Ask CEO Hiroshi Mikitani!

……Can you explain the "Rakuten Eco-system"?

Rakuten's most important assets are its membership program, point program and e-money (Edy). At the core of all these elements is Rakuten's customer database. The Rakuten Eco-system is built from the strengths of each of these. We are now at the point where we can tell customers that "most things in your life can be done with your Rakuten ID."

Rakuten began with e-commerce (Rakuten Ichiba) and has evolved vertically into travel, media, and finance, with many areas like life insurance still untapped. We will be able to use our branding power and Rakuten IDs to develop many untapped markets, so things should get interesting for us in the future. Since the Internet is like the ocean in terms of interconnectedness, we can create connections with new kinds of business by opening up our APIs and not putting up walls. Ultimately, our goal is to make it possible for 80% of economic activity to be done through Rakuten, and then take that model to the rest of the world.

……Tell us about Rakuten's federation framework for technology development.

Often times, U.S. technology companies, many of whom offer services and do business in Japan, have their technology development headquarters concentrated in Silicon Valley, so when their Japan-based staffs want to add a single new function they have to check with headquarters each time. But Rakuten, with our federation concept, uses standardized tools and a core platform which we share globally on the Web. Under this distributed model of technology development, final assembly can be in some part handled locally.

……What are the defining characteristics of Rakuten engineers?

Though engineers at big firms in the West often quit when the firms are bought out, engineers have for the most part stayed on in Rakuten acquisitions. In San Francisco and France, for example, there are many truly brilliant engineers. We bring them to Japan or send Japanese employees over there, striving to ultimately share best practices. In becoming a part of Rakuten, we hope all new graduates will share our ambition to "make our federation development model number one in the world".

……What role do SNS play in Rakuten's business?

Vendors joining Rakuten can now do business on seven different platforms, including mobile phones. SNS take it a step further, allowing vendors to operate through services like Google, Facebook and mixi.

The idea is to enable stores to market themselves through various kinds of media using Rakuten as the hub. Using the powerful word-of-mouth marketing capability of SNS, we will have a real advantage if we can get it so that customers just happen to end up at Rakuten when they want to buy something. Social media is widely used in Thailand and Indonesia, for example, and there they have figured out how to effectively use SNS as marketing tools.

……Will SNS pose a threat?

While there are tools that let you search for products across multiple sites like Google Product Search and Facebook's tools for merchants, we work together with these technologies and have released our API to Facebook in a move towards achieving this. I think social media companies do not feel their strengths lie in managing business deals, handling deliveries, and other minute details of ecommerce, and thus do not want to devote their energies to such things.

……What are some specific approaches that Rakuten uses for SNS?

We essentially have two strategies. The first is proactive planning. For example, for store owners running their business through Rakuten, we might build a framework for getting a social community interested in the company's products through SNS and miniblogs. This could replace a retailer's traditional e-mail-based method to get their message out. The second is to integrate with a social graph to create opportunities to "Send this to a friend on their birthday" or "Use Facebook connect to find out what a friend likes."

……And this takes the form of sales staff pitching the idea to individual store owners?

We present store owners with a functions package that they are welcome to opt out of. For example, we are currently developing specific functions for Facebook. This kind of thing is fun and allows people to get really creative with it. There are a lot of store owners who have no idea what Facebook is, and I believe that Rakuten's strength to help them understand the opportunity by being clear about the functions we provide as we teach them that "If you do this, you will see sales increase."

……How do you predict SNS will change in the future?

Some people may think that because SNS allow you to send e-mail, search for information, and bring people together, they will come to integrate everything the Internet has to offer. But I don't believe this will be the case. When we look at what makes up our business, we have social graphs and IDs, and we also have APIs that can be accessed throughout the world. What we want is to keep everything open and allow these tools to be used for anything.

……Please tell us about the 3rd Reality concept being advanced by the Rakuten Institute of Technology.

Mori: 3rd Reality refers to the O2O business strategy garnering attention primarily in the U.S and Canada. O2O involves combining an actual physical space or store with e-commerce and expanding economic spheres. SNS play a role in this trend.

……What can be done with O2O?

Mori: Until now, there has been the Internet and there have been retail stores, and people have been turning to online shopping more because they get a certain discount amount. O2O turns this around and encourages people to shop at brick-and-mortar stores by saying "Here's a coupon you can use if you buy from this store right now." There are now services that will tell people when they are out shopping that they "can get this much of a discount if they buy from a different store 100 meters up the street". Things are really moving towards the fusion of things like locative media, e-money, and smartphone.

……Is Rakuten getting into this in some way?

Mori: President Mikitani has mentioned that O2O is coming in the vision we are advancing, and the Rakuten Institute of Technology is actually working on a suitable solution. We will try to complete an experimental study and turn it into a service by the end of 2011.

……What are the technological challenges that will need to be overcome?

Mori: With O2O, we will need to do more than just look at past purchasing data for a person. We will have to incorporate information such as what pages the person has viewed where he/she is actually heading in real life and, using these data, provide recommendations, conduct searches, or provide data together with physical services. From past experience, we have learned that the more source data we acquire the more clicks we get and, consequently, the more efficient business becomes. This means we are going to need much more data than we have ever needed before to support these operations.

……Are you referring to data processing speed problems?

Mori: Yes. Rakuten has built a giant Hadoop cluster and a massive platform using KVS and Cassandra (often called second-generation KVS), and is building a distributed processing platform, all in an effort to keep up with the ever increasing amount of data.

……What other challenges is Rakuten facing?

Mori: One big issue right now is how to tie different pieces of data together. For example, if we could recommend to people who see the movie "Rookies" a CD by the band "GReeeeN"—the band who does that movie's theme song—they would probably buy it. Unfortunately, such kinds of data are not actually linked. This means that if semantic analysis does not show any connections, we cannot make any recommendations. Rakuten is currently engaged in these kinds of step-by-step efforts. While it may be hard going, the fact that no other companies are doing this kind of thing makes it pioneering and interesting work.

……What is the next step you plan to take in building an infrastructure for people's lives?

Mori: Rakuten's member network and virtual store network are powerful assets. For example, in the last five years the Rakuten Card has become one of the most useful in Japan. When it comes to brick-and-mortar business, however, we have little more than a hotel chain. There is definitely room to grow here. For the time being we will be focusing on building up an O2O market in hotels and later connecting that up with the sale of goods. To start, this year we will be using coupons and GPS information from smartphones.

……To finish, where do you see Rakuten in 10 years?

CEO Hiroshi Mikitani: I touched a bit on this at the beginning, but I see Rakuten being able to provide for our customers whether they are shopping, having something delivered, or just in need of information. We have our sights set on making Rakuten a place that allows people to do 80% of what they want to do in their lives, whether that means making travel reservations, concert reservations, or what have you. This is the goal I want to achieve with all of you.