(Bloomberg) — The head of Rakuten Group Inc. dismissed skeptics who call the Japanese e-commerce pioneer’s mobile foray a mistake and said the telecommunications arm is central to future growth through artificial intelligence.
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The decision to enter Japan’s cutthroat wireless market has saddled Rakuten with four years of losses, weighing on its cash-rich online shopping malls and financial operations. But this mobile branch and its more than 8 million users help to form an AI ready to develop the conglomerate’s activities, according to billionaire founder Hiroshi Mikitani.
The amount of proprietary data Rakuten collects from its users is “extremely powerful,” Mikitani said in an interview with Bloomberg TV. “We have no intention of competing with OpenAI or Google. But we will actively build specialized and more vertically integrated AI.
Rakuten sees opportunity in Japan, which has been a laggard in adopting digital and AI-based technologies. While Tokyo provides large subsidies to local AI providers, no clear winner has emerged. The race to create a large, must-have Japanese language model is now driven by SoftBank Corp., Nippon Telegraph & Telephone Corp., NEC Corp., CyberAgent Inc. and of course OpenAI.
Rakuten, which is in a deadlock in online shopping with the world’s fourth-largest Amazon.com Inc., is now preparing to launch an AI assistant that serves as a travel and shopping agent to generate more traffic and engagement. The company also recruited Ting Cai, a former Google Maps and search expert, to guide its AI development beyond travel and e-commerce.
The benefits of the mobile business to Rakuten’s ecosystem are “huge,” Mikitani said. Users of the Rakuten mobile network are spending almost 50% more on Rakuten’s online shopping mall, with benefits spilling over to its credit card, travel, banking and brokerage operations, the 59-year-old said .
It was, however, a costly gamble. The mobile business has stretched the company’s balance sheet, prompting the online retailer to sell a roughly 15% stake in its profit-generating credit card arm to Mizuho Financial Group Inc. It also raised funds by going public with its banking business in 2023.
In November, Rakuten reported its first quarterly operating profit since 2020, after narrowing losses in its mobile segment. This segment is now profitable, reducing marketing costs to gain new customers, Mikitani said. Rakuten had to spend on promotions and advertising to attract subscribers from NTT Docomo, KDDI Corp. and SoftBank Corp., which together control about 95% of a crowded market.