May 20, 2010, 3:20 PM

Japan`s Rakuten agrees to buy Buy.com for $250 million

Japanese Internet portal Rakuten today announced it has reached an agreement to buy Buy.com for $250 million. Rakuten says the combined company will offer consumers more than 60 million products from nearly 35,000 merchants worldwide.

Internet Retailer
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Buy.com will focus on building its marketplace, says CEO Neel Grover

Japanese Internet marketplace operator Rakuten Inc. today announced it has reached an agreement to purchase online general merchandise retailer Buy.com for $250 million.

Buy.com, No. 32 in the Internet Retailer Top 500 Guide, says it has more than 12 million customers. The retailer sells directly to consumers, and operates a marketplace that it says accounted for 46% of its fourth quarter orders. The retailer sells in Canada, France, Germany and the U.K.

Rakuten operates Rakuten Ichiba, a Japanese marketplace that combines shopping and entertainment and focuses on individual merchants developing relationships with shoppers.

Rakuten also owns the New York City-based LinkShare affiliate network, which it bought in 2005. But the acquisition of Buy.com will give Rakuten its first major direct-to-consumer platform in the U.S. Rakuten says the combined company will offer consumers more than 60 million products from nearly 35,000 merchants across the globe.

“As we evaluated how to accelerate our global expansion, it became clear that a partnership with Buy.com made perfect sense,” says Hiroshi Mikitani, Rakuten founder, chairman and CEO. “As a company, Buy.com shares our vision for the future of e-commerce, as a platform to give consumers the best value no matter their location, and to merge shopping with entertainment, and to help retailers build deep and lasting consumer relationships.”

The new owner of Buy.com left little doubt as to his target: the online marketplaces operated by Amazon.com Inc. and eBay Inc., through which thousands of Internet retailers sell.

“On Amazon or eBay you feel like you’re just listing your products on their marketplace,” Mikitani told Internet Retailer today shortly after he arrived in the U.S. “We share the customer with our merchants.”

Mikitani says Rakuten in Japan provides shoppers’ e-mail addresses to merchants who sell through its marketplace, give retailers freedom to design their web stores and not just pick from design templates, and allows merchants to offer rewards points for Rakuten purchases, all options Mikitani says Amazon and eBay don’t offer retailers selling on their platforms.

As for Amazon, Mikitani says, “They will become your competitor if you sell your product well.” Rakuten only sells a certain items on its own behalf, mostly books and CDs, and makes most of its money from sales by other merchants on the Rakuten marketplace. Rakuten Japan’s online sales totaled more than $9 billion last year, and $14 billion when travel purchases are included, Mikitani says. The company also offers consumer credit.

The marketplace is clearly Rakuten’s focus, more so than Buy.com’s business of selling electronics and other items directly to consumers. “We’ll continue to expand our first-party business, but really develop our third-party marketplace business,” says Buy.com CEO Neel Grover.

The acquisition of Buy.com is part of Rakuten’s strategy for growing rapidly beyond Japan. Rakuten recently has announced a joint venture with Baidu, China’s leading search engine, another joint venture in Taiwan and bought Thailand’s leading e-commerce company, Mikitani says.

As part of its international expansion plans, the company decided this year to hold all internal meetings in English. “The key success factor is how we can transfer expertise from one organization or country to another,” Mikitani says. “If we keep communicating in Japanese it’s going to be very difficult to create the active communication between one organization in Japan and another in the U.S. or an Asian country.”

Combining Buy.com’s existing approach to e-commerce with Rakuten Ichiba will bring a marketplace that is distinct from those of eBay and Amazon, says Scot Wingo, CEO of online marketing service provider ChannelAdvisor Corp. “If comparing Amazon and eBay is like comparing apples and oranges, they’re looking to introduce watermelon to the market—something completely different.” The experience will be distinct because Amazon operates as a first- and third-party seller, eBay is a third-party seller that aims for consumers to identify with the eBay brand rather than those of individual merchants, while Rakuten prefers to facilitate a direct relationship between its merchants and consumers, he says.

Buy.com already takes a different approach to its marketplace than its rivals because it takes an active role in promoting third-party sellers’ products throughout its site, says Eric Best, CEO of Mercent, which facilitates retailer sales through online marketplaces like Buy.com, Amazon.com and eBay.com. For instance, one image on Buy.com’s rotating home page banner says “Suit up for summer” and features a bikini. Clicking on the image brings a shopper to its swimwear category page where several of the items are shipped by Tilly’s, a merchant that sells on its marketplace. Rakuten’s influence could lead to even greater exposure for merchants selling through Buy.com, says Wingo.

Buy.com says its number of fourth quarter marketplace orders increased 146% over the prior year. With Rakuten looking to invest heavily in Buy.com’s marketplace, that growth could accelerate, particularly if Rakuten can lure LinkShare affiliates to sell through Buy.com, Wingo says.

Buy.com is the top seller on eBay.com and also sells on Amazon.com, according to ChannelAdvisor. But whether the deal will have an effect on other marketplaces, including eBay, remains to be seen, say both Wingo and Best. “Even if Buy.com left eBay’s platform it wouldn’t make a dent in eBay’s sales,” says Wingo.

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