(Jan 20): Rakuten Group Inc’s chief dismissed sceptics who call the Japanese e-commerce pioneer’s mobile foray a mistake and said the telecom arm is central for future growth through artificial intelligence.

A decision to enter Japan’s cutthroat wireless market has saddled Rakuten with four years of losses, weighing on its cash-churning online shopping mall and finance operations. But that mobile arm and its eight million-plus users help train an AI poised to expand the conglomerate’s business, according to billionaire founder Hiroshi Mikitani.  

The amount of exclusive data Rakuten gathers from its users is “extremely powerful,” Mikitani said in an interview with Bloomberg TV. “We have no intent to compete against OpenAI or Google. But we will actively build a more vertically integrated, specialised AI.”

Rakuten sees an opportunity in Japan, which has been a laggard in the adoption of digital and AI-powered technologies. While Tokyo is extending hefty subsidies to homegrown AI providers, no clear winner has emerged. The race to create a go-to Japanese large language model is now crowded with the likes of SoftBank Corp, Nippon Telegraph & Telephone Corp, NEC Corp, CyberAgent Inc and of course OpenAI.

Rakuten, which is in a dead heat in online shopping against Amazon.com Inc in the world’s No 4 economy, is now preparing to launch an AI assistant that serves as a travel and shopping agent to drive further traffic and engagement. It’s also recruited former Google maps and search expert Ting Cai to steer its AI development beyond travel and e-commerce.

The benefits of the mobile business to Rakuten’s ecosystem are “huge,” Mikitani said. Users on the Rakuten mobile network spend almost 50% more on Rakuten’s online shopping mall, with benefits spilling over into its credit card, travel, banking and brokerage operations, the 59-year-old said.

It’s been a costly gamble, however. The mobile business has stretched the company’s balance sheet, prompting the online retailer to sell a roughly 15% stake in its profit-churning credit card arm to Mizuho Financial Group Inc. It’s also raised funds by taking its banking business public in 2023.

In November, Rakuten reported its first quarterly operating profit since 2020, after losses in its mobile segment shrank. That segment is now profitable, discounting marketing costs to win new customers, Mikitani said. Rakuten has had to spend on promotions and ads to woo subscribers from NTT Docomo, KDDI Corp and SoftBank Corp, which together command roughly 95% of a saturated market.  

In an effort to expand its appeal, Rakuten aims to deliver 100% smartphone coverage in Japan with the help of satellite-based services. The company’s partnering with US provider AST SpaceMobile Inc with satellite-based services starting in 2026.

“We want to become one of the top-tier profitable companies in Japan and — in the future — in the world,” Mikitani said. “Our ambition is probably really big, but we are doing this step by step.”

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