If you buy something using links in our stories, we may earn a commission. Learn more.
This article was taken from the September 2012 issue of Wired magazine. Be the first to read Wired's articles in print before they're posted online, and get your hands on loads of additional content by subscribing online.
Tatsuya Abe is Japan's crab-meat king. Seven years ago, he cofounded the Yamato seafood company in Shiogama, Miyagi province, to offer the best-quality imported Russian and Alaskan taraba crab, red crab, and other cooked and processed seafood. A year later, the father-of-one decided to experiment with e-commerce, launching an online store "which no one thought would work" in a crowded internet mall called Rakuten Ichiba, which today claims to offer for sale 102,953,743 separate items.
Guaranteeing overnight postal delivery of juicy chunks of fresh red king crab, Abe's business began slowly, with ¥130,000 (£1,040) of sales in the first month, barely a dent on its factory wholesale business. But since then, thanks to relentless blogging, feedback from his personal "e-commerce consultant", and his crab-meat's sheer reputation, monthly sales have risen 300-fold to ¥40m. "We're very surprised by how many people want to buy crabmeat on the internet," Abe, 30, reflects with a smile at a baseball stadium in Sendai, where as a star trader he has been invited as a Rakuten matchday guest. "Japanese people love crab. And Rakuten is a huge market. Our e-commerce business is now twice as big a business as the factory business."
And meet Toyohi Kitada, master of the Japanese roll cake, a cholesterol-raising cream-filled sponge delicacy that has saved his 60-year-old store. His Patissier Kagetsudo, in Iwate prefecture, has been Rakuten Ichiba's champion online roll-cake seller for six years running -- an achievement largely due to its famous Printemps Nouveau cake, packed with strawberry, kiwi and golden peach, and celebrated in magazines ranging from Créa and Chouchou to Gisele. Not only has Printemps Nouveau been clicked into 200,000 shopping baskets, but it has taken the online business from a monthly turnover of ¥100,000 to more than ¥1.5 million (£12,000). "If we hadn't joined Rakuten, we'd be bankrupt," says Kitada, the 38-year-old in charge of e-commerce at Kagetsudo. "It's given us a national market -- and the physical shop has also increased sales, as local people come in because of our internet fame."
For roll-cake merchants, crab-meat specialists, even online egg retailers (the Oohara Shinshu farm in Nagano prefecture delivers eggs worth £400,000 a month via Rakuten), this is a mall with a difference. Unlike Amazon's retail partners, the 38,500 Ichiba sellers are designated their own personal e-commerce consultant with a specific brief to work with them for the long term. "It's a partnership," says Sho Okado, 29, Rakuten's contact point for crabmaster Abe. "We talk almost every day, often for an hour." During the busy November-December season, the phone calls come every two or three hours, says Okado, one of 450 e-commerce consultants in Rakuten Japan. "He has information on what's selling elsewhere on the mall, on marketing trends, on which phrases work," Abe says. "We've changed the angle of photography on the website, based on what's working better for other stores."
You may not yet have heard of Rakuten, Japan's biggest internet retailer, whose interests range from a food-to-fashions online marketplace and travel agency to a credit-card business and ebooks. But Hiroshi Mikitani, the charismatic and outspoken 47-year-old billionaire who founded the business 15 years ago, is planning to change that, and fast.
Mickey, as he's known to his 7,615 Japanese staff, is on a mission to take the business global -- and in stage one, intended to capture 27 countries, he has lately acquired America's Buy.com for $250 million (£160 million), France's PriceMinister for
€200 million (£161 million), Britain's Play.com (£25 million), Canada's Kobo ($315 million), Germany's
Tradoria and Brazil's Ikeda, not to mention leading a $100 million investment in Pinterest this May, a $10 million funding round in AhaLife in April, and a minority investment last September in Russia's leading etailer, OZON. "We've intentionally been avoiding the radar screen of our big competitors -- avoiding meeting Amazon and Google guys," Mikitani says in his office on floor 14 of Shinagawa Seaside Rakuten Tower in Tokyo's Shinagawa-ku district. "But now our annual group revenues are $4bn, we can become aggressive. This year is year one for global branding."
