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Japanese e-commerce giant Rakuten struggles to retake the lead from Amazon

Japanese e-commerce giant Rakuten struggles to retake the lead from Amazon

RAKUTEN is a jack-of-all-trades. Since pioneering e-commerce in Japan in 1997, it has been a rare example of a highly entrepreneurial Japanese firm. Today it spans more than 70 businesses providing credit cards, a travel agency, a golf-reservation system, matchmaking, wedding planning and insurance. It owns Viber, a calling and messaging app and has invested heavily in Lyft, a car-hailing service. Now it is adding another: on April 9th the government gave Rakuten a concession to operate Japan’s fourth mobile network (Rakuten currently runs mobile services using another operator’s infrastructure).

Rakuten sees this as the next step in building its “ecosystem”. It reckons it retains its approximately 95m registered users in Japan by being a trusted brand that can provide customers with everything they need at every stage of their life, and by rewarding their loyalty. Customers get points if they use their popular Rakuten credit cards, for example. These they can then spend on other Rakuten services. Much online shopping in Japan takes place on mobile phones.

But most analysts see Rakuten’s move as defensive. Although it remains a business icon in Japan, worth $15.2bn, it has been losing its dominance in e-commerce, which remains its core business. In 2011 Rakuten gained a whopping 77% of its profits from its online-shopping business. Those profits have fallen for the past two years. Its fintech services, such as credit cards and insurance, now drive returns.

The firm is struggling to compete with two American rivals, which along with Rakuten dominate the e-commerce market in Japan. Amazon is reckoned by the Japan External Trade Organisation to be number one in online sales, with 20.2% market share compared with Rakuten’s 20.1%. Yahoo Japan has a share of 8.9%. Amazon can more easily absorb the costs of a price war and the rising expense of logistics in Japan; Yahoo Japan is ignoring profits as it aggressively builds its market share.

Rakuten has also struggled to export its online shopping-mall model—offering a platform for stores to sell on—to foreign markets, something that Hiroshi Mikitani, Rakuten’s mould-breaking founder and boss, said a few years ago was necessary for the company to prosper. The firm found it hard to compete with established rivals in mature markets, and came up against barriers such as inadequate logistics in developing markets in Asia.

To regain lost ground in Japan, Rakuten has recently announced tie-ups with Walmart, an American retailer with which it will launch an online grocery site, and Bic Camera, an electronics giant, which will list its wares on the Rakuten Ichiba site. Mr Mikitani has also talked of creating his own logistics chain. Products sold on Rakuten are dispatched by the merchants. Amazon delivers its own products and many of those from third parties.

Rakuten’s move into mobile telephony fits into this picture. It has a large number of members, but “they are shopping around”. A mobile subscriber base tends to be more loyal, as people are locked into contracts for 24 months, says Mitsunobu Tsuruo of Citi, a bank. Nonetheless Mr Tsuruo reckons Rakuten may be underestimating the 600bn yen ($5.6bn) it says it will invest to build the mobile infrastructure. It will also be hard to attract new subscribers; Japan already has a mobile-phone penetration rate of well over 100%, and in SoftBank, NTT DoCoMo and KDDI, it faces well-established rivals.

Rakuten has set a fairly modest aim of attracting 15m mobile subscribers out of a total market of over 165m, but to obtain even that number it will have to compete on price. Mr Mikitani has pledged to bring down the hefty costs of mobile subscriptions (the reason the government offered a fourth licence). Rakuten’s entry into the market may be good news for customers, then. But it is not necessarily going to pep up the firm itself.

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