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Rakuten targets SoftBank – TechCrunch



This week I tried to do something new at TechCrunch with this experimental column – I'm obsessed with a topic in engineering and write a continuous stream of thoughts and analysis about it.

With My Research As Advisor and Contributor Arman Tabatabai, we have dealt with two topics: Form Ds, the filings that startups usually submit to after completing a venture round with the SEC (though this is increasingly not the case) and SoftBank which is exposed to all kinds of strategic pressure because of its debt binging. If you missed the other episodes, you will find links to the issues of Monday, Tuesday, Wednesday and Thursday.

We are experimenting with new content forms at TechCrunch. This is a rough draft of something new ̵

1; send your feedback directly to the authors: Danny at danny@techcrunch.com or Arman at Arman.Tabatabai@techcrunch.com if you like or hate something here.

Today, a final reflection on SoftBank and Rakuten (written extensively by Arman) and a long list of articles for your weekend reading.

The Rakuten Factor Complicates SoftBank's Strategy

BEHROUZ MEHRI / AFP / Getty Images

] Understanding SoftBank's competitive strategy requires deep immersion in Japanese environmental giant Rakuten.

Rakuten has had a hard time with Amazon and other companies like SoftBanks Yahoo! Japan. At the end of 2017, Rakuten announced he would enter the telco space and hopes that operating his own network can lead to user growth through better incentives for mobile shopping, streaming and payments.

Today, the Telco space in Japan is relatively cozy oligopoly dominated by NTT DoCoMo, au-KDDI and SoftBank. One main reason why Rakuten believes that it can succeed where others could not break in is the government.

Rakuten's plan to offer prices that are at least 30% below established prices has led to favorable treatment by the Prime Minister The government of Shinzo Abe, which has been looking for ways to stimulate competition to high phone rates to lower the country.

Although a new entrant has not been allowed to enter the telecommunications market since eAccess in 2007, Rakuten has already received it. The government has also enacted provisions to make the new child more competitive in the city, such as the ban on restrict the portability of devices.

Rakuten's partnership with major utilities and infrastructure operators will also allow it to quickly build up out of the network, including Japan's second-largest mobile operator KDDI.

Rakuten and KDDI recently announced an agreement Rakuten will help KDDI leverage its payment and logistics infrastructure, while KDDI will turn to e-commerce and payments, while KDDI Rakuten will gain access to its network and nationwide roaming services allows Rakuten nationwide to offer its own service infrastructure.

The deal with KDDI is particularly frightening for SoftBank, the country's third-largest telco and one of Rakuten's e-commerce competitors whose customers are the most vulnerable to emigration. The partnership also gives the impression that SoftBank's competitors are trying to push them out of the market or turn the upcoming flotation of the mobile segments into a jerk. In an IPO, it is important for Rakuten to aim for a significantly lower market share than the established ones Companies. By 2028, 10 million subscribers are to be reached. This is a number below the company's original goal of $ 15 million and well below the 76 million, 52 million and 40 subscribers million subscribers of NTT, KDDI and SoftBank currently hold. And even with its agreements, Rakuten faces a serious and expensive battle to build its network infrastructure fast enough to compete.

Ultimately, Rakuten's Telco initiative is a splash, but the competition seems to get wet. Do not drown it. For SoftBank, this is a vexing distraction at Telco's IPO roadshow, but a distraction that is easy to explain to potential investors.

SoftBank growth over the last two decades

Rajeev Misra. Photo by Drew Angerer / Getty Images

Rakuten's move to e-mail from readers this week challenged us to look more closely at SoftBank's performance over the past two decades. It has become clear that SoftBank has held price competitions and new entrants in its divisions for many years, proving that it is in a position to realize its profits and continuously generate profits.

Since 2000, SoftBank has increased its profits by one year ~ 30% CAGR and sales growth in all but one year. When eAccess entered the telecommunications market and gained four million subscribers, SoftBank bought it and built it into its own system.

As we discussed earlier this week, SoftBank has managed to achieve consistent growth, despite the fact that we have always stuck to unclear debt, by ensuring that revenue and operating growth stimulate debt and interest expenses exceeded.

A prime example of this was the acquisition of Vodafone by SoftBank in 2006, when it saw a significant increase in interest expense. But also in terms of the operating result.