His declared mission is "to create the number-one internet services company in the world" through continuous innovation -- and already its loyalty programme has attracted 77 million members, whose spending ranges from e-commerce and banking to securities and golf-course reservations. But to complete his task and teach corporate Japan how to create a genuinely global internet business, Rakuten will require two crucial transformations: Mikitani's insistence on the entire business adopting his programme of "Englishnization" -- the use of English as the only acceptable internal company language; and what he unironically calls "disgalapagosisation" -- an end to what he sees as an Edo-era sense of national superiority brought about by an isolation that unchecked can only lead to extinction. And if that means withdrawing from the influential Keidanren business association, or establishing a language-learning laboratory on his tower's fifth floor (Honda CEO Takanobu Ito publicly denounced Englishnization as "stupid for a Japanese company"), then that's just fine with Mikitani-san. After all, he's already done away with company cleaners, insisting that every employee cleans his or her workspace each Monday morning "to bring us back to basics".
For Mikitani, those basic values are all about empowering the small Japanese trader and thus save his country. "Most of the things on your phone were innovated by Japanese companies -- putting a camera on the back, near-field communication, enabling internet access," he says. "We created optical fibre, the DVD -- everything. Yet we're struggling
[economically] because Japanese companies try to protect their domestic markets and come up with domestic configurations and standards that aren't used in other countries. We need either to make our standards global, or comply with global standards."
And that's where Rakuten comes in: through the power of global internet commerce, Mikitani has made it his mission to give economic hope to small traders across Japan. "There are so many merchants who could have gone bankrupt without Rakuten Ichiba," he says. "The kimono industry wouldn't now exist without Rakuten, which accounts for ten per cent of kimono sales. We have so many farmers selling their goods directly to consumers, when they didn't have any channels before. We are about empowering the merchant."
The turning point in Hiroshi Mikitani's life was the Great Hanshin earthquake that hit Kobe, where he grew up, on January 17, 1995. He had spent two years as a boy in the US while his father Ryōichi taught economics at Yale University. As a fast-rising banker at the Industrial Bank of Japan, with clients such as Softbank's founder Masayoshi Son, Hiroshi had returned to the US in 1991-92 to attend Harvard Business School, where he began to realise that, as he put it, "the world was changing. I started to see that we needed a new economy, new companies in Japan. I felt an obligation." As he writes in his 2007 book Principles for Success: "The most significant part of my study at Harvard was that I had an opportunity to expose myself to the American entrepreneurial spirit."
And then came the 1995 earthquake.
He rushed from Tokyo and remembers desperately searching for his aunt and uncle, scouring Kobe's ruins until he finally found them in a school, being laid to rest in coffins. "It was at that moment that I realised just how tenuous life really is," he writes. "The realisation that I too am going to die some day seemed to have awakened something deep within the core of my very being. We only have one life to live, so we should live it to the fullest.
Everything in this world is mujo [in a state of flux]."
He quit the bank without knowing what he would do next. "I just jumped off the cliff," he recalls in his Tokyo office. "There was a company called Netscape. Amazon was about to start. Google wasn't there. I felt that the internet was going to change everything. Then in 1996 I started looking at business models, and decided to launch an internet shopping mall.
It was a handmade startup, very small scale -- we founders wanted to do everything by ourselves, including the programming, and we had just a small amount of initial capital, ¥20 million (£161,000).
But we did have a strong sense of mission."
When Rakuten Ichiba opened for business on May 1, 1997, it had just 13 shops, most of which were owned by Mikitani's friends. It took a year of hard work to sign up 100. "Every day I would roll up my sleeves and pound the pavement in search of a little mom-and-pop shop to bring in," he writes in Principles for Success. "Whenever a potential target came into sight, I would pump my arms and legs up and down or do some quick push-ups so I could work up a sweat. Then I would burst into the store all out of breath. I knew that I would gain a more sympathetic ear if I came across as a regular guy who spoke from the heart, as opposed to a sharply dressed salesman."
By the end of year two, the mall had 320 shops; by December 1999, 1,800. The model has remained unchanged as the number has risen towards 40,000: stores pay
¥50,000 a month, then around three per cent commission on sales, with extra fees for in-site advertising. "It's a merchant-centric model," Mikitani says. "We give you 75 million members -- and Japan's number-one loyalty programme." Purchases at Rakuten earn a one per cent loyalty bonus; pay by Rakuten's credit card (which accounts for 20 per cent of sales) and you earn another one per cent in points. When Mikitani's Tohoku Rakuten Golden Eagles baseball team wins a game, shoppers gain a further one per cent. "It's a source of retention and bringing in new customers," explains chief financial officer Ken Takayama. "More than 90 per cent of the points we issue get used. Our income statement makes us look like an internet company, but when it comes to the balance sheet it looks more like a financial institution: 80 per cent of our assets are associated with our financial business." So it's wrong to see Rakuten as an internet business? "We're growing like an internet company -- but what is an e-commerce company?" asks Takayama, 48. "Our model is different to Amazon's or eBay's. We don't have fulfilment centres, we don't carry inventory in most cases. We've succeeded because we've had a strong footing in e-commerce -- which has allowed us to build up the pillars of financial services."
