatible with Japanese copyright law. For users outside Japan, the
CC BY-NC applied. The latter was described as follows on Piapro’s English-language site:
Subject to the terms and conditions of “Creative Commons – Attribution-NonCommercial, 3.0
Unported” (“CC BY-NC”), Crypton Future Media Inc. (Crypton) grants you a license to copy,
adapt, distribute and transmit illustrations of Hatsune Miku, Kagamine Rin, Kagamine Len,
Megurine Luka, MEIKO and KAITO (collectively, the “Characters”) for non-commercial use.28
In uploading a work to the Piapro site, a creator agreed to make the work freely available to others for
non-commercial use. The website also made it easy for users to communicate with each other about their
work and about secondary creation and collaboration.
Itoh explained how Piapro addressed the rights issue that arises with collaborative creation:
Some people are good at drawing, others at music, others at making animation — very few are
good at all of these. When someone writes a song and posts it on YouTube or Nico Nico Douga,
they need some visuals for it — you can’t just have an empty space. So they do an Internet search,
find some illustration they like, “borrow” it, incorporate it into their music video, and post it.
Some people are happy when others use their work. But other people get angry. The person that
made the illustration may feel his work was used without permission. But there was no place for
creators to communicate about this. So we created the Piapro website. The idea was if there’s a
place that creators of music, illustrations and animation can all post work, and freely use what’s
there to create new things, then we can avoid disputes over permission to use things.
Itoh believed that the flexible environment for collaborative creation that Crypton had created was what
set Hatsune Miku apart from the Vocaloids of other companies:
Anyone can license Yamaha’s Vocaloid technology. Other companies see that Hatsune Miku is
selling well, and so they imitate us by marketing their own Vocaloid — a similar-concept product,
but with a different character, a different voice. But this is nothing more than copying us
superficially. They’re missing the substance. They don’t have the viewpoint of “Let’s create this
kind of culture.”
People don’t just upload content to Piapro; they communicate with each other about it. One
person will say, “Thanks for letting me use your illustration. I used it in this animation that I
made.” And the illustrator will say, “Thanks for using my illustration!” There’s no monetary
transaction going on, people aren’t doing this for money. The thanks and the communication give
motivation to the creator. When someone says, “I used it,” the creator feels happy. It’s not just
posting your work publicly. It’s that other people use your work and communicate with you after
they use it. That makes people very happy, and they’re motivated — “What shall I make next?”
And they come to feel attachment for Hatsune Miku. We were the first to create a place where
this kind of culture can develop. And we issued the license.
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A Blank Piece of Paper
Another key part of the environment that Crytpon built for Hatsune Miku fans was the space to create
freely. Itoh explained:
Miku is a symbol. She’s 16, a girl with this long hair — that’s about the only thing that’s decided.
Same with our other characters — not much is fixed. This is what makes it easy for people to do
so much creating. If too many details are officially decided about the character, that stuff has a lot
of power, and when it comes to creating, or stimulating creation, it’s a minus. Therefore, I
thought it was best to do nothing, to make her like a blank piece of paper. The most important
thing was to create an “I can do anything” situation for creators.
On the business side, Hatsune Miku has become quite famous, so there are a lot of Miku works
and products out there — music, artwork, video games. But if people feel that we are controlling
all that as a business, then they will run away, they’ll stop cooperating with us. So we have to
maintain the “blank paper” condition, and not intervene. We have to keep our distance. If we try
to control, if we get too close, many people will not like us.
THE HATSUNE MIKU BUSINESS ECOSYSTEM
Hatsune Miku was at the center of a business “ecosystem,” depicted in Exhibit 3, through which money,
creativity, content, rights and awareness flowed.
It began with the original Vocaloid patent holder, (1) Yamaha Corporation. Yamaha licensed the
fundamental technology patents to (2) Crypton Future Media in exchange for licensing fees. Next,
Crypton Future Media integrated the image and voice of Hatsune Miku into the Vocaloid technology to
create their own pre-packaged Vocaloid software, which they sold to (3) professional and amateur music
creators. Crypton sold this software from its own proprietary website as well as through online and offline
retailers.
