UBIC Inc (today: Fronteo): founded to curb huge losses of Japanese corporations due to litigation abroad
A discussion between UBIC (today: Front) CEO Masahiro Morimoto and Dr. Gerhard Fasol
From Japanese/Chinese/Korean (CJK) e-discovery, to data forensics, virtual data scientist and predictive coding
Masahiro Morimoto founded UBIC Inc. on August 8, 2003 to stem the huge losses he saw Japanese corporations incurring due to litigation abroad. English-only software cannot be used for e-discovery of documents in Japanese, Chinese or Korean, and UBIC Inc initially focused on e-Discovery for these double-byte languages. Today, UBIC has grown beyond CJK e-discovery, into applying artificial intelligence tools to predict human behavior from emails and social media, forensics and other fields. Cloud based services are increasing rapidly. Recently, UBIC acquired the US e-discovery company TechLaw Solutions, expanding US business.
UBIC was founded on August 8, 2003
Tokyo Stock Exchange (Code 2158), IPO on November 6, 2007
NASDAQ (Symbol UBIC), IPO on May 16, 2013
UBIC Inc. Financial Data for the Financial Year 2014
(ended March 31, 2015, $1=119.96yen)
Revenues: YEN 6274 million (US $52.3 million)
Operating income: YEN 266 million (US$ 2.2 million)
Net income: YEN 260 million (US$ 2.1 million)
Market capitalization: YEN 33.25 billion ($276 million) ($1=120.17)
Note: on July 1, 2016 the company name was changed from UBIC to FRONTEO.
Discussion between Mr Masahiro Morimoto, CEO and Chairman of the Board, UBIC Inc. (today: Fronteo) and Dr. Gerhard Fasol
- Question (Dr. Gerhard Fasol): You announced your most recent financial results on May 13, 2015. Could you kindly give us some of the highlights and some comments?
Answer (Masahiro Morimoto): For UBIC, the fiscal year ended on March 31, 2015, was memorable for three main reasons:
- First, we successfully acquired TechLaw Solutions, a well-established US e-discovery company.
- Second, we launched Lit i View EMAIL AUDITOR, a product powered by our proprietary AI program.
- And third, we have promoted several innovative projects with business partners.
It was not by luck alone that UBIC achieved record high revenue, but as a result of great effort. We achieved both organic and inorganic growth. Our company is entering a new era now.
- Question (Dr. Gerhard Fasol): The core of your business is e-discovery with special focus on Asian languages. Can you tell us more about the current state of the e-discovery market, your competitive advantage, and how you can assist your clients?
Answer (Masahiro Morimoto): Our strength lies in operations that enable us to integrate and manage data within Japan. This is of particular value to the increasing number of Asian companies that do not want their highly confidential data to leave the country. At the same time, we provide an end-to-end, full e-discovery service. Our high level technology has enabled us to develop our own e-discovery reviewing tool, Lit i View.
Further, our document review services in Asian languages including Japanese that use Predictive Coding, our proprietary AI technology developed by the in-house team, can cut costs while improving the quality of reviews, which can account for up to 70% of discovery costs.
Lastly, our consultants and project managers can help in bridging any gap there might be between Asian companies and US attorneys, so that complex matters and projects may proceed smoothly for both sides.
- Question (Dr. Gerhard Fasol): I understand that most of your work is ultra-confidential, since your work is in the field of data security. However, could you tell us about one or two successes so we can get an idea of how UBIC is able to help clients, and the reason they like working with you.
Answer (Masahiro Morimoto): One of our customers, which regularly faces cases filed by non-practicing entities (NPEs) in the US, was able to reduce their e-discovery costs by up to 40% by utilizing our services based on our proprietary AI technology. We have heard that achievement garnered a special company award.
(Note added by Gerhard Fasol: NPE’s are often nicknamed “patent trolls”).
- Question (Dr. Gerhard Fasol): I understand that your core product is Lit i View. Can you explain the main characteristics of this electronic data analysis platform, and tell us why it is so important for your customers?
Answer (Masahiro Morimoto): Currently in Lit i View, we have three types of products.