So when Britain's Play.com is rebranded as Rakuten later this year, expect the loyalty programme and credit card to follow. "We have footings in the US, UK, Germany, France, we're in Brazil, Asia, we may need to invest more in China, we're in Taiwan," says Takayama. "We're in most advanced internet countries. Do I expect to invest hundreds of millions of dollars in all these companies? I don't think so. But are we going to be acquisitive in these other territories? I'd say so."
Current growth is explosive. Rakuten Ichiba's annual transaction volume passed ¥1 trillion (£8 billion) last December, according to Atsushi Kunishige, who runs the credit, payments and securities businesses, and is chairman of Rakuten Bank. "We have 5,000 new member acquisitions per day, just in Japan. We can acquire 1.8 million accounts per year -- and there are more than five million cardholders now." The financial business now accounts for 20 per cent of profits, but, says Kunishige: "We want to make this 50 per cent."
Yet it's outside Japan that the growth has been sharpest. Kentaro Hyakuno, who's leading the overseas rollouts and is currently also CEO of Play.com, says year-on-year overseas gross merchandise sales grew by 40 per cent. Some territories have been problematic: faced with postal-delivery delays across Indonesia's thousands of islands, as well as low credit-card use, Rakuten's local CEO hired moped drivers dressed in Rakuten hats and T-shirts to deliver goods and collect cash. "And drivers bring customers origami thank-you notes that our employees have made," says Hyakuno. The strategy seems to be working: "Indonesia is growing by 35-40 per cent month on month," he says.
According to Forbes, in the year to March, Mikitani's personal wealth grew from $5.6bn to $6.2bn. But you wouldn't know it, says Hyakuno. "When I joined I was waiting for him at the airport for an overseas trip. This car approached, with a guy I didn't recognise in jeans and a cardigan. 'Ken, Ken, it's me, Mickey,' he shouted. He'd bought the clothes on Rakuten Ichiba in the sales for £12 and £15. I once asked him why he works so hard when he doesn't need the money. He said, 'I'm not looking for money. I want to make this business number one, and help these people who need a chance.'"
As Mikitani sees it, his marketplace represents the true face of social commerce. "Rakuten has been creating social shopping from day one," he says. "Our 40,000 merchants have created strong relationships with their customers." Facebook's model, he suggests, may prove less effective. "People sometimes don't want to get disturbed while they're talking to their friend. It's not such a good idea to break into peer-to-peer communication and say, 'Do you want to buy this?' The Pinterest model works because it is a little bit more selective." Six weeks after we <span class="s2">speak, Mikitani announces his Pinterest investment.
But if there is one western internet business he sets himself against, it's Amazon. When we first meet at DLD in Munich in January, Mikitani and Hyakuno repeatedly critique the Seattle giant's brutally algorithmic approach to commerce. "Internet shopping isn't just about efficiency and convenience," Mikitani says. "It should be a rich communication between merchant and customer that benefits both sides. On the Amazon marketplace, merchants cannot reach the customer. We're very collaborative, we like to empower the small- to medium-sized merchant. Amazon controls and dominates the touchpoint. I don't feel much excitement about creating a gigantic supermarket on the internet." Likewise, he is positioning the Kobo e-reader as an "open" alternative to the Kindle. "Amazon is trying to create a more closed ecosystem than Apple," he says. "If you purchase apps from elsewhere, it's going to erase them. Controlling the experience is OK -- but controlling the entire access to the internet is a different thing."
Has he met Amazon CEO Jeff Bezos? "A long time ago, around 2002. Look, I may be wrong, he may be right.
People's interest is more diversified than we think. They'll get frustrated when they are watching movies on closed devices. We would like to provide as open a platform as possible." And Kobo's colour tablet will be his weapon. "It will be the entry point to Rakuten membership -- a low-cost customer-acquisition tool. They can go to other marketplaces -- maybe Amazon's. But the initial default will be ours."