Music creators, after purchasing the software, then created songs or other Vocaloid-based musical works
and typically posted them on (4a) commercial websites, including YouTube, Nico Nico Douga and
Crypton’s own website, Piapro. Once these original songs were shared through these websites, (5)
secondary creators, that is other fans and amateur creators, enhanced or built on them by adding
illustrations, animations and new lyrics and then re-posted these works on one of the commercial
websites.
At the same time, (6) professional industry players, such as Sega and Kadokawa Publishing, had their
own special licensing relationships with Crypton, which allowed them to develop and sell stand-alone (7)
marketable products, such as concert events, game software, CDs and DVDs and character goods. These
products were developed independently in collaboration with professional creators or based on popular
amateur-produced songs, videos or derivative characters discovered through the commercial websites and
(4b) fan websites. In the latter case, the songs and characters were licensed from their creators for
commercial use. The professional industry players sold these products to (8) fans and consumers, both in
Japan and globally. And as the popularity of Hatsune Miku continued to grow both online and offline, (9)
prospective new fans and consumers were brought into the ecosystem, becoming paying consumers and
even collaborators and co-creators themselves. See Exhibit 4 for a partial list of Hatsune Miku-related
business activities.
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This was a highly evolved, co-creative ecosystem whose fan base continued to grow and that generated
revenues and creative motivation that inspired greater collaboration and investments from all its members.
CREATING A NEW CULTURE
While business success was important and rewarding to Itoh, the Crypton CEO also felt strongly that his
company had a cultural mission. One element of this was Crypton’s efforts to build an environment —
and from that environment a “culture” — where creators could easily collaborate and build on each
other’s work.
Another element had to do with creativity and collaboration at the level of Japanese society. Itoh
explained:
We call our company a “meta-creator.” What that means is most of our customers are creators —
creators of music, pictures, videos, anime, games, lots of things. And we are creators too. We
create and make available products and services for those creators, to make possible and support
their creative activities. I believe that is our company’s role.
What can a meta-creator do? It’s not just music or videos or games. Here in Hokkaido, we have
strong agriculture and tourism industries and a little IT. “Creating” those industries is also our
mission, I believe. In Japan, music, books, games — it all comes from Tokyo. Everything is
concentrated in Tokyo. Musicians, manga artists — they can’t do anything unless they go to
Tokyo. Creators have to go to Tokyo, otherwise they can’t get their works out in the world. Until
20 years ago.
But now, thanks to the Internet, we can do all that here — make music, create content. Until now,
all the creators gathered in Tokyo, there weren’t many in other places. But from now on, there are
creators in many places. They make music, illustrations, promote them on Facebook. Those
creators — if they have ways to connect and work together — make possible lots of creative
activities in places other than Tokyo.
I think we have to do that — help create ways for people to do create activities without going to
Tokyo. Not just in Hokkaido but in other local places all over Japan. That’s our mission as a
meta-creator: creating ways that make it possible for people to engage in creative activities
outside of Tokyo and earn money doing that. If we can do this, there will be more and more
creators all around Japan. I think this will continue, and the resulting creativity, if it can be linked
up with local industries and local information sources, will contribute to the Japanese economy
and lead to development of new and different industries in Japan. That’s what I really want to see
happen.
THE ROAD AHEAD
For Crypton and CEO Itoh, the success of Hatsune Miku had brought financial rewards and worldwide
attention. Crypton had grown from 30 employees in 2008 to 70 in 2014. The Vocaloid business continued
to develop. Kaito V3, Crypton’s first singing software based on Yamaha’s next-generation Vocaloid 3
engine, was released in February 2013. This was followed by other Vocaloid 3-based releases: Hatsune
Miku V3 in September 2013, Meiko V3 in February 2014 and Hatsune Miku V3 English in August 2013
(see Exhibit 1).
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The Vocaloid 3 engine used triphones (combinations of three phonemes) as the basic unit of sound,
resulting in more natural-sounding vocals. (Vocaloid 2 had used biphones.) The sound quality of the
Vocaloid 3 engine was such that it was beginning to be used in music education. Atsushi Masuda,
associate professor of popular music at Shikoku University, was planning to offer a course in 2015 in
which students would learn to write music using the Vocaloid singing voice synthesizer. Masuda
commented: “Creating [a] singing voice with Vocaloid is profound because you can make adjustments to
the vibrato tone or the intake of breath.”29
Hatsune Miku continued to be in high demand. Itoh said: “Many record companies and other companies
want to make Miku-based products. They want to make anime, they want to make books, many people
say ‘Let us borrow [license] Hatsune Miku!’”
