As competition in Japan’s ecommerce market intensifies, Japanese ecommerce icon Rakuten looks to become a mobile network operator.
Rakuten is known for innovation, and credited with bringing e-commerce to Japan in 1997. Today it has 70 businesses in a range of sectors, including a major presence in financial services. In April it won government approval to take on yet another and operate what would be Japan’s fourth mobile network. Rakuten provides mobile services already, but uses another operator’s mobile infrastructure. Because online shopping in Japan is often carried out on mobile devices, Rakuten sees a mobile network as a logical addition to its ecosystem. It is also betting on the loyalty of its customer base, numbering about 95 million, to support the endeavour.
Some analysts see this as a defensive move, since Rakuten’s dominance in its core ecommerce business has been dwindling. In 2011 it earned 77% of its profits from ecommerce. But in the past two years, this has fallen, due to competition from two American rivals in Japan’s ecommerce market. The Japan External Trade Organisation says Amazon is number one in online sales, with 20.2% market share versus Rakuten’s 20.1%. Yahoo Japan is smaller, with 8.9%, but is aggressively building its share. Another problem for Rakuten, within the global ecommerce market, is that its online shopping mall model has not been very successful outside Japan.
Rakuten is not giving up the Japanese ecommerce market without a fight, however. It recently announced tie-ups with two major retailers: America’s Walmart, with which it will launch an online grocery site, and Japanese electronics giant Bic Camera, which will list its products on the Rakuten Ichiba site. CEO Hiroshi Mikitani has also talked of creating his own logistics chain to handle deliveries.
As The Economist opines, “Rakuten’s move into mobile telephony fits into this picture.” While it has a big customer base for online shopping, these customers also shop in any number of other places. Mobile subscribers tend to be more loyal, says Mitsunobu Tsuruo of Citigroup, as they are locked into contracts. However, Rakuten may be underestimating the investment needed to build the mobile infrastructure, Tsuruo adds. It could also be a challenge to attract new subscribers, as Japan’s mobile phone penetration rate is already over 100%, and rivals such as SoftBank, NTT DoCoMo and KDDI are entrenched.
