Tokyo

A sense of crisis about the strength of overseas information technology giants such as Amazon.com Inc. apparently hurried Yahoo Japan Corp’s parent, Z Holdings Corp, and free messaging app provider Line Corp. into deciding on their business integration to create Japan’s biggest internet service group.

But it will not be easy for the new Japanese group having some 100 million users in total to break the dominance of Google LLC, Apple Inc., Facebook Inc. and Amazon.com, collectively known as GAFA, which have solid customer bases around the world, industry watchers said.

Capitalization gap

“Yahoo Japan alone isn’t large enough, and we’ll be swallowed up by GAFA if we do nothing,” said a close aide for Masayoshi Son, chairman and chief executive officer of Softbank Group Corp, which owns Z Holdings, describing Son’s crisis mentality.

GAFA have grown by centralizing a variety of online services, including financial and internet shopping services, on a single platform so they can collect gigantic amounts of personal data and earn huge profits from advertising tailored for each user.

Network effects are the driving force behind the growth of GAFA, with their scale expansion prompting data accumulation and enhancing users’ convenience.

For example, Facebook, whose users total some 2.4 billion, has a market capitalization of approximately 60 trillion-yen, way higher than the combined market capitalization of 3 trillion yen for Z Holdings and Line.

In recent years, Chinese internet giants Baidu Inc., Alibaba Group Holding Ltd. and Tencent Holdings Ltd., collectively called BAT, have achieved rapid growth, thanks to China’s massive domestic market and support from the Chinese government.

In 2000, Softbank Group’s Son, who prides himself on his expertise on investment, put 2 billion yen into Alibaba, which was an obscure company at the time. Following later additions of investment, the value of Alibaba shares held by Softbank Group has swelled to some 13 trillion yen.

Through the investment in Alibaba, Son keenly sensed the attractiveness of accumulating customer data. According to Z Holdings President Kentaro Kawabe, Son said he agrees 100 pct with the Yahoo Japan-Line integration plan, and the plan should be carried out swiftly for the sake of Japan and Asia.

Third-largest force

Although Yahoo Japan and Line are both well known in Japan, and their services are used by a number of Japanese citizens, their growth potential in the Japanese market is limited as the country’s population is rapidly aging and continues to decline.

In order to break away from being a lion at home and a mouse abroad, the two companies face the need to come up with strategies for expanding their overseas operations.

Currently, Line offers settlement and news distribution services, in addition to its mainstay free messaging app services, in Taiwan, Thailand and Indonesia.

“We’ll aim to first grow in Asia and then become the third-largest force next to GAFA and BAT,” said Line President Takeshi Idezawa.

In April-September, Softbank Group suffered its first fiscal first-half operating loss in 15 years, due to massive valuation losses on its investment, including in the WeWork office-sharing business.

But Son kept up a brave front, saying, “I do feel responsible, but won’t shrink back.”

As expanding the sphere of its business operations is widely viewed as indispensable for a company to compete with rivals in the world, attention is focused on what further steps Son will take, possibly including merger and acquisition deals, and business tie-ups, to cut into the dominance of GAFA.

Jiji Press