Grand Bazaar

11 minute read

If you’ve heard of Hiroshi Mikitani, it’s probably by the moniker he’s acquired over the years: Japan’s Jeff Bezos. It’s not hard to see why the 49-year-old CEO of Tokyo-based Rakuten is often compared to Amazon’s American founder. Mikitani pioneered online shopping in Japan just as Bezos did in the U.S. Like Amazon, Rakuten has become one of a small number of truly global e-commerce companies, with operations stretching from Brazil to France and Indonesia. Mikitani even has his own version of the Kindle—the e-readers produced by his Kobo unit.

But over the past two years, Mikitani has done everything to disprove the comparison, going on a global shopping spree that is transforming the empire overseen by Japan’s third richest billionaire. In 2012 he surprised Silicon Valley by leading a $100 million investment in popular scrapbooking site Pinterest. Last year he snapped up video-streaming site Viki, a Hulu for the rest of the world. And in February, Mikitani purchased Cyprus-based messaging app Viber—a competitor to Facebook’s WhatsApp and Tencent’s WeChat—for $900 million. “I don’t think we should chase after Amazon,” says Mikitani. “We should have a very unique strategy.”

That strategy is turning Rakuten into Japan’s most interesting—and unusual—Internet giant. Its 550 million users worldwide turn to the company to buy diapers, get a credit card, read an e-book or send messages to friends. In Mikitani’s mind, all these varied businesses will turn Rakuten into a grand bazaar in which customers browsing one stall become prospects for another. “The synergy effect of Internet companies is huge, more than any other business,” he argues.

More than the future of Mikitani’s company is at stake. Each year, more and more people around the world go to the Internet, rather than the supermarket or department store, to purchase their laundry detergent or refrigerator. Research firm Euromonitor predicts that consumers will spend some $1.2 trillion buying goods online by 2018. Mikitani and cohorts like Bezos largely helped answer the question of how the Internet would revolutionize shopping. But how social media and ubiquitous smartphones will impact online shopping firms is still up for debate. Whether Mikitani’s project of bulking up Rakuten—making it not only into one of the world’s biggest stores but also a place to watch TV and chat with friends—works or fails will provide a crucial part of the answer.

Breaking Tradition

bucking convention has always been part of the Mikitani trademark. He had both the right pedigree—his father was a well-respected economist—and degree to succeed in traditional Japanese business circles. Mikitani attended Tokyo’s Hi­to­tsu­ba­shi University, one of the country’s most elite, where he was captain of the tennis club. After graduating in 1988, he landed what for most young Japanese elite would be a dream job—at the Industrial Bank of Japan, or IBJ (since absorbed into Mizuho Financial Group). In 1993 he earned an MBA from Harvard.

But Mikitani was dissatisfied with the preordained track ahead of him. In 1995 a devastating earthquake rocked Kobe, a city near his hometown. Mikitani found himself frantically searching the rubble for a missing aunt and uncle. He discovered their corpses at a local school converted into a makeshift morgue. “It was at that moment that I realized just how tenuous life really is,” he wrote in his book Principles for Success. “We only have one life to live, so we should live it to the fullest.” Later that same year, he resigned from IBJ to become an entrepreneur.

In mid-1990s Japan, that decision made Mikitani a rebel. “There were not many people with his background who left” the bank, says Yoshihisa Yamada, a former colleague of Mikitani’s at IBJ and now Rakuten’s CFO. “He was one of these rare species to start his own company.” Mikitani was attracted to a new concept at the time—e-commerce. “Everybody thought people would never buy products online,” he recalls. “But I thought the Internet was the best medium to connect seller and buyer and this is going to create a huge opportunity.” In 1997, three years after Bezos launched Amazon, Mikitani and five colleagues (one of them his wife Haruko) pooled their savings and opened Rakuten in a small Tokyo office.

Mikitani’s vision for e-commerce was different from Bezos’, however. Amazon was built in large part to replace stores by delivering a wide array of products with clinical efficiency at bargain prices. Rakuten, in contrast, resembles a bazaar. For “rent,” individual retailers, many of them small shops, can set up on Rakuten’s site, which re-creates the marketplace common to most Japanese towns. Unlike Amazon, which looks the same from click to click, each seller can custom-design its page on Rakuten as it would a storefront. “Amazon is basically a super-Walmart,” Mikitani says. “Our thinking is by creating a more collaborative platform, they can together compete against what we call the gigantic vending machine.”

That has also given Rakuten some unusual characteristics. Shortly after Mikitani’s launch, a farmer asked if he could sell eggs through Rakuten. Mikitani was skeptical. Eggs are not only fragile to ship but also readily available. The farmer, however, marketed his eggs as organic and fresh from the farm, and started a diary about his chickens on his Rakuten webpage. Soon he was shipping eggs all around Japan—and charging a premium.

Today, nearly 42,000 merchants market everything from bottled water to golden Buddhas through the company’s Japanese online marketplace, Rakuten Ichiba. Rakuten’s worldwide revenues have more than doubled in five years to $5.3 billion in 2013, while its value on the Tokyo stock market is about $17 billion. Amazon’s revenues are much larger, at $74.5 billion in 2013, since it sells more goods directly to customers, but Rakuten is more profitable.

