Instant Gratification -- On Japan's Net with Rakuten Ichiba

Rakuten, the operator of Japan's biggest online shopping mall, starts business each week with a regular Monday meeting at 8:00 a.m. All employees attend and report the current status of their projects in 60 seconds. For Rakuten's president, Hiroshi Mikitani, speed counts more than anything on the Net.

Hiroshi Mikitani

Rakuten, the operator of Japan's biggest online shopping mall, starts business each week with a regular Monday meeting at 8:00 a.m. All employees attend, and report the current status of their projects in 60 seconds. "Why? Because fast action is crucial in e-business," smiles Hiroshi Mikitani, the president of Rakuten, the offices of which are provided with sleeping bags neatly folded up in the corner, and cardboard boxes-used for instant mattresses.

Mikitani-in his mid-30s and holding an MBA from Harvard-continues: "If we put off any necessary actions, we will be the loser. That's why I tend to have meetings with our people quite often. Maybe it's too much, but I believe such face-to-face communication and information sharing are necessary to reach a consensus on an issue quickly. Then we can start taking action swiftly, and not miss any chance for business on the Internet."

Online sales take off
Rakuten, founded in 1997 (the company was formerly named MDM, but switched this year to Rakuten-after its Internet shopping mall site, Rakuten Ichiba), has become Japan's biggest Internet shopping mall just two years since its launch. Before Rakuten Ichiba started, conventional wisdom had it that Internet shopping aimed at consumers would be slow to take off in Japan. Although there had been some online shopping sites, mostly operated by major corporations, none of them were commercial successes. Rakuten broke the jinx and proved that online sales targeting Japanese consumers can be quite profitable quite quickly.

This achievement owed much to Mikitani's meticulous preparations for the launch of Rakuten Ichiba. Having experience with several major M&A deals at the Industrial Bank of Japan, Mikitani had spent some time investigating the then-inactive online shopping business in Japan, and found that previous players in this business lacked a crucial element of strategy, which is: offering hot products in a timely manner at lower costs, coupled with reviewing the product lineup frequently to keep people coming back.

Rakuten tenants
"To our tenants, we say this business is not like placing a vending machine on the street from which they can expect to earn money without doing anything," says Mikitani. "The online shopping business needs proper marketing and sales strategies to make a profit, like running brick & mortar shops. To help them make their business successful, we provide a key tool to help the operation of their shops, and our sales people-called EC consultants-can provide in-depth business consultations in addition to basic sales advice." The tool Rakuten offers to tenants was developed in-house and is called Rakuten Merchant Server (RMS), which allows for webpage editing, order & customer management using a database, analyzing data for marketing, e-mail communication to customers, and auction management. By using Rakuten's RMS tool, tenants can edit and update their e-commerce websites by themselves at any time, and also manage customer data by themselves.

Rakuten Ichiba tenants pay a monthly fee of ¥50,000 (for small shops), ¥100,000 (medium shops), or ¥250,000 (for premier tenants), depending on the number of products to be sold on their websites. The fee is about 1/3 to 1/2 that required by existing online shopping players. In addition, Rakuten does not charge a membership fee, gaining its revenue solely from monthly tenant fees and online advertising. As of September, Rakuten's revenue had exceeded ¥50 million, and about 1,000 tenants had signed up, varying from egg shops and office suppliers to jewellers and insurance companies.

Looming IPO
Mikitani is now busy preparing for Rakuten's IPO, scheduled for next year. He also spends time working on his other job-that of venture capitalist-helping place investments in Internet-related startups in the U.S. Some of his VC investment targets have included business-to-business (B-to-B) electronic commerce companies. "Whether I bring B-to-B business here is still a question, since Japan's business culture has long been tied down to deep-rooted traditional ways of working-which would be a big hurdle for any newly introduced Web-based system," he says. However, he also adds, "To make one's company grow, it is necessary to quickly identify what the key feature in the next market will be, and establish a business model to make a breakthrough."

So far, several companies have offered to buy out his company, offering handsome sums. Mikitani's answer has been: "I may see you again after we do our IPO. For now, I'd prefer to become a success model for young startups dreaming of launching on Japan's Net." He's well on his way to achieving that goal.

Rakuten Inc.
Yutenji KIT Bldg.
Yutenji 2-8-16, Meguro-ku
Tokyo, 153-0052

Phone: +813-5720-3032
Fax: +813-5720-1655
http://www.rakuten.co.jp/

Noriko Takezaki is senior editor at J@pan Inc.