A High-Growth Business to be Created by a Bold Shift in Business Model
SoftBank’s Enterprise segment continues to be a high-growth business that has posted nearly 10% growth every year since its initial public offering. For the fiscal year ended March 31, 2021, we achieved 29% profit growth year on year. The Enterprise segment has become one of the core businesses driving the Company’s overall performance, but it wasn’t always smooth sailing. SoftBank’s Enterprise segment started in 2004, the year we acquired JAPAN TELECOM CO., LTD. At the time JAPAN TELECOM CO., LTD. was acquired, the company was in the red. Working with my team, we turned the business back on its feet. Before joining SoftBank in 2000, I had worked for KAJIMA CORPORATION, a major construction company, for about 18 years. When I joined KAJIMA CORPORATION, I spent several years working on-site before changing roles to focus exclusively on corporate sales, so it was naturally the sharpest of the skills I had in my skill set.
Let me talk about how we brought our Enterprise segment from an unprofitable business to a high growth business today. Our first priority was sales reform. SoftBank is an information revolution company, so what we sell are cutting-edge technologies. But it’s not easy to sell products that have never existed before. I had to advise the team, “Don’t sell anything that you’ve never used.” When there is new technology, we need to use it ourselves. In addition, we do not only experience it, but also improve it from our experience so that we deliver the refined service to customers. As we have such hands-on experience, we can provide also operation know-how such as “why do I need this tool?” or “how can I use it more efficiently?” Let me give you an example of this approach; we handed iPhones to all Enterprise segment employees in 2008. Following that, we introduced tablets and cloud services, therefore promoting a full-fledged migration to a paperless office. This enabled our employees to work anywhere in the world, and the consideration of environmental resources also took root in their minds. Now every enterprise is pursuing SDGs and building telework environment, but we have taken such initiatives for more than 10 years, because we anticipated the arrival of such an era.
Furthermore, what we have worked on for the past 10 years is a breakaway from simply selling goods—in other words, a complete shift of the business model. Simply selling smartphones would be tough to differentiate ourselves from competitors. We realized that going forward SoftBank would not survive unless it became a service provider. Today we do not tell our customers to use SoftBank smartphones only. We diagnose the most challenging issue that our customers face- the “pain point,” and where the customers are willing to spend money to solve. And then we provide the fully thought out solutions using our technologies to solve their “pain point.” This is SoftBank’s solution-based business model.
Significant Increase in Profit for the Fiscal Year Ended March 31, 2021
For the fiscal year ended March 31, 2021, the Enterprise segment posted a significant growth with 11% increase in mobile revenue and 17% increase in business solutions and others revenue year on year. The segment income increased by 29% year on year. While the rapid increase in demand for telework by companies in the outbreak of COVID-19 has certainly been a tailwind, I think the fact that we have been practicing telework in-house for more than 10 years and that we are seasoned in the optimal tools to use and the operation know-how are the reasons customers chose SoftBank. Some have voiced concern that the significant increase in business solutions and others revenue may only be a fleeting result of the unique demand for telework. But in fact, 70% or more of business solutions and others revenue are recurring revenue that will contribute to a stable growth going forward.
Greatest Strength: Our Dominant Business-to-Consumer (B2C) Platform
I’m also confident of the growth of the Enterprise segment. The global outbreak of COVID-19 has accelerated society’s migration to digitalization. We are approaching the “age of hyper-digitalization” in which all aspects of a person’s daily life will be digitalized. SoftBank’s Enterprise segment is competitive mainly in two areas: one is that we can propose solutions that resolve the “pain point” an enterprise faces, and the other is that we have the dominant B2C platforms. Yahoo Japan’s portal site and e-commerce service, LINE’s messaging service, and PayPay’s payment service each have tens of millions of user base. SoftBank is the only enterprise in Japan that holds both strengths.
Then, why is a B2C platform so important for the Enterprise segment? The advent of a hyper-digitalized society means that as people’s daily lives are digitalized, enterprises will need to provide online services. Even if an enterprise gets to the point of creating a service, quite a few of them face the problem of how to deliver that service to mass users. Most enterprises launch an application in-house and then face unaffordable costs in order to make it widely available to the public. SoftBank is the company that can resolve this pain point. If a service is deployed on our established platforms such as Yahoo Japan and LINE, the service can easily and instantly reach tens of millions of users. But this does not mean that all an enterprise needs to do is to partner directly with Yahoo Japan and LINE. Placing SoftBank as intermediary between the enterprise and the platformers allows us to provide all the systems necessary to operate the service, from the cloud to the device as one-key solution. The important thing lies not just in creating a service but in operating it competently. SoftBank’s capacity to simultaneously provide service platforms with massive user bases and the systems to operate the services leads to our dominant market position that outpaces the ability of other consulting firms and system integrators.
