BUSINESSWEEK ONLINE : JANUARY 22, 2001 ISSUE
BUSINESS WEEK E.BIZ -- COVER STORY -- ONLINE EXTRA Son: "It's Still Just the Beginning" Softbank's CEO talks about why he thinks his strategy is perfect for the Net revolution that has a long a way to go Last year was a roller-coaster ride for Softbank and its founder Masayoshi Son. The dot-com bust did grave damage to Softbank's stock. And analysts questioned whether Son should throttle back on his dealmaking to ride out the storm. For the most part, he hasn't. In a string of interviews dating back to March, 2000, Son shared his thoughts on the global high-tech bust, his management and investment strategy, and why he hasn't lost faith with the Net. Following is a compilation of edited excerpts from interviews with Business Week reporters in New York and Tokyo. Despite the Net slump, Son has no plans to slow down: This is the best time to invest. Five years ago when we started [investing in Internet companies], people were skeptical. We believed totally in the future of the Net and were right, while they were wrong. Now, people are very cautious or skeptical about the future of Internet stocks. So again, it's the best time to invest since the prices are very good. He's moving up the food chain: We will continue to stay focused on the Internet because it's making possible the digital information revolution. We started in B2C and are now moving into B2B, broadband, and wireless. I believe that all the networks [wired and wireless] will be interconnected in the future, so we'll be investing with this in mind. Last month, we invested in Thrunet [a cable-modem ISP] of South Korea. It has 720,000 broadband users and is one of the biggest in Asia, big even by U.S. standards. Definitely, its [broadband] business is much larger those of the large carriers in Japan. They have a portal called Korea.com, and we can utilize this. Softbank's investment strategy hasn't changed: Softbank is a global Internet strategic group. We invest, but we're not like most investment companies that just buy and sell. We're not interested in accumulating small stakes. When we invest, we purchase 30% or more in order to strategically incubate or support a company. Then we take it global. In Japan, we own 50% to 60% of a local venture, as is the case with Yahoo! Japan and E*Trade Japan. We provide incubation functions and act as a business partner to set up local operations. We focused from the start on the digital information revolution. The PC, of course, was a big part of it then. At that earlier stage, we provided certain kinds of infrastructure for the industry -- distribution, media, and trade shows. We were neutral to all the technology players. Now, we still focus on a neutral role, but we're helping to bring all the players the Internet. We're not an operations company.... We're not providing the technology ourselves. We're not a technology-product player. We're a strategic holding company, investing in companies that are very important in the digital information industry -- in e-commerce, financial services, and media. We're not just an investment company.... Instead of holding 80% of companies, we're being partners with them. Making deals at the speed of light: It's an exciting moment. We have 85% of the entire Japanese Internet population, so we're providing new users. This is what our potential American partners see when they look at us. They also get three deals in one, since we negotiate not only for Japan but for China and Korea as well. It's not that easy for other companies to do. We get 1,000 business plans every month and choose 10 of them each month. So hundreds slip through. But even if we miss on the first go, we get another chance when we set up a local joint venture. If we set up here [Japan], we take a majority stake. We look at the field, business plan, and what's unique about the company -- its competitive edge, whether it's No. 1 or No. 3, the IPO timing. We make a decision typically in three days. [In the case of Ariba,] the first meeting was held for half an hour on Aug. 31. Then I said let's have dinner and cancelled my other appointments because I thought there's a good likelihood we'll do business. [The next day,] we drafted a letter of intent. Why Son doesn't buy companies outright: If you own 100% of three companies, you have to deal with all the headaches of running them. On the other hand, if you own 30% of 10 companies, the size of your equity is the same but it's a better model. Other companies might want 100%. They're control freaks. But on the Net, everything moves so quickly, so you have to do things differently. I'm not pretending to be an expert. Instead, I identify the most talented leaders of each segment. You can be a partner and help them and bring synergies. He's choosy about where he invests: We are looking at quality in each field. Most of our companies are top in their segment. The Internet is becoming the norm, and our companies are typically No. 1 or 2 in each segment. On creating a "Netbatsu": In the Industrial Age, you had one big company with one big theme, like GM or Toyota. In the Manufacturing Age, mass production was more important. In the Information Age, speed, dynamism, and custom design are important. So having one brand for everything won't work. You need an entrepreneurial spirit. So Softbank's style is not to own one brand. We have 600 brands now, and I want to go on to make 3,000 brands. The difference between Softbank's style and the traditional style is that we are the summation of many entrepreneurial companies.... If you're a control freak, then you own just three companies. But if you're an entrepreneur and speed is important, then you go with smaller stakes in many companies. In the Information Age, the latter type is more successful. I think in 50 to 100 years, Softbank's style will be understood. We are a bunch of entrepreneurs on the growing side.... Because we don't own 100% of companies, we don't have to stay until a company dies. We can move on, depending on the development of technology. Softbank is focusing on Asia: I plan to invest in 100 companies in Asia [other than Japan] within the next three years, and a minimum of 150 in five years. That's because there are so many promising companies popping up, one after the other. South Korea is already Asia's second-largest Net market after Japan. China's Net population may still be small, but in five years I expect it to reach 300 million, compared to 200 million in the U.S. and 80 million in Japan. Son saw the Internet light early on: There was a moment of revelation. We invested in the Novell Japan joint venture and learned about LANs [local-area networks]. Then we had the Cisco Japan joint venture and learned about WANs [wide-area networks], which are the backbone of the Net. So before people were started talking about the Internet, I was already looking at it. I thought it was coming for sure. The question was when and how and who. When Netscape started exploding, I said, "This is it." We were in a good position because we were already in media and technology. We were unique because we had both media and technology in our DNA. It turns out that's essential. And he remains a believer: It's still just the beginning of a big thing coming. It's like the auto industry in the 1930s: The basic cars were made, with four wheels and a steering wheel. But the industry wasn't done. There was still a lot of evolution of the technology, the services, and the businesses around it. With the Web, many evolutions will come. This isn't one product or technology. It will change all of society. It's like bringing electricity to mankind. On Softbank's complicated structure: We are the first all-Net global company. We're the first to go into developing countries with the World Bank. We're playing a leading role in proving this style of business. We've got three layers. In the center is Softbank, a pure holding company.... The second layer is a series of holding companies for the U.S., U.K., the Continent, Japan, China, Korea, and the emerging markets. Then we have several holding companies in Japan -- one for financial services, one for e-commerce, one for technology sites. Each has a CEO and management. They decide what kind of companies to invest in. The third layer is all the operating companies [609 so far]. This is the way to make sure we can move so quickly. Each holding company has autonomy to move quickly and get incentives for their performance. This is drastically different from what others are doing. People can just make investments and have lucky hits. But we've had a strategy and a vision from the beginning, and that makes a big difference. On synergy: In most cases, we have at least one board seat [in the companies we invest in]. So we're plugged into management. You discuss strategy with them, not day-to-day operations. It's the big decisions, like acquisitions, new services, and alliances. We have some level of influence. Another example is Geocities, which our venture fund invested in. We introduced them to Yahoo!, which thought the community idea made sense. Then Yahoo! did a co-investment with us in a later round. And they later acquired Geocities. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS The Last True Believer TABLE: Softbank's Netbatsu TABLE: Softbank's Dealmakers CHART: Softbank's Cash Flow TABLE: Softbank Has Plenty of Cash Available... TABLE: ...And Its Operating Performance Is Improving Land of the Rising Son ONLINE EXTRA: Son: "It's Still Just the Beginning" INTERACT E-Mail to Business Week Online

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