Over the next five years, SoftBank managed to cut its interest expense by 12% per year and increase operating income by 16%. Regardless of debt levels, SoftBank appears to have always been able to secure financing in one way or another. This is reflected in its ability to raise more than $ 90 billion for the Vision Fund in less than a year from the time the plans were announced for the fund.

The Vision Fund itself kicked off SoftBank's continued investment while the balance sheet was tight due to almost massive takeovers by Sprint and Arm. Just look at how Rajeev Misra, who oversees the Vision Fund, discussed his founding in an interview with the Economic Times:

We had bought ARM for $ 32 billion in June, and Masa agreed That we are about to see technology evolution in the next 5-10 years with machine learning, AI, robotics, and their impact on any industry – from health care to financial services to manufacturing.

We felt that the world was going through a new industrial revolution. We were financially constrained as we just made an acquisition of $ 32 billion.

SoftBank has invested on its own account over the last 20 years. So we had two options:

Either we're monetizing some of the profits we made in Alibaba, which we've decided to have much more upside … Alibaba has more than doubled in the last 12 months. So we decided to keep it, which turned out to be a good decision. The second option was to raise money and invest with others. We have prepared a presentation, have gone out, and by God's grace we have increased the fund.

Even before the Vision Fund, SoftBank has always had the strategy to achieve large-scale operations in future-oriented industries. And while many have failed, the many who have paid off, like the $ 20 million investment in Alibaba, have had massive payouts that have been driving consistent profit growth for decades. SoftBank seems to be banking on the same strategy for the future, and frankly it's unclear how important they are to how competitive their telecommunications companies are, as this exchange in the same interview with Misra shows:

Question: What about? Industries like telecommunications look like?

Misra: Let the dust settle.

What's Next

Our obsession with SoftBank is likely to subside this week and we're in the market for our next deep dive theme in tech and finance. Write an Email to danny@techcrunch.com and arman.tabatabai@techcrunch.com

Thoughts on Articles (eg, Weekend Reading)

Photo by Darren Johnson / EyeEm about Getty Images [19659007] The communication of the CIA suffered a disaster compromise. It started in Iran. – This is a great successor to Zach Dorfman and Jenna McLaughlin of Yahoo News on one of the most important spy stories of the past decade. The CIA used an Internet-based communication system to connect with spies and sources in the field and was unable to maintain the security of the system, which resulted in their Iranian, Chinese and possibly other spy rings being dismantled. This article brings the story, as we know it from the New York Times original, and the outstanding sequel to Foreign Policy, also written by Zach Dorfman. In any case, a reading by a security / technical audience. (3,200 words)

The $ 6 trillion barrier holds back electric cars – Do not read – the answer is infrastructure. (1,000 words, but should be one)

The Rodney Brooks rules for predicting the commercial success of a technology – a good reminder that some technologies are much closer to reality than others, and that the key difference between them is the collective experience in dealing with that is technology. Rodney Brooks is the right person to deal with this topic, though one can have the impression that each example is inspired by musk. (2,800 words)

Uber's business team is his secret weapon of Alison Griswold. Soon there will be more economists at tech companies than at Roberta Holland's political schools. Both in Quartz – Griswold provides an excellent overview of Uber used not only to improve its product for end users, but also to shape the discussion on public policy in the company. Of course, Uber is not alone; As Holland notes in his article, academic economists are currently very popular in Silicon Valley. Salaries can be matched with the best machine learning experts. (2,750 words or 1,200 words)

The future is so bright that I have to wear Blinder – a short piece by Nicholas Carr that defies the notion that computing is still "in the beginning." Many of our devices and parts of it Software is decades old – if it did not affect human behavior or productivity, when? A useful antidote to some ideas we hear every day from the valley. (900 words)

The Future of Photography is Code – Yes, yes, I'm very late – to blame Pocket Disease. The Devin Coldewey of TechCrunch writes an open essay about the transition from improving photography through hardware such as lenses to improving the photos by calculation. The future looks very nice for beautiful photos. (2,400 words)

Freedom in the Web 2018 | Freedom House – and if you're looking for depressing news, the report from Freedom House (which I'm getting a bit late for) is bleak. China today is increasingly the source of authoritarian Internet control technologies, and countries around the world rely on the freedom of the Internet (including the US) to create a kind of future for this technology we want. (32-page PDF with detailed summary)

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