Huge Opportunity in IoT and Digital Marketing
As we seek the future growth in the Enterprise segment, we are paying attention particularly to IoT. Soon after 5G becomes widely available and communications among things become mature, how the data generated can be utilized will become a key matter for each industry. Actually, last year, we entirely made our new headquarters a smart building, in keeping with our motto of selling things after using them ourselves. Over 1,000 sensors were installed, and the data captured is analyzed by AI to support office optimization and is also provided to surrounding commercial facilities and their customers. The idea is to make our new headquarters as a model case for a smart building and to expand the smart building and smart office business. Sometimes we are asked exactly how the smart building business can gain profit, but if data utilization becomes the norm in society, we believe that user fees can be charged for data platforms as utility fees like those for water and electricity.
IoT will spread beyond the office to all kinds of places like factories, retail outlets and stores. All enterprises in Japan will start to think about how they can make use of data. When that happens, SoftBank will be ready, waiting with open arms.
The Company anticipates huge opportunities in the digital marketing area as well. In practice, digital marketing refers to the digital advertisements that enterprise customers place on our Yahoo Japan and LINE services. However, the backbone of marketing lies in the analysis of the many kinds of data that can be obtained through advertising and the next action plan that can be linked effectively to such analysis. SoftBank engages in consulting for such data analysis and utilization. We are training employees to improve their skills in making proposals and are pro-actively seeking partnerships with enterprises that have track records in digital marketing. The Enterprise segment has taken responsibility for the highly value-added consulting portion of the business, and we anticipate a significant growth to continue in the digital marketing sector.
The Enterprise segment is also promoting Beyond Japan initiatives to expand established businesses in Japan to overseas markets. As a first step, we invested in Axiata Digital Advertising Sdn. Bhd., a digital marketing company that does business in 10 Asian countries. Our aim is an “asset-light” efficient expansion of our services overseas with minimal costs by collaborating with standout overseas enterprises.
Issues to Tackle: Information Security and Human Resource Training
SoftBank is expanding its businesses significantly and simultaneously taking every measure available to manage risks. Among risk factors, information security is extremely important to the Enterprise segment in delivering cloud, IoT and digital marketing services. The importance of data management is ever-increasing particularly in B2B2C businesses because they involve handling of the personal information of individual customers. At SoftBank, our Chief Data Officer (CDO) oversees the CDO Office that establishes strict rules to carefully control the data handling. As information security can never be 100%, we work day to day with constant consciousness of information security and strive to improve and strengthen it.
Another area we’re taking initiative to move our business to the next level is human resource training. In a solution-based business model, the key for success lies in how accurately we can find the “pain point” an enterprise faces. When we used to use the so-called telecommunications sales approach, we simply sold items to the information technology department in an enterprise, but that’s not enough in the solutions business. You have to gain deeper access. Unless you read and digest everything from the financial statements to the mid-term plan to understand what the management are thinking, it’s impossible to design a solution. That’s why the Enterprise segment makes a variety of training programs available from finance to consulting, so that each sales person can benefit from daily training that teaches them to see things from the management’s perspective. Although I say solution, the business environment differs significantly industry by industry. That’s why we build industry-specific teams which focus on further deepening their expertise in the industry. Right now, we face an urgent need to retain human resources who can become immersed in an enterprise to restructure the business process itself, so we’re speeding up the pace of internal training and looking for outside talent. Development and retention of digital talent is essential to the growth of the Enterprise segment going forward, so we continue to pursue this as a top-priority.
SDGs and the Enterprise Segment
SoftBank’s corporate philosophy is “Information Revolution — Happiness for everyone.” As the world engages in initiatives to reach the Sustainable Development Goals (SDGs) set forth by the United Nations, SoftBank needs to constantly think about what solutions we can provide to enterprises and municipalities in Japan.
For example, we sometimes receive requests to learn how to use 5G to automate factories and to operate more efficiently. Combination of 5G communications and AI visual analysis could certainly be a relatively simple way to automate the tasks now performed by employees. However, when heavy data like a video is just randomly uploaded to the cloud, a massive amount of electricity is required. This process totally goes against the global efforts to achieve carbon neutral. SoftBank is a company that pursues SDGs through our business. For this kind of problem, SoftBank would combine the edge computing and the cloud, take into account the need for automation and reduction of environmental impact, and propose an optimal solution. I think this solution would lead to sustainability of our enterprise customers.
Enterprise Segment Income Target for Fiscal Year Ending March 31, 2023: ¥150 Billion
To achieve ¥150 billion segment income target for the fiscal year ending March 31, 2023, we need to continue an annual growth of nearly 20%. It’s definitely not an easy goal to attain, but we believe the growth in business solution and others as well as mobile could make it possible. With respect to business solution and others, I already noted that the percentage of recurring revenue is high. Similarly, mobile communications services for enterprise is in fact an excellent, cost-effective business with high profitability. But, since our sales has already shifted to a completely solution-based model, we don’t offer clients to adopt mobile service alone. Our total solution including cloud, security, VPN, IoT, and many other services tends to create a flow in which the client naturally comes to SoftBank for smartphones and tablets. The more we expand the solution business and others, the more mobile contracts increase. I think this is the result of the successful shift of our business model. I’m confident that SoftBank’s Enterprise segment can grow further even after the ¥150 billion target is reached.