Higher Gears

mikitani wanted to create a different kind of enterprise. Many traditional Japanese firms suffer from staid, risk-averse bureaucracy, but Mikitani—known simply as Mickey inside the company—intends to keep Rakuten entrepreneurial. Among his “Five Principles for Success” posted throughout the firm’s headquarters are “Always Improve, Always Advance” and “Speed!! Speed!! Speed!!” Every Tuesday morning, Rakuten’s 11,000 employees worldwide are required to clean their desks—Mikitani included—a ritual he believes fosters a do-it-yourself spirit. In 2010, Mikitani mandated his employees learn and speak English in the office. The edict was designed to make his staff think of Rakuten as a global, not Japanese, company. Without the switch to English, Mikitani says, “we wouldn’t be here.”

Mikitani’s ambitions haven’t been confined to his company. He is part of a small class of Japanese corporate leaders trying to shake up the old Japan Inc. There is Ma­sa­yo­shi Son, founder of SoftBank and a Mikitani rival, who has become an aggressive player in the U.S. wireless business with his purchase of Sprint. Tadashi Ya­nai, the outspoken CEO of retailer Uniqlo, is bringing Japanese cool to global apparel. “We are trying to create a new system so that Japan will be competitive,” Mikitani says of Rakuten.

Mikitani seems to enjoy slaying sacred cows. He raised eyebrows when he withdrew from Japan’s powerful big-business association, Keidanren, in 2011, complaining that the group was reluctant to press for economic reform. He’s trying to do that himself as a member of Prime Minister Shinzo Abe’s Industrial Competitiveness Council, an advisory body. “He’s trying,” Mikitani says of Abe. “But there are a lot of old-fashioned people who do not have a vision for the future, who are afraid of change.”

Perhaps most important, Mikitani has been an inspiration to others in Japan who want to start their own businesses, still a practice somewhat frowned upon in the conservative business culture. He is one of the founders of the Japan Association of New Economy, a business group that promotes innovative industries, and several Rakuten staffers have gone on to launch their own startups, including Yoshikazu Tanaka, founder of social-networking site Gree. Says William Saito, a venture capitalist and fellow Abe adviser: “Mikitani undemonized the word entrepreneurship in Japan.”

Shop Beyond Borders

mikitani wants to be disruptive on an international scale too. He envisions an age when retail transforms as manufacturing and finance already have—into a borderless business. “You need to be global or else you’d be in big trouble,” Mikitani says. He launched his first online shopping business outside Japan in Taiwan in 2008, and since then Mikitani has ramped up his global presence at a brisk pace by acquiring e-commerce sites in countries as far-flung as Thailand, Germany and the U.K. In 2010, Mikitani entered Amazon’s stronghold by purchasing U.S. online retailer for $250 million. Two years later, he began investing in the Grommet, which offers small businesses an opportunity to launch new or little-known products to a wide audience. “We need to be everywhere,” he says.

That strategy, though, has yet to pay off. Mikitani earns less than 12% of his revenues outside Japan, and his international shopping spree may be denting his bottom line. Newly acquired Viber, for instance, lost $29.5 million in 2013 on revenues of a mere $1.5 million. Mikitani has been busy refashioning his sites in the U.S. and elsewhere into Japan-style marketplaces in the hopes of re-creating his success at home. But Sucharita Mulpuru, e-business analyst at Forrester Research, warns that “Rakuten has a lot of hard work ahead of them in the U.S.” Overall, Rakuten trails other e-commerce competitors. Alibaba’s Chinese shopping sites handled $248 billion of merchandise in 2013 and Amazon an estimated $110 billion; only $18.5 billion worth of stuff passed through Rakuten.

If Mikitani is to compete on a global scale, he has to find inventive ways to draw in customers and persuade them to spend. Every major Internet player, from Facebook to Yahoo, is trying to do the same—woo more users, then find ways to make money from them. In Japan, Mikitani has proved a master at this. He’s lured the 92 million Japanese who shop on his site into all sorts of other lucrative businesses. Shoppers can link from Mikitani’s marketplace directly to some of his other offerings, while the “Super Points” earned through the firm’s loyalty program can be cashed in across Rakuten’s businesses, even to pay commissions on financial services. “Everyone thinks the Internet is cheap, but getting the customer to your site and transacting some buying or use is extremely expensive these days,” Mikitani says. “Cross-selling many different services makes sense.”

That’s where Mikitani’s forays into social media may pay off. Pinterest, for instance, is becoming a major online thoroughfare connecting scrapbookers with retailers. Mikitani is most excited about Viber, which he calls his “next big thing.” With more and more people socializing and communicating through smartphones and tablets, Mikitani sees messaging apps like Viber as the email of the future—and an indispensable tool for pushing content and attracting customers into Rakuten’s other services. (Auction giant eBay had similar dreams when it purchased Skype in 2005, which never panned out.) At Amazon, “they think the Kindle is the platform for their content distribution. We feel Viber will be our platform,” Mikitani says. Owning Viber “is going to be a huge advantage for us in our global ambition.”

Whether Mikitani’s grab bag of businesses will ever combine to make a worldwide Internet powerhouse is an open question. Perhaps Mikitani will discover, like so many other acquisitive CEOs, that the potential synergies of the disparate pieces of his empire don’t materialize as he had hoped. A service like Viber “is not built for e-commerce,” says Claus Mortensen, director of Asian emerging-technology research at consulting firm IDC, and controlling it “doesn’t necessarily mean you can make that into a platform that interacts and works together with Rakuten.” But Mikitani has committed himself to coming out on top. “We would like to create Rakuten as one of the great companies,” he says. “That’s my lifetime project. This is my life.” — With reporting by Chie Kobayashi / Tokyo

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