But Itoh also had plenty to worry about. One constant challenge was how to manage Miku’s “career.”
Though she was virtual, she was still a celebrity, and celebrities in other industries — sports and music,
for example — had managers and agents whose job it was to help guide their careers, build their brand
and maximize their long-term earning power. That included making decisions about which product
endorsements, personal appearances and sponsorship opportunities to accept and which to decline. In
Miku’s case, a key decision area was which licensing opportunities to accept. Itoh had made it a rule that
Miku would not be connected with anything political. In 2012, Crypton declined an invitation for Miku to
perform in Beijing as part of ceremonies to mark the 40th anniversary of the normalization of China–
Japan relations. Itoh did not want Miku to be strongly associated with Japan. He said, “Hatsune Miku
doesn’t live in Japan. She lives on the Internet.” But with so many people wanting a piece of Miku,
deciding what to say yes to and what to say no to was not always easy.
Another question was the potential for international expansion. Itoh himself was international-minded.
Musically, he loved British rock bands Led Zeppelin and Deep Purple and the British electro-music of
Thomas Dolby and Depeche Mode, 30 and he enjoyed the opportunities for international travel and
exchange that had come with Hatsune Miku’s popularity:
Requests for Hatsune Miku concerts come in from all over the world. Most of them are from
countries I’ve never been to, so I’d like to visit as many of these places as I can . . . At concerts
everywhere around the world, the fans hum the phrases of the songs and sing along in Japanese.
Every time I see this happening before my very eyes, I realize that, in a way, we are promoting
Japanese culture to people overseas. At performances abroad, we try to incorporate the works of
local creators into our concerts, by adding a song to the album, or using a drawing for the poster.
For example, when we released a CD in Taiwan, we used an illustration drawn by a Taiwanese
high school girl. We try to involve as many local people as possible in order to add to the aspect
of international exchange.31
Hatsune Miku Expo, Miku’s first overseas festival, was scheduled to be held in Jakarta, Indonesia, in
May 2014. This Miku extravaganza would feature “exhibitor booths with Miku-related items, toys and
services, an exhibition about the history and cultural movement that was inspired by Miku, fan gathering
activities and as absolute highlight the fabulous live show of Hatsune Miku using cutting-edge projection
technology.”32
But were there limits to Hatsune Miku’s marketability outside Japan? How much of her appeal was
culture-specific? At a seminar on leadership and innovation held in London, Itoh explained that the
Japanese liked the idea of virtual cities, virtual gods and falling in love with virtual people; that the
concept of being virtual is linked to technology; and that robots, artificial intelligence and computer
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9B14M110
science are popular fields of study at Japanese universities.33 Did that have something to do with Hatsune
Miku’s popularity in Japan and would it transfer overseas? Itoh wasn’t sure:
I feel that Hatsune Miku is looked at in a way that is strange, that is uncommon, really strange —
not particularly in a nice sense — by the audience outside Japan, especially in America and Great
Britain. In Japan, I feel more comfortable that Hatsune Miku is more accepted. But outside of
Japan, especially in Western culture, people tend to look at Hatsune Miku as strange.34
A broader question concerned the relationship between the business “ecosystem” that had grown out of
Hatsune Miku’s success and Crypton’s core skills and main business area of developing and selling music
software: Were they synergistic, or did they conflict? Some scheduled Crypton software releases had been
delayed,35 suggesting that the time and attention spent dealing with the Hatsune Miku phenomenon might
be taking a toll on Crypton’s other business activities. How could Crypton maintain a healthy balance
between its original business and the new direction in which Hatsune Miku was pulling the company?
These were some of the questions that were on Hiroyuki Itoh’s mind as afternoon turned to evening in
Sapporo and the city’s neon-lit entertainment district came to life, opening its doors to Japanese “salary
men” and “office ladies” ready to kick back after a long day of work.