- First, Lit i View E-DISCOVERY, which is an e-discovery support product;
- second Lit i View XAMINER, a digital forensics tool; and
- third the Lit i View EMAIL AUDITOR, our email auditing tool.
The feature that these three products have in common and which is unique is that they are equipped with Virtual Data Scientist (VDS), UBIC’s AI software, which enables them to analyze big data.
Furthermore, Lit i View fully supports data in English, Chinese, Japanese, and Korean, and accurately displays multi-byte characters. In contrast, conventional e-discovery tools developed in English-speaking countries cannot accurately process legal documents written in Asian languages or multi-byte characters, without experiencing problems such as garbling.
Asian companies, which thus are at a disadvantage in terms of the e-discovery process, have found that Lit i View provides an effective solution to their problems. We are receiving very positive reviews from clients in Asian countries, who tell us that they truly need to use Lit i View for documents in Asian languages.
For further information, see http://www.ubicliv.com/en
- Question (Dr. Gerhard Fasol): Virtual Data Scientist (VDS) is important part of your business model, could you explain us about Virtual Data Scientist?
Answer (Masahiro Morimoto): At UBIC, we do not consider big data to be merely an accumulation of data, but a collection of people’s thoughts and behavior outcomes. We define behavioral informatics as an analytical interpretation of behavior, and the synthesis of information science (including statistics, mathematics, data mining, and pattern recognition) and behavioral science (including psychology, criminology, and sociology).
Conventional approaches to big data merely analyze past incidents, from which they extract some facts. But, in behavioral informatics, we are able to predict the future, and we do so by basing our analytics on human cognition and by generating patterns of human and social behavior.
The highly accurate Virtual Data Scientist software applies a behavioral informatics approach to analyzing big data, thereby making it possible for one to find whatever information is being sought.
- Question (Dr. Gerhard Fasol): Predictive Coding is another concept for the basis of your business. Could you explain us Predictive Coding?
Answer (Masahiro Morimoto): Predictive coding is based on the concept of text mining and AI technology. When e-discovery uses predictive coding, our VDS software analyzes and emulates the e-discovery review sample produced by experienced attorneys, before carrying out the rest of e-discovery review processes. Our AI software not only applies e-discovery to the review of documents at a speed more than 4,000 times faster than that achievable by humans, but also avoids the wide discrepancy in review results that often result from human error. Furthermore, our AI software has proved to be more than 90% accurate in extracting information for e-discovery reviews. Although in litigation, e-discovery is the most expensive process, costs can be cut drastically with our AI. If people use our predictive coding in addition to conventional keyword searches, relevant legal documents will no longer be omitted as often happens when only keyword searches are conducted and keyword settings are misconfigured.
- Question (Dr. Gerhard Fasol): Your cloud hosting services appear to be the most rapidly growing area of business, accounting for more than half your revenue. Can you explain what this means for you? Will all your services simply move to the Cloud, or are your Cloud services a new class of products? What benefits do your customers derive from using your Legal Cloud?
Answer (Masahiro Morimoto): Before answering your question, I would like to explain about our business and work flow of e-discovery. E-discovery has several steps such as identification, preservation, collection, processing, analysis, hosting, document review, and production. We charge for each of the steps. Hosting service is one of the steps of e-discovery, and its purpose is to store the data which has been loaded to the hosting server after collection, processing, analysis, and document review. Unlike the e-discovery process which only takes between one to twelve months to complete, hosting service usually lasts more than five years. One reason that the data which has been processed and reviewed by attorneys must be kept for a long time is that there is high possibility of reusing the data in case of multiple lawsuits and other issues for one particular case, for instance. Furthermore, these data are too valuable and expensive to discard since these data can be leveraged across multiple matters. These are the reasons why hosting revenue has been growing. It is a kind of recurrent revenue for us.
To answer your question regarding whether we plan to move all our products to the Cloud: we will provide cloud solutions to our customers continuously. But, it depends on the customer and the market requirement. Although we must have cloud solutions to meet the market requirement, we provide all types of solutions such as cloud and on-premise products and services.