Hundreds of rusting cars and motorbikes sit piled up and abandoned where Sendai, in Miyagi prefecture, meets the grey-black Pacific Ocean. Along vast stretches of debris-littered coastline, half-collapsed industrial warehouses, fire-ravaged shells of schools and apartment blocks, twisted metal street-lamps and trails of uprooted trees continue to mock human frailty as they have here since the afternoon of March 11, 2011, when the six-minute Tōhoku earthquake sent a tsunami up to 10km inland. In what was once a serene beach-side street, fragments of a rice bowl and a curled fork protrude from mud flats where a family kitchen once stood. The sudden eight-metre saltwater waves that arrived shortly after 3pm that Friday afternoon swamped a total area of 560km2, caused 380,000 buildings to collapse, and, according to the first police reports the following day, killed 15,861 people.
Nine kilometres away, at Sendai's Miyagi stadium on a Saturday morning in March, the Tōhoku Rakuten Golden Eagles are practising pitches on the field, as Mikitani stands near the dugout greeting a group of suited businessmen.
Rakuten owns the club -- he also personally owns Vissel Kobe football club - and, although today's game will be the second this week that the Eagles lose, he sees his investment as helping boost a troubled region's confidence. "We created this stadium," he says as fans in their burgundy-and-yellow scarves take their seats in the persistent drizzle. "Sendai isn't such a big city. The stadium creates hope." Although, as he admits, there are some commercial benefits to owning a team: "You can use corporate branding as a team name, so on every sports page every day you see Rakuten's name. Our brand recognition is 100 per cent in Japan." Toru Shimada, the club president, has known Mikitani for 13 years. "His secret is in his family," he reflects once the game is underway. "His father is very liberal, highly respected, an independent thinker; his mother was a modern girl who, 40 years ago, wanted to go overseas to study when no woman did that. She taught Mickey English, and his father taught him economics, society and integrity. Mickey's very afraid for Japanese society and our economy. In the past, we had role models such as Honda or Panasonic. But we don't now. He believes Rakuten needs to be a role model for the next Japanese generation."
As a boy, Mikitani was a successful competitive tennis player who intended to turn professional, until he worried about long-term career options. He considered studying to be a doctor like his sister, "but I decided it wasn't such an exciting job", he says. "I wanted excitement. I don't like to copy other people. I just wanted my own creative way of solving problems." Far more enticing for him was the role of international businessman. His beloved grandfather was a founder of Minolta; and his father, as Japan's first Fulbright Scholar to the US, had exposed young Hiroshi to the world's finest economic minds -- with Larry Summers or Jeffrey Sachs dropping by for dinner with the family whenever in Japan. "Hiroshi was very creative, but he liked to have his own way," his mother Setsuko recalls during the baseball game, in a box reserved for family and friends. "He wouldn't do what his teachers told him to do." His father Ryōichi, now 83, smiles: "I remember one episode in his second year of primary school. Parents had been invited to the mathematics class and the teacher asked five students to come up to the blackboard to solve a problem. Four of them did so according to the formula. But Hiroshi tried to solve it his own way, ignoring the formula. And he did it.
He has a stubbornness."
He is not conventionally ambitious, his father says. It's not fame or money or greed that drives him. "It's Japan, traditional Japan," he says after a moment. "Half of our ancestors were from the merchant class, others were from the samurai class. We went abroad, so were international. It's that mixture."
Mikitani's prowess at tennis offers a clue, according to Rakuten CFO Ken Takayama. "He's not a team sport player, more an individual. I've known Mickey for 24 years, since college. We're the class of 1988 -- we thought this country was going to conquer the world. We [Japan] owned Rockefeller Center. The total value of real estate in Japan could have bought the whole of the US -- that was the kind of stupid maths we did.
But nothing turned out well. We still have faith in this country and in our people -- Hiroshi is a very strong believer that we can make things happen. The message he received in the States is that it's OK to be different, you just need to accomplish something. I think he's asking to be acknowledged, to win respect for doing something good for society."
And if that means taking a very un-Japanese hostile stance against vested interests such as the Keidanren trade lobby, then so be it. "I cannot stand the organisation's stance of protecting the electricity industry," he tweeted last year -- going on to speak out against the Keidanren "trying to protect everything about 'Galapagos'" in Japan. So could he see himself taking on a political role? "I'm too short-tempered for politics," he says at the baseball game, with a laugh. "I'm too challenging, I don't like to accept all the bullshit. I'm an outsider." Besides, with an eight-year-old son and a three-year-old daughter -- his wife Haruko ran the HR and PR side of the business until its 2000 IPO -- it's not as if he has time to dilute his mission. But if he were in government, what would he do? "We need to create a momentum that starting a company is important for our society," he says, "and encourage more people to do so."
