As Alibaba prepares for its IPO and Tencent aggressively pushes its WeChat messenger all over the world, it’s easy for folks in the west to forget that there’s another Asian internet giant gunning for a broader global presence – Japan’s Rakuten. Founded in 1997, the Tokyo-based firm earned a name for itself domestically with Rakuten Ichiba, a marketplace that sells virtual store space for vendors looking to reach online customers. Rakuten Ichiba’s success helped it gain the reputation as “Japan’s Amazon,” the firm quickly proved to be about more than ecommerce – it successfully branched into the banking, securities, and travel industries. It even created a juggernaut baseball team in northern Japan.
As for its international operations, Rakuten runs ecommerce stores in South America, Europe, Southeast Asia, and the US – some of which it built from the ground up, others which it obtained through acquisitions. Also, over the past two years it’s made a stream of acquisitions in some high-profile consumer tech firms – Spanish video streaming site Wuakai.tv, e-reader Kobo, chat app Viber, and “Hulu for the world” Viki.
Now, the company is betting on startups with a new US$100 million fund under its Rakuten Ventures investment branch. Launched in 2013, Rakuten Ventures started small – opening with a US$10 million fund focusing on startups in southeast Asia. Under the leadership of Saemin Ahn, who joined the company after five years at Google, Rakuten Ventures led seed and series A rounds in a wide range of startups including peer-to-peer marketplace Carousell, payments facilitator Coda Payments, image recognition startup ViSenze, and the awesome file transfer service Send Anywhere.
Rakuten Ventures states that its new fund will assist firms not only in Southeast Asia, but in the US and Israel, and greater APAC as well. In other words, if you’ve got a startup, Rakuten might be coming to your neighborhood.
In an effort to understand the Rakuten Ventures and its relationship to its domestic parent company, Tech in Asia sat down with Ahn to discuss Rakuten’s legacy in Japan, it’s global ambitions, and why an ecommerce firm might invest in a messaging app. Below is an edited transcript of the conversation.
Rakuten is best known to internationals as a Japanese ecommerce firm and not much else. It’s not a company that is well-known in living rooms outside of Japan – even startup savvy living rooms. Why does Rakuten need US$100 global-facing investment fund?
That’s a very good question. For me, I wouldn’t brand Rakuten as an ecommerce company, but as a Japanese ecommerce conglomerate. If you can see what Rakuten has done in Japan over the past four years, it’s been nothing but disruption – not just in ecommerce, but in online banking for credit card businesses, to online brokerage business, to insurance. It’s been very very aggressive in terms of how it has seen the marketplace and how it can move into certain subsectors.
In that way, when Mikitani-san [Hiroshi Mikitani, chairman and CEO of Rakuten] and I look at overseas business, we think together – what kind of units do we want to actually push out overseas, and how can we challenge ourselves in terms of our ability to perform? One thing that we saw as a really big opportunity and a challenge is: “How can we do venture capital well?” In Japan there might not be such a big need for it because we have such a strong base. But if we can execute venture capital correctly, this not only provides a huge financial upside for the corporation, but overall, if we can do this in a democratic and judicial way, there’s huge branding effects for the company itself.
Whenever an ecommerce firm like Rakuten or Alibaba invests in or acquires a smaller company, it’s easy for one to assume that the end goal of the purchase is to tie the product or service back to ecommerce. For example, tech media outlets will write things like “Rakuten purchased Viber, which is kind of like Line and WeChat… Line and WeChat both sell stuff.. so in a year Viber will probably start selling stuff from a Rakuten partner.” To what extent must a Rakuten Ventures investment tie back to ecommerce?
Rakuten in Japan has an amazing moat and castle strategy. We have a castle that’s named ecommerce, and we have multitudes of moats that enable us to acquire and aggregate customers at a very low cost, while giving them the benefits that they need and desire. In many ways, we’re looking at how we can create a moat strategy outside of Japan. For a lot of the businesses we have, the actual transferral costs might provide high internal barriers and high costs. So we’re always looking at the next step for how we can touch new customers for new growth. In many ways the Viber acquisition and the Viki acquisition were kind of an organic step towards that.