- Question (Dr. Gerhard Fasol): When I discuss the Cloud with customers and friends, automatically almost the first question concerns security. How do you ensure the security of your Cloud services, and do you see this security as a business opportunity for your company?
Answer (Masahiro Morimoto): In our Intelligence Cloud Service, clients’ data are securely managed. First, only permitted users have access to restricted virtual desktops; second, we have secure communication networks; third, our communications system has a firewall; fourth, we employ VLAN-based logical separation for network segments; and fifth, we have disaster recovery centers for redundancy operations.
Currently, our priorities do not include offering Cloud-related security business solutions, since our main business is not only offering Cloud services.
- Question (Dr. Gerhard Fasol): I have two questions regarding your TechLaw Solutions acquisition.
- First, could you explain the reasons for the acquisition of this electronic discovery and litigation consultancy?
- And second, it is a fact that mergers involving US or EU companies on the one hand, and traditional Japanese companies on the other, are often difficult, and sometimes the two companies lead almost independent lives, without really integrating. That being the case, how are you overcoming cultural issues, and could you give some advice to companies undertaking Western-Japanese mergers? What are your key experiences and the conclusions you have drawn that might be applied to ensure successful Western-Japanese company mergers?
Answer (Masahiro Morimoto): In answer to the first part of your question, we acquired TechLaw Solutions – a US e-discovery consultancy and solutions provider that has been in business for more than 30 years – as part of our strategy to expand our e-discovery market share, with a view to giving ourselves a high-profile presence in the US. Since TechLaw Solutions already has developed a large number of sales channels, its acquisition has given us a unique opportunity to establish the UBIC brand in the US.
Regarding the second part of the question, all companies have their own culture, so even companies with identical national backgrounds have different cultures. To ensure there are no cultural obstacles when companies merge, it is necessary to recognize and accept that differences exist. UBIC has always respected cultural diversity, and so does not perceive it to be a major challenge.
Most important of all is the need to share clear, solid, and positive goals, and to clearly visualize the path to those goals. I accompanied members of the UBIC management team on a visit to TechLaw Solutions. We held a number of team meetings, during which I continued to make every effort to convey to them my thoughts, regarding what we expected would be the outcome of the acquisition, the degree to which I believed Techlaw Solutions could help UBIC grow, and the reason I had confidence in our technology.
At the same time, I held one-on-one meetings with all key employees, and made sure that each of them was enthusiastic about their work and that they held values akin to those upheld by UBIC. Had there been no relationship of trust or the support that comes from sharing common goals, it would have been hard for the companies to merge successfully. But, once we found we had the same goals and could help each other, the cultural differences became non-issues.
- Question (Dr. Gerhard Fasol): Your venture company is certainly one of the most successful, having grown rapidly into a global corporation that continues to expand. What are the main factors behind your success? Since improving conditions for the setting up of businesses is one of Prime Minister Shinzo Abe’s growth strategies for Japan, based on your experience, how would you suggest conditions might be improved for entrepreneurs?
Answer (Masahiro Morimoto): One piece of advice regarding how to improve conditions for entrepreneurs concerns the Japanese education system. Schools should teach children, from a young age, about entrepreneurs and startups.
Although the climate surrounding fundraising has improved, one critical drawback that Japanese entrepreneurs face is the difficulty in attracting smart, competent people to work for startups in Japan. In Silicon Valley, very competent new university graduates are eager to work for startups or small companies with less than five employees. They do not target Fortune 500 or well-known companies, or even companies such as Facebook or Twitter. In Japan, however, very competent students tend to want to work for big-name companies, rather than startups.
Part of the problem is that we have not learned about startups and entrepreneurship, which makes it difficult for such businesses to attract young Japanese. For example, I used to be a public servant working for the Japan Maritime Self-Defense Force (JMSDF) prior to working for Applied Materials Japan Inc. But then, having a specific goal that I wished to achieve, I set up my own company. Yet, even at that time, had I had the option of working for a startup, I would not have done so, because the concept of startups was so ill-defined.