Hence his "disgalapagosisation" plan, in which he compares Japan to the isolated arpeggio of islands off the coast of South America. "We were insulated from the world for 250 years, disconnected from foreign countries," he says. "After the Edo revolution we opened up, but the ocean and the language were still walls. In the internet era, there are no such boundaries. The only protection we have is language. So once Japanese people start communicating, we'll have disgalapagosisation."
Hence his decision to change the company's internal language to English. "Mickey had an epiphany around three years ago," explains Kyle Yee, head of the "Englishnization" project. "He had been doing a lot of international travel, and as he kept returning to Japan he realised that there was so much going on beyond our borders that people needed to understand. Without any pre-planning or foresight, he unloaded the initiative unannounced at a board meeting and then, in English, at the general staff meeting. I was put in charge. When Mikitani-san makes up his mind, things move quickly. I was given about ten minutes to move my desk."
Yee, who has been with Rakuten since 2001, has an MA in teaching English as a foreign language and ran an unofficial language-learning project for colleagues in his personal time in 2004-5. "One day, Mickey told me that teaching English was a waste of time and I had to abandon it: 'Kyle, I don't want you doing that any more,' he said. One thing I respect about Mickey is he's very direct."
Today, Rakuten staff who fail to reach a specified proficiency level risk losing their job altogether. "The company has funded lessons in work and nonwork time, from 7.30am, running classes 12 hours a day, with summer 2012 as a clear target," Yee says. "Unfortunately some people have still opted not to participate. That's unfortunate. If they have not made one iota of effort, probably some of the
executives would be very disappointed."
Beyond Rakuten's own commercial benefits from successful adoption, there are -- again -- wider aspirations within the company that the national interest could be better served by Englishnization. When the US State Department was demanding regular updates from Japanese prime minister Naoto Kan's office in the days after the Fukushima nuclear-plant shutdown in 2011, it became clear that language gaps were causing diplomatic frustration. The government has since studied Rakuten's strategy and begun an English-learning initiative, initially with the military. "That word 'Englishnization' --
Mickey invented it," Yee says with a smile. "At first I wanted to say that the letter 'n' was a mistake. But Mickey said it was the word he chose as he wants everyone to always remember it. One day he'd like Oxford to put it into the dictionary. If you have any pull with Oxford..."
It's 10.30am on a Monday morning, and 305 new graduate recruits are being formally inducted into Rakuten in Tower 2's seventh-floor Asa-kai meeting room. A graduates' representative ceremonially hands Mikitani a letter of induction, and he then gives a 45-minute speech -- in English, naturally. "Don't think of Rakuten as a big company," he tells them. "There are only two types of people -- those who get things done, and those who keep making excuses. Just giving it your best is not good enough -- get things done. Keep trying. When we started out, we only had 13 clients -- it was very difficult. We made more than 200 phone calls a day. It took a whole year to get to 100 companies. Don't ever give up..."
Afterwards, the graduates installed at their newly cleaned desks, Mikitani reflects on the limited ambition of so many Japanese companies. "There are lots of unique startups in Japan, but they don't have a global mindset," he says. "Since the domestic market is reasonably large, they're satisfied with making $500m in Japan. That's something I want to change. I need to open their eyes. Rakuten graduates are
globalising business people. I'd like to accelerate the trend. "If you just want to make money, go to Goldman Sachs," he says. "The truth is, as Kobe showed, you're going to pass away, even if you make billions of dollars. I once asked my father what is the responsibility of human beings, and his answer was to contribute to human society. I like that."
The Rakuten Way
In 2008 Mikitani introduced Rakuten Shugi (The Rakuten Way), a guide to systemised basic practices for all staff in all departments. Here are some of its 'Shared Worldwide Practices':
We share and exchange information at Asa-kai (morning meetings)
"Listen carefully as members of other businesses and departments share their experiences...Never miss an opportunity to broaden the application of lessons learned."
We clean the office together to bring us back to basics
"A clean office fosters a more pleasant, organised and efficient work environment for everyone. We clean our offices together... it brings us back to basics and helps to 'clear the decks'."
We greet each other with enthusiasm every day
"A greeting is a simple but important expression of friendliness and respect. Effective communications begin with cheerful greetings; enthusiasm is contagious."
David Rowan is the editor of Wired. He wrote about Reid Hoffman in 04.12
This article was originally published by WIRED UK