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EXHIBIT 1: CRYPTON VOCALOID SOFTWARE PRODUCTS
Vocaloid
Meiko (female, released 2004); Kaito (male, released 2006)
Vocaloid 2
Hatsune Miku (released August 2007)
 “Pop music, cute, virtual idol singer”
ï‚· Price: 15,000 yen + tax36
Hatsune Miku, © Crypton Future Media, Inc., 2007
Hatsune Miku Append (released April 2010)
ï‚· Additional Miku voice library containing six different vocal expressions/tones: Soft (gentle, delicate
voice), Sweet (young, small voice), Dark (mature, heartbroken-like voice), Vivid (bright, cheerful
voice), Solid (loud, clear voice) and Light (innocent, heavenly voice)
ï‚· Price: 16,000 yen + tax
Kagamine Rin/Len (released December 2007)
 “Powerful and charming twin vocals”
ï‚· Price: 15,000 yen + tax
Kagamine Rin/Len Append (released December 2010)
ï‚· Additional voice library containing six different vocal expressions/tones: three for Kagamine Rin and
three for Kagamine Len
ï‚· Price: 16,000 yen + tax
Megurine Luka (released January 2009)
 “Cool and husky! High capacity bi-lingual vocal”
ï‚· Price: 15,000 yen + tax
Vocaloid 3
Kaito (released February 2013)
 “Japanese- and English-singing male vocalist”
 “Skilled expressive power, four voices: straight, soft, whisper, English”
ï‚· Price: 16,000 yen + tax
Hatsune Miku V3 English (released August 2013)
ï‚· English version, downloadable only
ï‚· Vocal editor and music production software included
ï‚· Price: 15,400 yen + tax
Hatsune Miku V3 (released September 2013)
ï‚· Japanese version, packaged
 Five singing voices: “original, sweet, dark, soft, solid”
ï‚· Price: 16,000 yen + tax
Hatsune Miku V3 Bundle (released September 2013)
ï‚· Hatsune Miku V3 + English voice library
ï‚· Price: 21,000 yen + tax
Meiko V3 (released February 2014)
 “virtual singer like a professional”
 Voices: “power, straight, dark, whisper” + English voice library
ï‚· Price: 16,000 yen + tax
Sources: Crypton Future Media, Inc. website, Virtual Singer Lineup (www.crypton.co.jp/mp/pages/prod/vocaloid/); Tomoko
Otsuka, Crypton Future Media, personal communication.
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EXHIBIT 2: CRYPTON VOCALOID CHARACTER DETAILS
Meiko
ï‚·
ï‚·
ï‚·
ï‚·
Character information: female; age unspecified; colour: red
Popular item: One Cup Ozeki (brand of Japanese rice wine)
Official derivative character: Meiko Sakine
Voice provider: Meiko Haigo
ï‚·
ï‚·
ï‚·
ï‚·
ï‚·
Character information: male; age unspecified; colour: blue
Popular items: muffler, ice cream
Popular derivative characters: Kaiko (Kaito “gender bend”)
Voice provider: Japanese male singer Naoto Fuga
Voice sample: You can hear Kaito’s singing voice at http://vocaloid.wikia.com/wiki/Kaitovoice
Kaito
Hatsune Miku
ï‚· Character information: female; age 16; height: 158 cm; weight: 42 kg; colour: blue-green
ï‚· Popular item: leek
ï‚· Popular derivative characters: Hachune Miku (Hachune = childlike mispronunciation of Hatsune);
Yowane Haku (“say negative thoughts”); Akita Neru (translates as “got bored, go to bed”)
ï‚· Voice provider: Saki Fujita
ï‚· Illustrator: Kei
Kagamine Rin/Len
ï‚· Character information: female (Rin) and male (Len); age 14; height: 152 cm (Rin), 156 (Len); weight:
43 kg (Rin), 47 kg (Len); colour: orange (Rin), yellow (Len); their relationship (twins, boyfriendgirlfriend, etc.): unspecified
ï‚· Popular items: banana (Len), orange (Rin), road rollers (both)
ï‚· Popular derivative characters: Rin no Youchuu (Larvae Rin), Magane Rin (heavy metal version;
Magane = “misfortune sound”)
ï‚· Voice provider: Asami Shimoda
ï‚· Illustrators: Kei, Osamu (for Append)
Megurine Luka
ï‚· Character information: female; age 20, height: 162 cm; weight 45 kg; colour: pink
ï‚· Popular item: tuna fish
ï‚· Official derivative character: Tako Luka
ï‚· Voice provider: Yu Asakawa
ï‚· Illustrator: Kei
Sources: Crypton Future Media, Inc. website, Virtual Singer Lineup, www.crypton.co.jp/mp/pages/prod/vocaloid/; Tomoko
Otsuka, Crypton Future Media, personal communication.
