How the ‘Amazon of Japan’ plans to drink from its data firehose

Jayadevan PK September 18, 2017

Twenty-year-old Japanese internet firm Rakuten has big ambitions. It now has $7.2 billion revenues, 1.1 billion members and over 70 different services ranging from credit cards to e-commerce. By 2020, it wants to nearly double the number of Rakuten members to 2 billion.

At the core of its strategy, is a plan to soak up data from across the world and tailor its products based on the knowledge it acquires from it. For instance, the company’s recent $10.2 million investment in Airweave, a smart mattress maker. The idea is to use customer’s sleep data to design other products and services around it.

Rakuten even makes investment decisions based on the data it gleans from various sources. Take the instance of how the Japanese internet firm got convinced to invest in Lyft when it saw data from Slice Intelligence, a company that it owns.

This is how it happened: Slice Intelligence owns Unroll.me, an e-mail based service that allows users to easily unsubscribe from mailing lists. Unroll.me can scrub a user’s inbox for purchase receipts (in this case Uber or Lyft receipts) and gather that anonymised data back to Unroll.me. This data helped Rakuten figure out that Lyft was a bet it wanted to make.

We recently caught up with Yasufumi Hirai, Group Executive Vice President, CIO, CISO and Head of the Technology Division at Rakuten, and Sunil Gopinath, who leads Rakuten India, to understand how the company is looking to use data as well as newer technologies like artificial intelligence and machine learning as it realigns its strategy from competing with industry leaders such as Amazon to the becoming a “global innovation company”. Edited excerpts from the interview. Gopinath’s answer is specifically highlighted; all other answers are by Hirai, a Microsoft, Cisco and IBM alum.

Tell us about your data-driven strategy.

We adjusted our vision from (to become) the number one internet company to be the global innovation company last year. A key driver that will lead us to become a global innovation company is memberships and data. Today, we have 1.1 billion Rakuten memberships worldwide and we have petabytes of data available. Customer profile, transaction data, services, we even use data for venture capital investments.

Memberships and data are the critical components for us. We are trying to reach 2 billion memberships worldwide by the end of the year 2020. We just established a global data office both in Tokyo and San Mateo in Silicon Valley to streamline all the different business processes around data. Data creation, gathering, curation, governance and utilisation.

How do you see Rakuten shape around data?

Data can be the next generation natural resource for the world. Those who own the data and those who freely utilise the data can win the market. Having said that, we are utilising data for specialisation for users, appropriate decision-making for investments. We may be able to sell our data to external partners.

How do you make investments with data?

We are using data for VC investments in many ways. But I’ll give you one example. Rakuten is the largest shareholder in ride-sharing company Lyft. When we made that decision, we had data through a group company called Slice. Obviously, we recognised they can be growing the business compared to their competitor in the market. When we acquired equity in Lyft, they had only 5% of market share. Now they have over 30% and are going head to head against the other company .

How do you use data internally to grow memberships?

First, we established a dedicated organisation for data called Global Data Office. They manage end to end business processes around data. The key is how we streamline the data processes so that we can identify the key indicators, market and consumer trends and individual transaction behaviours. We can, for example, design very personalised campaigns real time along with geolocation and weather data to increase transactions. That would contribute to better customer satisfaction.

How are you leveraging newer technologies like Blockchain?

Rakuten has a full line of fintech services including credit cards, securities, banking, life insurance and electronic money called Edy. Also, we invented the small device for payments at shops called Rakuten Pay. Rakuten card will become the largest credit card company very soon in Japan with more than 20% year on year growth.

Blockchain could be one of the key technologies for us to look at. We established Rakuten Blockchain labs in Belfast, Ireland last year in August. If we combine all those parts, Rakuten can be the common currency for the world.

What’s the scale at which you operate financial services?

In Japan, we have approximately 13 million Rakuten card holders. We have Rakuten card in Taiwan, Ichiba and Kobo ecosystem services. Our strategy is to expand the ecosystem in each country, region and geography.

How does Blockchain technology benefit Rakuten?

Blockchain can be the base for payment systems. Also, we can use the technology to certify and notify the end user profiles. For example, vacation rental is emerging as part of sharing economy even in Japan. The government just passed the regulation to open the vacation rental market. We established a joint venture with a company called Lifull. If I rent a room, I need to get certified to get a key. Blockchain can be used to authenticate the person with face recognition, fingerprints or any other profiles that I have registered on multiple different sites. We are actually using that.

How long has it been since you’ve been using that?

We just started.

Data forms the base layer for AI and ML systems. How are you looking at these newer technologies being used at Rakuten?

We have the R&D function called Rakuten Institute of Technology where we have more than 50 PhDs in Tokyo, Singapore, Paris and Boston. They specialise in machine learning and deep learning. In particular, image recognition. Last year, Rakuten Image technology developed by RIT was way advanced than Google and Microsoft.

They are working on unique algorithms for artificial intelligence. Once it gets proved in POCs (proofs of concept), we commercialise them into real services. Then Rakuten India will play a critical role.

Sunil Gopinath, CEO, Rakuten India

Sunil Gopinath: We already built a fashion recommendation app for our users in France using the technology developed by RIT. Let’s say somebody takes a picture of a particular dress. The image recognition software looks at the kind of the dress, its quality, material and immediately finds related dresses that it can recommend on Rakuten Ichiba platform. This is all machine learning. We don’t have to necessarily build all the machine learning algorithms. For us, it’s about using it for different applications. Similarly, RIT has built chatbot and technologies that we use to automate IT questions. Like when can I get my laptop, I need a mouse and so on. We use it to automate a lot of it.

Hirai: Drone can be one of the alternative transportation and logistics for us. To land the drone in a certain place, we are using GPS. In addition, we use image recognition technology developed by RIT to pinpoint the landing within plus or minus 2 meters. Once the drone captures the Rakuten landing point, bam! That’s commercialised in Japan.

When you say commercialised…

It’s still under POC. But we have already proved that technology with Chiba city in Tokyo through a public and private partnership.

How do you see drones shaping logistics in the future?

The drone can be used for logistics all over the world in particular places where they have difficulties with automotive. But still, deregulation is strongly required to open up the market.

Do you have any plans to get into retail in India?

Unfortunately, we have no plans right now. We position Rakuten India as a global innovation and globalisation centre.

Is this a market you should be looking at?

Definitely, but right now we don’t have any specific plans. We are interested in the huge population in India. Right now, we have Viber with 40-50 million unique users and we have Viki Services for Korean and Chinese dramas.

How do you think big corporations should look at AI from a strategy perspective?

We studied our artificial intelligence journey with chatbot deployment. Out of over 70 services we have, almost 30 services will be enabled with AI chatbots by the end of this calendar year. The objectives are to improve customer satisfaction significantly and also sales productivity. We’re partnering with IBM Watson to enable those AI chatbot engines. RIT is inventing their own proprietary algorithms in machine learning and deep learning. Once it’s proven in certain businesses, we aggressively deploy it wider in the portfolio. Eventually, we have to move to AI assist phase. I mean AI would help a business decision maker to make the right decision real time, adjust our strategies and create even more business opportunities.

 

Photos: Rajesh Subramanian
Infographics: Nikhil Raj

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