Masatoshi Kumagai saw the future and built a one-stop-shop for entrepreneurs

Founders of companies with billion-dollar revenues normally find it difficult to keep out of the limelight. Yet Masatoshi Kumagai, founder and CEO of GMO Internet (TYO:9449), is nearly invisible. Just Google him in English. Press coverage is more than scant, it’s non-existent. Aside from a blurb in a Forbes “Top 50 Millionaires in Japan” and a complimentary mention in a 2005 Newsweek feature on “21st Century CEOs”, Kumagai does not appear for longer than a context quote in any other English-language press.

This media reticence suggests a diffidence that is rarely associated with one of Japan’s foremost entrepreneurs. Kumagai, a high school dropout whose foresight positioned GMO Internet to be a major player in internet services, is known for his bold, unapologetic style. His love for art runs deep and tolerance for foolishness runs thin. Work consumes him but he DJs at parties for his close friends. Hiroshi Mikitani, founder and CEO of Rakuten (TYO:4755, personally requested him to join the board of the Japan Association of New Economy (JANE), arguably Japan’s most powerful lobbying organization. His position there puts him in close conversation with the government, even to the point that he is Facebook friends with Prime Minister Shinzo Abe.

Under his stewardship, GMO Internet, which he founded in 1991, has been on a steady march towards becoming a one-stop-shop – with 82 subsidiaries, six of which are publicly listed – for setting up and running an online business in Japan. Even if a company restricted its relationship with GMO Internet Group only to services having top market share in Japan, it could still select a unique domain name, host its website, keep that website secure, and receive payment for a product or service. If Rakuten, with its ecommerce mall, credit cards, and bank, is an ecosystem for consumers, then GMO Internet Group is an ecosystem for entrepreneurs. This did not happen by accident.

Kumagai has placed some of his favorite pieces of art in the office. This piece, by Julian Opie, is called “This is Shahnoza in 3 parts.”

Laying tracks on a digital railroad

Though he dropped out of high school to work in his father’s successful entertainment business, Kumagai never stopped learning. An avid reader and history buff, Kumagai thoroughly studied the stories of Japanese zaibatsu, the conglomerates that exerted enormous political and economic control over the country, particularly from the 1870s to 1940s. The standard image of zaibatsu focuses on modern banking institutions Mitsubishi, Sumitomo, and Mitsui. Kumagai, however was particularly attracted to the railroad conglomerates like Tokyu and Seibu.

In addition to building railroads, Tokyu (TYO:9005) and Seibu (TYO:9024) also built large shopping centers at the terminals of the train lines. Tokyu, for instance, built a line that brings people from far outside of Tokyo into a major shopping center of the city. A Tokyu mall is just a minute walk from the station, perfectly convenient for weekend shoppers or weekday workers picking up a couple items on their way home.

The elegant simplicity of this business design was not lost on Kumagai. “I realized that the internet is like the railroad business. Lots of businesses will spring up next to the train tracks,” he said, explaining why he changed the company’s focus to being a internet service provider in 1995.

The revelation came at a time when the young company was floundering. An early attempt at entering the multimedia business was not moving forward and Kumagai found himself wondering if he could generate enough money to even feed himself. Despite the circumstances, Kumagai followed his instincts and pivoted the company towards internet services. His hunch has paid off. “If we had not found the internet at that time, we likely would have failed as a company.” Now, powered by the firm’s “engine” of internet infrastructure services (payment, web hosting, cloud storage, etc.), GMO Internet Group’s deep variety of services helped the company rake in approximately US$930 million in 2013, a 26 percent increase from the previous year.

Predicting trends, setting standards

Kumagai’s foresight enabled him to enter the internet services market in the mid-1990s but that was not the last time his instincts would guide the company. In keeping with the railroad analogy, he anticipated the value of managing the digital equivalent of station names – website domain names.

GMO Internet has quietly cornered the market for domain names in Japan. In 1999, Internet Corporation for Assigned Names and Numbers (ICANN) made it the first commercial registrar for Japan. Like all good bureaucracies, ICANN has moved extremely slowly in creating new domain names. But since 2012, applications for new next-generation, top-level domains (.net, .com, and .gov, for example) became available.

Now, ICANN will allow the use of valuable real estate like .toyko and .yokohama, both of which GMO Internet has acquired the rights to operate. 15 years later, the slow play has paid off and now any business owner, no matter how large or small, will see GMO Internet as a valuable – and nearly inescapable – business partner.

Kumagai does not foresee GMO Internet’s engine of infrastructure services slowing down any time soon. By his calculation, the internet is going to be connected to every corner of the world in the coming years. “Right now seven billion people can be connected to the internet. But in the future cats, dogs, horses, cows, lights, buildings will all be connected, they will need servers and domains. That would be tens of billions of things but really there is no limit,” he said.

Moving beyond Japan