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EXHIBIT 3: VALUE CO-CREATION MAP
Source: Based on information gathered during interview and general information from case.
EXHIBIT 4: HATSUNE MIKU-RELATED BUSINESS ACTIVITIES (PARTIAL LIST)
Licensing of Miku’s Name and Image
Apparel: Miku t-shirts and other clothing items have been produced by Putumayo, AmiAmi, earth music & ecology
and COSPA.
Figurines: Miku figurines have been produced by Max Factory, Bandai, Tony Taka, Good Smile Company, Polygonia,
Replyfrom and Ambivalent.
Video Games: SEGA holds the rights to develop and sell Miku-based video games. As of March 2014 SEGA and
Crypton had produced and released:
ï‚· The Project Diva rhythm game series (for PlayStation, Nintendo, iOS and Sega platforms): Hatsune Miku
Project DIVA; Hatsune Miku Project DIVA 2nd; Hatsune Miku Project DIVA Arcade; Hatsune Miku Project DIVA
Extend; Hatsune Miku and Future Stars Project Mirai; Hatsune Miku Project DIVA-f; Hatsune Miku Project Mirai
2; Hatsune Miku Project DIVA-f 2nd
ï‚· Miku Flick: A rhythm game for iPhone, iPad and iPod Touch.
Manga: “Hatsune Miku: Unofficial Hatsune Mix,” a Japanese manga featuring Miku and other Crypton Vocaloid
characters, written by Kei, serialized by Comic Rush and licensed for North American distribution by Dark Horse
Comics.
Trading Card Game: Hatsune Miku starter and booster pack, by Precious Memories.
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EXHIBIT 4 (CONTINUED)
Misc. Character Merchandise: Pullip dolls (by Groove Inc.), calendars, manicure kit, key rings, cosplay outfits, cell
phone case, iPad mini cover, seven-inch Android tablet.
Music
KARENT, an independent music label established by Crypton, licenses Vocaloid music from creators and distributes
it through websites such as iTunes Japan, Amazon mp3 and Hear Japan.
Advertising and Sponsorships
Domino’s Pizza: A free iPhone application that allows users to order directly from Miku, check order status, see Miku
uniforms designed by Dominos staff and take photos with Miku. When the user points the app at the box the pizza
is delivered in, Miku performs a song.1
Other: Other companies that have used Hatsune Miku in advertising or as a sponsor include Toyota (ad for the
Corolla), Good Smile (Super GT series Good Smile Racing race car painted with Miku image) and Google (Miku
song used as BGM for commercial in Japan).
Events
Live Concerts and Festivals
Snow Miku: A series of Miku-related activities that are part of Sapporo’ annual Snow Festival, including a Snow Miku
outfit design contest, train cars covered inside and out with Miku art and a live Miku concert.
Other
 “All you need is LOVE: From Chagall to Kusama and Hatsune Miku”: Miku appeared as an art work in the 10th
Anniversary Exhibition of the Mori Art Museum in Tokyo, April to September 2013.
 “The End”: An opera without humans, sung by Hatsune Miku, performed in Yamaguchi (November 2012),
Tokyo (May 2013) and Paris (November 2013).
 “Symphony Ihatov,” by Isao Tomita: A symphonic work on the world of Kenji Miyazawa (beloved Japanese
poet and writer of children’s books, 1896 to 1933), featuring Hatsune Miku as soloist with an orchestra and
chorus (https://www.youtube.com/watch?v=n_3pV8xA08E).
