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GMO targets #1 ISP slot

Interview - February 10, 2016

Over the past 25 years GMO Internet Group has blossomed into Japan’s leading internet service provider with an impressive 87 subsidiaries and a fast growing client base. Its brainchild and CEO Masatoshi Kumagai shares the drivers behind the company’s 115% yoy growth in net profits and its strategic focus for 2016.

 

MASATOSHI KUMAGAI, FOUNDER AND CEO OF GMO INTERNET GROUP
MASATOSHI KUMAGAI | FOUNDER & CEO OF GMO INTERNET GROUP

What makes you different from your competitors?

The three things that set us apart from the competition are:

1.            We have the best engineers in the industry. This is something we are very proud of; it makes a huge difference. It makes THE difference compared to others.

2.            The speed of our activities. We are working at a very fast speed compared to our competitors.

3.            Our goals. Within our group we have goals that are shared amongst all the employees. These goals have been set at the foundation of the company. So it’s in our bones.

 

In your view what are some of the ways in which you are able to pass on competitive advantage to your clients?

Having the best engineers to work with. Besides, the “speed” is really the key in the internet industry.

 

How would you evaluate GMO’s socio-economic contribution to date?

We are the company that has most contributed to growing the amount of information on the internet in this country since the foundation of our company. This is very important in today’s knowledge and information-based society. By doing so, we believe we contribute to the wellbeing of society. Because the more information you have means the more information you can work with, which makes your life a lot more convenient.

 

The company’s vision is to become the no.1 internet company, one that redefines the internet space – how do you go about realizing this vision?

We are the infrastructure provider, growing as a company means that the internet itself is growing as well.

 

What are the core factors behind your impressive 115% year-on-year growth in net profit?

The reason for having this impressive growth is mostly our business structure. Half of our revenue is coming from the infrastructure business. In other words, these are the stock revenues. To clarify, we acquire customers, we keep them satisfied, and our customers remain with our company. As a result, we are having good retention year-on-year. Besides, new customers kept on coming to us, so our base was growing.

The other half of our revenue is coming from the securities business. This is what we use to invest in other businesses. The way our company is structured allows us to grow. As a result, we have double-digit growth on a year-on-year basis.

 

What is the group’s core strategic focus as we move into 2016?

On one hand we are continuing to have double-digit growth. That’s always what we promise our customers and we are confident and proud to do this. On the other hand, we aim to increase – we are one of the FINTECH companies, and we will be enforcing our financial businesses, amongst others, and the security and banking business.

 

What steps do you think are required to realize Mr Abe’s aim of making Japan the best place to do business in the world?

The first change we would like to see is regarding the regulations for doing businesses online. We have one of the fastest internet speeds in the world, however in terms of regulations there are too many that hinder doing business online. Fortunately, the government is thinking about changing these regulations. Nevertheless, we need the government to be faster in changing the regulations and laws. It is not as fast as how we would like to see it.

The second change is very simple: the taxes. At the end of the day we retain less money compared to companies in Singapore or Hong Kong. 

 

What is your opinion on Japan’s competitiveness and innovation ability, especially when looking at the internet and mobile space?

Compared to other innovative countries in the world, such as the USA, Japan traditionally has a culture where we don’t really give credit to the people or companies that are successful. This is a cultural thing: it’s all about being modest. So we think, when you tell your own stories, it looks like you are not very modest. As long as we keep on having this mentality, we think it is difficult for new entrepreneurs to come out and see the kind of successes you find in the USA. For example: Bill Gates is a hero, but if he had been Japanese, he may not have become a hero here. 

In addition, when we look at our history, the Japanese were not really allowed to look at others, so it is kind of in our Japanese bones. For example, when you speak the Japanese will not look at you in your eyes. Usually they will look down. This is because we think it is modest to do so.

 

Your foresight enabled you to enter the internet services market in the mid-1990s; you obviously have an eye for predicting trends. What do you forecast over the coming decade and how have you positioned GMO to take advantage?

There is no doubt that the internet is experiencing an industrial revolution. Looking back at history, they tend to last for 55 years. However, the internet started roughly 20 years ago and we believe there are still 35 years left in this cycle. Besides, we believe that anything that is connected to electricity and living forms, will be connected to the internet.

In addition, data will be accumulated, in other words “big data”, which will be analyzed moving forward for efficiency. Good examples at the moment are Airbnb and Uber; they are using resources in the most efficient way and we believe that this trend will continue for the next 35 years. Besides, we think that the trend will go further to other categories in the future; every product or service that can be connected to electricity will be reinvented. Look at Tesla, the smartphone of cars, or the robot Softbank is using.

 

What is GMO’s globalization strategy and what are some of the ways in which the group can enhance its international presence and exposure?

We expand our business with a strategy of choosing markets we can dominate. We pick and choose our product in the market we are in. Compared with Japan, the English-speaking market is 14.6 times larger, which means that their companies have at least 14 times more profit than we have, doing the exact same business. So for us, it does not really make sense to compete with them; it is very simple, but that is what it comes down to.

 

How do you believe the best way would be to enter the competitive US market space?

We would enter the US market with number one products. SSL is the only product we believe makes sense for the US market right now. We do have an office in the US where we provide SSL, and the business is doing great so far.

 

What are your expansion plans and growth strategies when looking at other international markets?

Our expansion targets are the non-English speaking countries, and our office in Singapore will become a hub for global operations. We started already our expansion there. Regarding our branding strategy for the new Asian markets, we are currently finding out what the best way is to market our brand.

In addition, if we look at achieving our goal, as stated in the beginning of the interview, GMO is barely at the start line of achieving its core goal. So we sincerely do not believe that we are successful, we still have a long way to go. If I could say something to the younger version of myself, I would say: “Study harder, work harder and run faster.” 

 

What is your final message to our international audience?

“If you do believe in yourself, miracles do happen. We do believe that you can achieve your goals if you believe in yourself. We are not there yet, but we are on the right track and we will continue as much, as fast and as steady as we can.” 

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