What about Send Anywhere, which you invested US$1 million in? That’s a startup that doesn’t really have an obvious link back to ecommerce.
Well, I’m very thankful that Rakuten has given me a lot of horizontal movement and also vertical movement. For example, Send Anywhere has a lot of parallels in terms of content transfer. If you look at that, if you have a critical mass of Send Anywhere users, you can think of it as a giant content solution platform, not unlike Bittorrent. Bittorent has more users than Twitter, and even though their monetization could be better, they deliver tremendous value to their users.
To be very direct here, we don’t expect all of these partners to work with us as Rakuten all the time. If it makes sense, great, you can work together with us. If it doesn’t, then we’ll help you as much as possible with product development. Business decisions aren’t always black and white, often they’re a very desirable shade of grey.
Even before Rakuten Ventures was established in 2013, Rakuten had made several investments in overseas companies, most notably in Pinterest. What distinctions, if any, can we draw between Rakuten Ventures’ investments and these previous investments?
Well, if it’s actually invested by Rakuten Ventures we’ll specifically state it. If it’s done by Rakuten Group, it’s most likely done by the strategic investment office. We are pretty separate in terms of how we operate. But if you look at our overall philosophy, I think that there is somewhat of a distinction in that the strategic investment office has more of a direct linkage in terms of how ecommerce will be used. Whereas for me, it doesn’t necessarily have to be in that vector. Neither side has any influence on the other, but we are in very tight communication in terms of what happens on each side.
Let’s talk a little about Viber. Rakuten’s purchase of Viber will likely rank among this year’s biggest acquisitions. At the time, it affirmed the value of mobile messaging even before Facebook bought WhatsApp. What made Viber an appealing acquisition for Rakuten?
About three years ago, talk at Google and in the tech industry was all about owning the identity. But if you actually look at it right now, it’s become more about owning and participating in the conversation as much as possible. I saw an opportunity where a lot of these messaging platforms will become very successful, not necessarily by sticking to their original business plans, but by creating concentric ecosystems that relate to consumption, financial transfers, and games.
In that manner I was looking at companies I wanted to invest in, and I always had my eye on Viber. Even when I was at Google the company was growing hand over foot, extremely aggressively. So I really wanted to reach out to them to find out what their plans were, and how I could prove myself worthy of their investment. I take a very deferential model with regard to approaching the companies we want to invest in. I first talked to them to see how I could help them. I asked them and said ‘Hey, are you interested in doing operations in Southeast Asia?’ and they said ‘Yes! We’re really popular in the Philippines.’ So I started to help them out in terms of looking at strategy and making some connections, that naturally rolled into an investment discussion, but the discussions went so well that it evolved into an acquisition.
Any countries in particular you’re bullish towards? To what extent is Rakuten Ventures an Asia play, versus a global play?
We are very excited about Israel. Viber is actually an Israeli company and my office is inside Viber. For me, I love the deal flow in Tel Aviv. The density is really amazing, the founders are great, the overall technical ability of these guys and how they look at the market is very global facing.
For me I would like to find all the innovative companies inside Asia and in Israel. But i think that we’ll take a very long sustained look at the US, consistently to look for good deals. There are certain pockets of verticals where if you look outside the US, you’re at a disadvantage. Things like big data, things like adtech – the US is where it’s happening. So if you want to look at upsides in those verticals, you want to have a good relationship with founders on the ground there.
Does Rakuten intend to become a global brand name? Or is it content to work behind the scenes while the companies they invest in or acquire grow to become their own beasts?
I think those two possibilities are not mutually exclusive. Definitely if the company is doing very well and accrues some kind of amazing liquidity, then we’d love to also share the spotlight. But for me as an investor, we’re looking at investing in the companies we believe in to become great companies for the future. I think once we focus on that, our goal points will fall in line naturally.