Sources (accessed December 6, 2014 unless otherwise specified): Amazon.com, “Hatsune Miku,”
www.amazon.com/s/ref=nb_sb_noss_1?url=search-alias%3Daps&field-keywords=hatsune+miku;
Sega
Corporation,
“Games,” www.sega.com/Search/?q=project+diva; Sega Corporation website, http://miku.sega.jp/flick/en/; Dark Horse
Comics,
https://www.darkhorse.com/Books/21-734/Unofficial-Hatsune-Mix-TPB;
O-Ami,
Inc.,
www.amiami.com/top/detail/detail?gcode=CGM-4267; Mikufan.com, News and Resources About Hatsune Miku,
www.mikufan.com/; Karent, http://karent.jp/; (Debut of Dominos Pizza – Hatsune Miku official collaboration application), iab,
Global Insights Report, www.iab.net/globalinsightsreport/case-studies/domino’s-app-featuring-hatsune-miku; “Hatsune Miku
/ Vocaloid,” Know Your Meme, http://knowyourmeme.com/memes/subcultures/hatsune-miku-vocaloid; “Who is Hatsune
Miku?” Crypton Future Media, Inc., www.crypton.co.jp/miku_eng, accessed July 1, 2013; Goodsmile Racing,
www.goodsmileracing.com/en/; Akky Akimoto, “Google Chrome Promotion with Hatsune Miku,” Asiajin, December 16, 2011,
http://asiajin.com/blog/2011/12/16/google-chrome-promotion-with-hatsune-miku/;
Piapro,
“Snow
Miku
2014,”
http://piapro.net/snowmiku2014/index_en.html; Mori Art Museum, www.mori.art.museum/english/contents/love/; “Japan’s
Keiichiro Shibuya to Stage Futuristic Android Opera,” The National, October 22, 2014, www.thenational.ae/artslifestyle/music/japans-keiichiro-shibuya-to-stage-futuristic-android-opera; Patrick St. Michael, “Isao Tomita Shows the World
an All-new Hatsune Miku,” MTV 81, December 1, 2014, www.mtv81.com/features/live-reports/isao-tomita-shows-the-worldan-all-new-hatsune-miku/.
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ENDNOTES
1
Tomoko Otsuka, Crypton Future Media, personal communication, March 26, 2014; “Who is Hatsune Miku?” Crypton Future
Media, Inc., www.crypton.co.jp/miku_eng, accessed April 9, 2014.
2
Kazuya Sato, “初音ミクの認知度は 95% –「好きな音楽はボカロ曲」10 代女性で 4 割” (Hatsune Miku Name Recognition:
95 to 40 Per Cent of Teenage Girls Say the Music They Like Is Vocaloid Songs), CNET Japan, February 26, 2013,
http://japan.cnet.com/entertainment/35028758, accessed June 15, 2013.
3
Takamasa Sakurai, “Turquoise-haired Idol Rules the World,” The Daily Yomiuri, November 8, 2012.
4
Tomoko Otsuka, Crypton Future Media, personal communication, March 26, 2014.
5
“Music Artists You’d Like to Perform at the 2012 London Olympics Opening Ceremonies,” The Top Tens,
www.thetoptens.com/singers-perform-london-olympics-opening-ceremonies, accessed June 25, 2013.
6
Carly Smith, “Digital Pop Star Hatsune Miku Will Open Lady Gaga Concerts,” The Escapist, April 18, 2014,
www.escapistmagazine.com/news/view/133817-Digital-Pop-Star-Hatsune-Miku-Will-Open-Lady-Gaga-Concerts, accessed
April 23, 2014.
7
Tomoko Otsuka, Crypton Future Media, personal communication, March 26, 2014.
8
Yoshinori Yamasawa, “初音ミク、「リアル」に商機、ライブ・カラオケ・CM…関連消費100億円超” (Hatsune Miku,
“Real” Business Opportunity, Over 10 Billion Yen in Related Consumption: Live Events, Karaoke, Advertising…),
SankeiBiz, March 27, 2012, www.sankeibiz.jp/business/news/120327/bsg1203270754009-n3.htm, accessed June 26,
2013.
9
“Seminar Series 2012: Leadership and Innovation,” Daiwa Anglo-Japanese Foundation, www.dajf.org.uk/annualseminar/leadership-and-innovation, accessed July 6, 2013.
10
“BCN Awards 2013, Software Division,” BCN Ranking, http://bcnranking.jp/award/sokuhou/p4.html, accessed June 29,
2013.
11
“Company Information,” Crypton Future Media, www.crypton.co.jp/mp/pages/aboutus/company_info.jsp, accessed June
29, 2013.
