Japan hasn't had a single Internet company breakout to become a global success story.
Hiroshi Mikitani, the CEO of e-commerce site Rakuten, is hoping to change that.
He's gone on a shopping spree in the last few years to make it happen. He bought Buy.com in the U.S. for $250 million, Play.com from the UK for $38 million, and e-reader company, Kobo for $315 million. (There are other acquisitions, but the company was particularly excited about these three.)
To make all of these acquisitions work, Rakuten is forcing all of its employees in Japan, and elsewhere around the world, to speak English. The idea is that one common language will unite the company as it tries to expand internationally. It calls the program "Englishnization".
So, will Rakuten actually become a global powerhouse?
Before we attempt to answer that question, we should disclose that Rakuten flew us to Japan last month to explain what it's doing. The flight was business class, which is heavenly. The hotels it put us in were extravagant. The food was fantastic.
As a result, we're hopelessly compromised about the company. But, we'll try our best to be objective about what we think it's doing.
Rakuten has its work cut out for itself. It's going to take a lot more than English to make its global domination plan work. It's going to have to take the model that works very well in Japan and try to adapt it to the rest of the world. Further, it's going to have to turn irrelevant web properties into thriving sites.
But it's an admirable effort. Normally, it's American web companies trying to take over the world. It's refreshing to see a Japanese Web company trying to take over the world.
What Rakuten Does
Rakuten is an e-commerce powerhouse in Japan. It's sort of like Etsy, but for all sorts of stores, not just arts and crafts people. It's a portal that allows small businesses to sell stuff. It helps the small businesses optimize their sites and attract customers.
The big difference between Amazon and Rakuten is that Amazon emphasizes the product, and Rakuten emphasizes the seller of the product. On Amazon, for instance, you might search for "Reebok sneakers." When you find a pair you like, you might not even realize it comes from some third party seller. On Rakuten you would know which store you're buying from.
The model has worked extremely well. Rakuten generated $2.8 billion from its Internet services in 2011. Overall revenue was $4.6 billion last year, up 9.8% on a year over year basis, despite being hurt by the Japanese earthquake. Its market cap is ~$13 billion, and the stock has been up modestly in the last 12 months.
The company also has periphery businesses in the banking, telecom, and travel industries. It even owns a baseball team! The Rakuten Eagles.
Rakuten has 78% of all Japanese web users registered for its marketplace.
It controls 30% of the e-commerce market, easily beating Amazon in Japan.
However, Amazon is coming after Rakuten. And if it's going to grow, it needs to find new markets. It already has just about everyone in Japan using its site.
Thus, the global expansion.
So, will the Rakuten marketplace work in the United States?
So far, the answer is no. Only 10% of the company's revenue comes from outside of Japan.
ComScore data reveals Buy.com had 4.9 million unique visitors in the U.S. in December, at the height of the shopping season.
Amazon had 111.5 million average monthly unique visitors during the fourth quarter of 2011. Macy's, the tenth most popular e-commerce site in the U.S. had 16.5 million in that period, says comScore.
We asked a Rakuten representative how it would fix that problem, but didn't get a substantive answer: "We’re unable to share this information but the transition to the Rakuten B2B2C marketplace model is going very well."
"B2B2C" is the Rakuten model. Business to business to consumer. Rakuten is deals with businesses, who market directly to consumers.
It's working in Japan, but it's not working in the U.S. yet. When we asked a Rakuten executive if the model could work in the U.S. he said, "Absolutely." He thinks small businesses in the U.S. still haven't figured out a good way to be on the web. Rakuten is trying to solve that problem.
While it's been struggling to make a dent in the US over the last two years, there's still hope for Rakuten. It has an incredibly smart CEO, it has a lot of money to invest around the world, and it's attacking big markets that are still developing.
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Monday, March 26, 2012
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