For CEO Hiroshi Mikitani, it’s the first salvo in a wider war that the ebullient Harvard MBA, called Mickey by everyone including his staff, hopes will transform Rakuten into a global player in digital commerce.
Mikitani founded Rakuten in 1997 and has built it into Japan’s largest online retailer, employing more than 8,000 people and boasting a market capitalization of about $13 billion.
The company has a travel business, a securities company and its own bank and in the past two years has acquired or bought stakes in companies in the United States, France, Indonesia, Brazil, Germany, the UK and Canada.
But the launch of an e-reader and e-books in Japan, the world’s second-biggest publishing market, is a pivotal move. Rakuten has reached a saturation point in Japan and needs to find new products to sell.
The launch also tips the company further into the fast-moving world of digital content, a global space where Amazon, Apple Inc and Google Inc are fighting it out and where Japanese giants like Sony Corp have largely failed to make their mark.
Merely launching an e-book service in Japan is no mean feat. The past decade is littered with big-name initiatives that have languished or failed. They include devices from Panasonic, Toshiba and Sharp.
Amazon on its Japanese website this month added a link for users to sign up for updates about Kindle’s local availability, but declined to give details about when the device and service would be launched.
Rakuten’s secret? Print publishers, analysts say, may be afraid of losing a lucrative business, but they’re even more afraid of Amazon. And, says Mikitani, “although we are an aggressive company by Japanese standards, we are still a Japanese company.”
He said he’s spent much of the past month persuading publishers to join him and says “about 95 percent” of the Japanese industry has done so.
“In the last two months their attitude has completely changed,” Mikitani said. “Before they were skeptical of worried about the negative impact for their business. Now they have changed their mind. This is their opportunity.”
This marriage was symbolized earlier this month when Mikitani appeared alongside Yoshinobu Noma, CEO of Japanese publishing giant Kodansha Ltd, on a panel at Tokyo’s annual e-book fair. He presented his fellow panelist with a t-shirt with the words “Destroy Amazon” in Japanese emblazoned on its camouflage pattern.
SUCCESS NOT GUARANTEED
Success of the Kobo e-reader is by no means guaranteed. The key, said Daisuke Kono, an editor at Tokyo’s Internet Media Research Institute, is going to be just how many titles Rakuten can offer.
Mikitani said his staff were busy digitizing content, but he is not sure how many would be available on the day of launch. His goal is 300,000 titles by the end of the year. An initiative by a government-supported company would add at least another million, he said, but industry players are skeptical so many books can be digitized so quickly.
Kobo’s launch in Japan marks a significant advance for the Canada-based e-reading platform, spun off from retailer Indigo and bought by Rakuten last year for $315 million. It now claims 9 million registered users in 190 countries, but outside of places like Canada and France it’s not well known. This means Kobo has a chance to get a headstart in a significant market.
“Mickey-san really wants to make a big success of Kobo in Japan,” says Robin Birtle, a publisher of ebooks in Japan. “In terms of the big heavyweight players, it’s the only virgin market with any size to it.”
It’s also an important step for Rakuten itself. More than 80 percent of Japan’s 94 million Internet users already have an account on Rakuten’s ecommerce site, the company says. That means that while Rakuten dominates online commerce, it needs to find growth, not in new users but in new things to sell to them.
“Rakuten’s domestic e-commerce business has maintained a growth rate of 15 to 20 percent,” said Yuki Nakayasu, a research analyst at Credit Suisse in Tokyo. “This is strong for now, but it will be difficult to maintain this type of growth. And when the growth declines, they will need another revenue source and this is where Kobo fits into its strategy. So, Rakuten is essentially planting the seeds for its future revenue right now.”
NOT JUST JAPAN
But it’s not just about Japan. Mikitani’s success in persuading publishers to sign up was partly by promising them new markets. Japanese content, he says, has a global audience, whether it’s Japanese manga, TV or magazines. Most of the Japanese content available on Kobo will also be available overseas, Mikitani said.
“If you go to China or Singapore the most popular fashion magazine is Japanese,” says Mikitani. Publishers aren’t profiting much from this opportunity, he added. “With this format, they can,” he said. “This is a global opportunity for them.”
Rakuten’s ability to deliver on this rests in part on its partnerships with carriers, device manufacturers and book stores. In the UK, for example, the device and e-books are available through book chain WH Smiths, while Kobo’s website lists partnerships with HTC, Acer, HP and Research in Motion.
Kobo’s e-book store has been included as part of Samsung’s Readers Hub preloaded on some of its Android-phones, although a Kobo spokesperson was not sure whether this agreement was still active.
This approach, Mikitani says, extends beyond books to his Kobo Vox, a media tablet not unlike Amazon’s Kindle Fire and Google’s just launched Nexus 7. Vox is also compliant with Google services, meaning that users can access content on Google’s Play store as well as Kobo’s own.
Trying to take on the big players in every segment would not be possible, he said.
“It’s going to be competitive and that’s why we’re not trying to compete everywhere if it’s smarter to have more cooperation and collaboration rather than trying to dominate everything. If you can integrate that’s great, if not we are still competitive,” he said.
Mikitani believes Rakuten’s open approach, using as many platforms as possible, using more open e-book formats, gives him an edge, but he also believes he can weave in some of the elements of his ecommerce business.
Rakuten’s Internet-based loyalty point system, for example, ties in users by offering them credits that can be used across the group and is widespread and popular.
“It’s a national sport to collect as many Rakuten points as possible,” says Serkan Toto, a Tokyo-based consultant, who calls it the company’s “secret sauce.”
Mikitani declines to go into detail about how the points program would be integrated with Kobo.
“It’s not just about money but how to make it interesting,” he said.
(By Jeremy Wagstaff and Mari Saito; Additional reporting by Alistair Barr in NEW YORK; Editing by Matt Driskill)
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