12
Hiroyuki Itoh, personal communication, April 8, 2014.
13
Hiroyuki Itoh, “Hatsune Miku, the New Social Phenomenon,” Wochi Kochi Magazine,
www.wochikochi.jp/english/special/2013/02/hatsune-miku.php, accessed June 27, 2013.
14
“「初音ミク」特集雑誌 3 日で完売ヤフオク、アマゾンで 3 倍の価格も” (Hatsune Miku Special Edition Magazine Sells
Out in 3 Days, Goes for Triple the Retail Price on Yahoo Auction and Amazon), J-CAST News, October 10, 2007,
http://news.livedoor.com/article/detail/3339276, accessed June 30, 2013.
15
“大ブレイクの「初音ミク」、売り上げもぶっちぎりのトップを爆走中!” (Hatsune Miku’s big breakout, explodes to #1 in
sales), BCN Ranking, 27 Sept. 2007, http://bcnranking.jp/news/0709/070927_8497.html (accessed 30 June 2013).
16
Yuka Okada, “「初音ミク」発売からもうすぐ 1 年 開発者が語る、これまでとこれから” (One Year after the Launch of
Hatsune Miku, Her Developer Looks Back and Ahead), IT Media News, July 23, 2008,
www.itmedia.co.jp/news/articles/0807/23/news046.html, accessed May 30, 2013.
17
“Otaku” is a Japanese word for people with an obsessive interest in something, typically manga or anime.
18
Carlos Santos, “The World is Hers: How Hatsune Miku is Changing Everything,” Anime News Network, July 15, 2011,
www.animenewsnetwork.com/feature/2011-07-15, accessed June 5, 2013.
19
“初音ミク”ボーカロイドアルバム”が徳永を押さえ、初首位” (Vocaloid Album Reaches #1 for First Time, Overtaking
Tokunaga), Oricon, May 25, 2010, www.oricon.co.jp/news/rankmusic/76554/full, accessed June 29, 2013.
20
“Supercell/Miku Song in U.S. iTunes’ World Top 10,” Anime News Network, May 16, 2011,
www.animenewsnetwork.co.uk/interest/2011-05-15/supercell/miku-song-in-u.s-itunes-world-top-10, accessed June 20,
2013.
21
“Supercell,” Oricon Style, www.oricon.co.jp/music/release/d/804088/1/, accessed September 29, 2014.
22
“Hachune Miku,” Wikia, http://vocaloid.wikia.com/wiki/Hachune_Miku, accessed June 30, 2013.
23
“Tako Luka,” Wikia, http://vocaloid.wikia.com/wiki/Tako_Luka, accessed June 26, 2013. For other examples of fan-created
derivative characters, see http://fanloid.wikia.com/wiki/List:_Established_derived_characters.
24
Peter Bucani, interview by Tim Craig, June 18, 2013.
25
Wappler., op. cit.
26
Santos, op, cit.
27
“About the Licenses,” Creative Commons, http://creativecommons.org/licenses, accessed July 1, 2013.
28
“For Creators,” Piapro, http://piapro.net/en_for_creators.html, accessed July 2, 2013.
29
“Music Educators Tapping Vocaloid,” The Japan Times, April 1, 2014,
www.japantimes.co.jp/news/2014/04/01/national/music-educators-tapping-vocaloid/#.Uz5mdlyGjwI, accessed April 4,
2014).
30
“Seminar Series 2012: Leadership and Innovation,” op. cit.
31
Itoh, op. cit., “Hatsune Miku, the New Social Phenomenon.”
32
“What’s HATSUNE MIKU EXPO 2014 in Indonesia?” http://mikuexpo.com/inindonesia.html, accessed April 8, 2014.
33
“Seminar Series 2012: Leadership and Innovation,” op. cit.
34
Paul Browne, “An interview with Hiroyuki Itoh,” J-pop Go, October 11, 2012, www.jpopgo.co.uk/jpg/an-interview-withhiroyuki-itoh, accessed July 6, 2013.
35
“Hatsune Miku,” Vocaloid Wiki, http://vocaloid.wikia.com/wiki/Hatsune_Miku, accessed July 7, 2013.
36
Sales tax in Japan was 5 per cent until March 31, 2014; on April 1, 2014, it was raised to 8 per cent.
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