Society

Lessons for Masayoshi Son in Rakuten's failure to halt Amazon

Sep 14 (Nikkei) - Internet platform businesses like Google and Amazon, you would think, necessarily compete in a global market that spans national boundaries.

A look at geographic market segments by revenue of some of the leading internet platforms confirms the hunch: 54% of Google's revenue comes from outside North America; 30% for Amazon, 60% for eBay; and 54% for Netflix.

The logical corollary would seem to be that internet businesses that serve a single geographic market only -- say, a Japan-only e-commerce site -- are doomed to be swallowed up by their larger global rivals.

How Japan's leading domestic internet platforms, Rakuten and SoftBank Group company Z Holdings, formerly Yahoo Japan, are faring against Google and Amazon offers evidence to test this hypothesis.

Spoiler alert: Cultural barriers and network effects from a legacy position in the local market can delay, but not prevent ultimate defeat. Rakuten, Japan's online shopping mall, provides the starkest data.

In 2015, Rakuten and Amazon Japan had a roughly equal market share. By 2020 Amazon Japan commanded twice the market share of Rakuten, 25.7% to 12.6%. During that period, Amazon's scale enabled it to integrate vertically when it comes to logistics and distribution, with delivery trucks adorned with the signature smile-shaped A to Z arrow now a common sight in Japan.

Rakuten started with the advantage of a native Japanese language interface and a critical mass of loyal Japanese sellers and customers. But Amazon overcame Rakuten's initial local advantage by leveraging its global scale and assets.

Accumulated experience in markets around the world helped the Seattle-headquartered company localize its user interface to suit Japanese tastes and sensibilities.

Further, Amazon's global network offered Japanese users the ability to compare products and prices from all over the world, not just within Japan. On top of this, Amazon began to offer new categories like Amazon Prime Video, Alexa and Kindle that vault over Rakuten's menu of conventional physical products.

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