Having established their alpha-male credentials on their own ground, Amazon and Rakuten Ichiba, Japan's top Internet trader, are beginning to tread on each other's toes.
Both are expanding globally. More crucially, they are encroaching into each other's territory. Both are set on becoming No. 1 in the world. Though Rakuten CEO Hiroshi Mikitani recently made a public appearance sporting a "Destroy Amazon" T-shirt, this is not a slugfest with corporate cudgels. It is a chess game of global investment and acquisition between two diametrically opposed Internet business models and philosophies.
Neither is it an East/West standoff. The Harvard-educated Mikitani has said that Japan's ailing enterprises need lots of American-style entrepreneurial spirit -- mixed with a healthy dose of national pride and a dash of samurai spirit -- to regain their place in the world.
There is a fundamental difference in these companies' models. Rakuten has 75 million user accounts and more than $4 billion in group revenue, but it does not have fulfillment centers, and it carries minimal inventory. Instead, it partners with 40,000 merchants in what Mikitani calls his B2B2C model. Its Website claims to offer 102 million items for sale.
Amazon leveraged its technology roots to become a major cloud player via Amazon Web Services, but Rakuten has focused on loyalty-based services as a by-product of its partnership model. Its businesses now includes banking, e-money, credit cards, securities, travel, media, and even sports. When baseball's Tohoku Rakuten Golden Eagles win, Rakuten customers earn loyalty points.
As chief financial officer Ken Takayama told Wired: "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 percent of our assets are associated with our financial business."
But with both players expanding globally and vigorously, their paths are crossing more often. Rakuten has made acquisitions in Germany, France, the UK, Brazil, and the US. Lesser investments include the Russian e-tailer Ozon, AhaLife in the US, and a $100 million stake in Pinterest. Although Pinterest has yet to make a profit, Rakuten sites now feature Pin it buttons. Mikitani says they are more customer friendly and persuasive than pop-ups or e-mails.
Amazon is expanding in Japan, where it now generates $1 billion of its roughly $48 billion of global revenue. CEO Jeff Bezos aims to expand the operation there by 30 percent annually. He says Amazon will build more fulfillment centers in the country to increase sales through same-day delivery.
While Amazon is muscling in on Rakuten's home ground, Mikitani is challenging his rival's core business globally. Kobo, which Rakuten acquired last year for $315 million, launched a Japanese language e-reader in July. This is a bold step in a market that has already seen failures by Panasonic, Toshiba, and Sharp, but Mikitani expects to succeed, because he has 95 percent of the Japanese publishing industry behind him.
This may be true, but it's probably because the publishers fear Amazon more than they like e-readers. Bezos has not been slow to react; he recently launched a Japanese language e-reader service for the Kindle.
Amazon may have vulnerabilities, too. The company, which is notorious for its tight margins, posted a third-quarter loss, which may be partially due to increased investment aimed at halving delivery times. This is seen as an effort to offset the eroding of its sales tax advantage as some states force it to start collecting taxes. And now that Amazon offers same-day delivery, Wal-Mart has responded by taking the Kindle off its shelves.
This contest may come down to a choice by suppliers and traders between two business models. They may have to choose whether to tuck in tight behind the Amazon bulldozer (and hope it doesn't run out of steam) or join a partnership that offers growth and customer loyalty (and hope that the bulldozer doesn't get them). The e-commerce competition is heating up, and organizations are watching as they figure out their own strategies for going global.
George Taylor worked in IT in both the public and private sectors for more than 20 years. He is a Subject of the Crown.
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