Rakuten: The biggest e-commerce site you haven’t heard of with a market cap of $13.5 billion and annual sales of over $4 billion

Rakuten: The biggest e-commerce site you haven’t heard of

March 22, 2013: 10:50 AM ET

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Rakuten CEO Hiroshi Mikitani heads one of the oldest and largest e-commerce sites in the world. He stopped by Fortune to talk about its unique model, plans for expansion and its battle with Amazon in the global market.

By Omar Akhtar, reporter

FORTUNE —  Hiroshi Mikitani, CEO of the Japanese e-commerce site Rakuten stopped by theFortune offices to promote his new book Marketplace 3.0: Rewriting The Rules Of Borderless Business, where he outlines his company’s strategy for globalization.  Founded by Mikitani in 1997, Rakuten is the largest e-commerce site in Japan and with a market cap of $13.5 billion and annual sales of over $4 billion; it is one of the biggest Internet companies in the world.  In the U.S., it bought Buy.com for $250 million and rebranded it to “Rakuten.com Shopping” earlier this year.

Why it’s not Amazon

While it has been called the “Amazon.com of Japan,” Mikitani says that comparison wasn’t quite accurate. Amazon’s (AMZN) focus has always been on the product and the customer, by improving distribution and choice. For Rakuten, it’s more about the shopping experience itself. The company works on the principle of “Omotenashi,” which is the Japanese concept of providing high quality and personal service. “In Japan, if you go to a local coffee shop, or a grocer or any local business, you will find a very high level of personal service,” says Mikitani. “The internet should be that way as well.”

Mikitani says Rakuten tries to create a personal shopping experience for its users by allowing each seller on the site to customize their page with unique layouts, pictures and promotions.  The vendors can then edit and update the page constantly as well as communicate directly with the customer. “We want to make them feel like there really is a person in there,” says Mikitani.

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To underscore the comparison, Rakuten’s promotional material shows picture of a vending machine with several different brands signifying competitor models and a picture of a roadside market with many different stalls and products to signify its own model. “We want to avoid standardization,” says Mikitani. “We’re creating more stories, experiences and communication between people who buy and people who sell.”

A big site for small companies

With nearly 90 percent of Japan’s Internet users registered on Rakuten, retailers wanting to reach the country simply can’t afford to not sell anything on the site. Currently it hosts 40,000 different businesses and services.

While it has pages for major companies such as Toshiba, Adidas and Forever 21, Rakuten built much of its business by providing a point of sale for small businesses and local entrepreneurs. It’s a similar concept to Etsy, only Rakuten is 17 times larger and 14 years older. “Etsy and Fab really should have closely studied Rakuten before they started,” says Mikitani with a smile.

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Mikitani cites an example of a local farmer who approached him with the novel idea of selling eggs on the Internet. The farmer believed that customers would pay a premium for higher quality, organic eggs that were guaranteed to be fresh. Using the Rakuten platform, he posted pictures of his feeding process, proving the eggs were organic and showcasing his practice of delivering eggs the day they were laid. Customers responded in a big way and Mikitani says the farmer currently makes “more money than many Internet startups, selling only eggs.”

Rakuten’s system of providing rankings for its sellers is hugely influential in their success. “We are really an incubator, people trust our curation,” says Mikitani. “We see our role as amplifying the characters of the shop.”

The company also offers training for less Internet-savvy vendors by offering them classes on digital photography, online design and marketing.

Plans for global domination

It might avoid comparisons to Amazon, but that doesn’t mean Rakuten isn’t afraid to take it on. The company has made several strategic acquisitions to compete with the e-commerce giant on several platforms. Last year it acquired Canadian ebook reader company Kobo, which has the best selling e-reading platform in Canada and is quickly gaining market share in Europe. It also bought Wuaki.tv, a Spanish on-demand streaming video service that could challenge Netflix or Amazon Prime, especially in Europe.

Along with acquiring Buy.com in the U.S., Rakuten has bought out e-commerce sites in Germany, Brazil, France, Thailand, Malaysia, Indonesia and Taiwan.

One of the more interesting deals the company has made is a $50 million investment in Pinterest. Mikitani says Pinterest’s idea of personalization and creative curating made it the best social media network for an e-commerce company like his. “Creators of demand like Pinterest will become more important than those who provide the final transaction,” says Mikitani.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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