Our children need to be taught that there are any number of work possibilities, ranging from being a florist, an astronaut, an entrepreneur or an employee at a startup. We also should teach our children that working for a large company is not the only option. In Japan, we still believe that large, well-known companies are “safe,” “good,” and, thus, “socially acceptable.” It is interesting to note that, these days, even some of the big companies are setting up-within their organizations-business incubators.
Japanese media have begun to mention startups and entrepreneurs, while some universities have launched incubator programs to draw students into this area of expertise. This is important, since the younger generations should be made aware that there are any number of ways in which they can utilize their skills.
There are several reasons for UBIC’s success. One factor is that we are a strong team, committed to a goal. Whereas one person alone can achieve relatively little, a great team with members who empower each other and work together can achieve great things.
A second reason is that we have a clear corporate mission which is shared by the team. Fortunately, it dovetails well with the current social environment. When we launched our e-discovery business, our mission was to provide secure and cost-effective solutions for Japanese and other Asian companies facing litigation. Based on our expertise in analyzing of huge volumes of litigation-related data in English and several Asian languages, we have been able to develop our behavior informatics analytical tool, which makes it possible to predict how people will think and act based on the human conditions and behavioral norms.
A third factor behind our success is the strong commitment to working as a team. Our motto – “Enthusiasm, Persistence and Impression” – was chosen to motivate our team to persevere in committing to our shared mission.
- Question (Dr. Gerhard Fasol): How did you finance the startup of UBIC? Did you accept venture capital? And what are your thoughts on the use of venture capital in Japan?
Answer (Masahiro Morimoto): I believe that, in Japan, the overall environment for venture capital has improved, but I did not use venture capital because, in those days, there was little understanding of the benefits of incubating startups over the long term; mostly, their objective was short-term investment for profit.
As a result, when startups got support from venture capitalists, they had no choice but to make a profit by, for example, opening more stores than they may have thought prudent. The results, at times, were fortunate and I did not wish to have such constraints. I wanted to be able to manage my company with a long-term vision. Nowadays, however, one finds venture capital enterprises even in Japan that want to incubate companies with a long-term vision. The situation has improved immeasurably.
- Question (Dr. Gerhard Fasol): You have started a number of new ventures in the medical field as well as the social networks. Can you tell about your vision for the future of UBIC?
Answer (Masahiro Morimoto): We would like to contribute to the creation of a better future for society through the application of information analysis. At the same time, we hope to introduce a new approach to behavior informatics, on the basis of our extensive experience in litigation support and the application of innovative technologies developed through our research.
Currently, many businesses are providing solutions for big data analysis of human behavior. But the amount of big data is so huge, that it is difficult for people to conduct in-depth analyses. Generally, little more than average results are produced, without specific topic-related differentiation.
Our AI technology, however, which has been developed by our legal technology specialists, closely emulates human ability and behavior. In addition, it replicates tacit knowledge: the wisdom, and intuition of experts. In other words, our technology can reproduce what is difficult to verbalize. As a result, we are able to analyze subtleties, sensitivities, and distinctive aspects of individuals, which can for example, form the basis of medical diagnosis and individual consumer behavior and preferences.
Our vision is to provide AI-based solutions that enable each person to realize his or her individuality and potential in order to develop creativity at work and in other settings.
- Question (Dr. Gerhard Fasol): Can you tell us the reason you decided to become an entrepreneur and start UBIC? What is your advice to other entrepreneurs who wish to set up their own business in Japan, or globally?
Answer (Masahiro Morimoto): Well, at first I had no intention of becoming an entrepreneur. But, I developed a strong sense that I had to do something for those Japanese companies that were incurring huge financial losses as a result of litigation abroad. At the time, there were not many forensic or e-discovery services in Japan that offered strong support. That was why, after having accumulated from scratch the know-how required to set up a company, I established my own enterprise. My mission today is to support companies worldwide with our AI, which can emulate experts’ behavior and apply their wisdom to that we can continue to come up with appropriate business solutions.
My advice to entrepreneurs and people who want to set up their own company is to have a clear mission, and to commit to this with persistence and the support of a strong team.
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