Yahoo, Line aiming to be ‘3rd force’

TOKYO (The Japan News/ANN) - The two Japanese companies are already much smaller than their foreign rivals, and whether they can become a competitive “third force” in the industry will depend entirely on their future strategy. 

A sense of crisis over the growing influence of U.S. and Chinese IT giants led to the merger of Yahoo Japan Corp. and Line Corp. However, the two Japanese companies are already much smaller than their foreign rivals, and whether they can become a competitive “third force” in the industry will depend entirely on their future strategy. 

Synergistic effects

 “We seek the biggest synergistic effect in services,” said Kentaro Kawabe, president of Yahoo Japan operator Z Holdings Corp., at a press conference. 

 Yahoo expects to lure customers to its own services through the Line messaging app that many people use on a daily basis. 

 Line President Takeshi Idezawa said: “There are wonderful services [offered by Yahoo and SoftBank Corp.] that Line doesn’t have. New apps can be created in a very good way.”

 Yahoo has an average of 67.43 million monthly users, and Line has 82 million. Yahoo is popular among middle-aged and elderly people, while Line is popular among young people. Many analysts are enthusiastic about the combination, with one saying the two companies can expect “a high degree of synergy even without merging.” 

 During the press conference, the companies repeatedly emphasized “user convenience.” Kawabe said Yahoo and Line would continue to compete even after the merger in order to refine their services.

Only halfway there

 On the other hand, Idezawa said: “The services we have now only get us halfway there. The question is whether we can create a service capable of expanding explosively.”

 Yahoo and Line face a difficult task in catching up with foreign IT giants. The firms collectively known as GAFA, including Google LLC and Inc., boast sales ranging from ¥6 trillion to ¥28 trillion per company.

 In addition, U.S. companies have spent between ¥1 trillion and ¥3 trillion a year on research and development, a so-called lifeline for IT companies to maintain competitiveness. Chinese companies such as rapidly growing Alibaba Group Holding Ltd. spend several hundred billion yen annually on research and development.

  By contrast, Yahoo Japan and Line have combined sales of only ¥1.2 trillion, with annual research and development costs of about ¥100 billion. “They’re in a different league than us in all areas,” said Idezawa.

Giant in the making?

The challenge after integration is whether the two companies will be able to streamline overlapping services and boost profitability.

 In smartphone payments, both Yahoo’s PayPay and Line Pay suffered losses after each company repeatedly launched refund campaigns to win customers. Nonetheless, smartphone payments account for only 3 percent to 5 percent of all transactions, said Kawabe. As a result, Kawabe and Idezawa said the two brands need to cooperate smoothly while also competing in order to improve customer convenience.

 Few IT companies in the world provide financial services. Yahoo has Japan Net Bank Ltd., while Line has Line Hoken insurance service and Line Securities Corp., the latter of which was jointly established with a major financial institution.

 These businesses are seen as one of their few strengths. However, they are not large enough in scale to compete in the global market.

 The integrated company will have a “spirit of equality,” with Kawabe and Idezawa both serving as chief executive officer, and the same number of personnel from each company assuming executive posts in the new firm. Four outside directors are expected to be added to incorporate objective opinions.

 In case of disagreements between the two companies, a “product committee” will be established at the integrated company to decide on policies regarding development, revision or abolition of important services and products, as well as the allocation of funds. 

 In many cases, quick decisions by top management help IT companies grow. Smooth cooperation and quick decision-making seem to be required for Yahoo and Line to breach the stronghold of leading IT companies in the United States and China.