Is Rakuten a Serious Threat to Amazon

 

Although not as well known in the U.S. as its rival Amazon, Rakuten has a massive presence as an online retailer in Japan. Founded in 1997 by Hiroshi Mikitani, it serves both B2C and B2B customers through its Rakuten Ichiba e-commerce platform. In addition to being the largest e-commerce site in Japan, it is also among the world’s largest e-commerce companies by sales numbers.

 


Its meteoric rise to success has earned Rakuten the title of “the Japanese Amazon”. But Rakuten isn’t just limited to Japan. As you’ll see, this company has a worldwide presence and serves over one billion customers globally. With e-commerce domination in its crosshairs, should Amazon be concerned? Here’s what’s happening in the world of Rakuten -- and why you should pay attention.

 

rakuten

Image via CNBC.com

 

Optimistic Origins

Originally founded as MDM, Inc, the company became known as Rakuten Shopping Mall (Rakuten Ichiba) on May 1, 1997. The name Rakuten means “optimism” in Japanese. Rather than trying to exert strict control over the online storefront the way that competitors were doing, Rakuten looked to encourage online merchants.

Sellers on Rakuten could customize how their online storefronts looked and the service was cheaper than competing internet malls were offering, making Rakuten an attractive option. Its continued growth in the early 2000s saw Rakuten launch an online hotel reservation system, a user loyalty program, and even a credit card.

 


It launched Japan’s largest internet bank and as of 2016, is the third largest credit card company in Japan. That same year, it launched a smartphone payment app to stay competitive in the burgeoning app market.

 

Amazon Enters the Fray


Not content to sit on its laurels in terms of its own explosive growth in the U.S., Amazon set its gaze firmly on Japan and made its foray into the country in 2000. At the time, Jeff Bezos wasn’t too familiar with how the Japanese markets worked, but he nevertheless admired Toyota’s manufacturing process as well as the country’s love of efficiency.

 


Despite the burgeoning growth of Rakuten during that same timeframe, Japan has grown to become Amazon’s second-biggest international market. Both companies have consistently played an aggressive game of cat-and-mouse, as noted by the chart below:

 

Amazon v Rakuten


Source: Financial Times

 

Expansion and Revenue Growth

Rakuten’s admirable success isn’t just limited to the e-commerce or financial markets. It started purchasing and investing in other companies as early as 2003, buying MyTrip.net in 2003 and New York-based LinkShare in 2005. These subsequently became rebranded as Rakuten Travel and Rakuten Marketing respectively.

 

Other notable purchases include Cypriot app maker and mobile platform Viber ($900 million) U.S. site Buy.com (for $250 million) and Play.com ($25 million). Rakuten also holds significant stakes in other well-known sites, including Pinterest, Lyft, and Airbnb.

 


It has also dabbled in cryptocurrency as well as video conferencing. In short, Rakuten has fingers on the pulse of every major business and industry, from commerce to sports and media, communications to FinTech, investment, and energy.

 


Why get involved in so many different channels? Rakuten is trying to outpace Amazon, not just in its own country, but worldwide. With notable investments in financial tech, home-sharing, and mobile, Rakuten is hedging its bets on getting a firm foothold in places where Amazon has lesser clout. But Amazon’s own purchase of Whole Foods for over $13 billion dollars has caused Rakuten to react reflexively by partnering with retail giant Walmart in online grocery delivery.



Staying Competitive Locally and Internationally

One area where Rakuten and Amazon diverge significantly is in the development of logistics and delivery. Whereas Rakuten tended to leave this up to its individual retailers, Amazon is known as the king of logistics. The latter has invested so much in building and deploying its own robust delivery network that it’s nearly impossible for anyone else to create anything at the same scale and speed.

 


According to the Financial Times, one of the major areas where both Amazon and Rakuten have encountered some hurdles is in fashion. In trying to accommodate users who prefer not to shop in stores, in addition to keeping cultural norms and nuances in mind, both stores have tried with some success to innovate in the fashion industry.

 


But there’s some pushback, including issues with online video and virtual “dressing rooms” not adequately demonstrating size differences and fabric flow in a convincing enough “fashion” (so to speak) to encourage customers to order. There are also several other risks to consider, not the least of which is focusing too much on the acquisition and not enough on tying these acquisitions back into the brand itself to build a stronger foundation.

 

rakuten

Image via nikkei.com

 

Future Expansions and Taking Risks

So where will Rakuten look next? And what risks might they face? With purchases such as Ebates.com and Spanish television service Wuaki.tv, it’s clear that Rakuten is positioning itself to become a significant force in the world of loyalty programs and television media, in addition to its many other endeavors.

 


But there’s also the very real risk that Rakuten will be spreading itself too thin. For example, although it has purchased considerable shares of sites like Pinterest, it still has not turned this investment into significant revenue.

 


And while Rakuten has shed some of its lesser-performing acquisitions, it still remains to be seen if it will truly thrive outside of Japan. For now, Rakuten has made purchases of popular and well-known services beloved by their local markets...and not much else.

 


But will this strategy pay off in the long run? Rakuten has had to course-correct on several occasions, and as large and expansive as the brand is, it is starting to refocus its efforts inward and devote more attention to enhancing its own brand and image.

 

Does Amazon have to be afraid? Well, there are areas where Rakuten is better positioned, such as clothing and loyalty/point programs. But likewise, Amazon has made its presence known in markets like books and electronics. Both online retailers are going to inevitably butt heads, but what remains to be seen is who has the wiser strategy and whose investments have a plan behind them beyond a knee-jerk reaction.

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