With shopping spree, SoftBank hopes to lay more golden eggs

Softbank's investment strategy has had more hits than misses, helping the Japanese mobile carrier diversify its business

SoftBank CEO Masayoshi Son tells investors in November 2014 that his company wants to be like the goose that laid the golden eggs.

SoftBank CEO Masayoshi Son tells investors in November 2014 that his company wants to be like the goose that laid the golden eggs.

Masayoshi Son, the maverick head of Japanese mobile giant SoftBank, has sunk millions into a taxi app and floating wind turbines, all in one week. It was nothing unusual, though.

Indeed, over the past six weeks, the parent company of U.S. carrier Sprint has invested nearly US$1 billion in companies outside Japan. The bulk of the cash went to Snapdeal, India's largest online marketplace, part of Son's goal of plowing $10 billion into the subcontinent over the next 10 years.

On Friday, SoftBank announced it had taken a much smaller stake, $7 million, in Altaeros Energies, an MIT spinoff founded in 2010 that designs airborne wind turbines. The kite-like devices stay aloft at about 2,000 feet and generate more than twice the electricity of similarly sized tower-mounted turbines closer to the ground. They could also lift other equipment into the skies, for instance providing telecommunications coverage to unconnected regions.

The deal highlights SoftBank's aggressive overseas expansion strategy, which has positioned it to move into the lives of more and more people around the world. As consumer-oriented Japanese brands continue to retreat from the limelight, SoftBank could become the Internet equivalent of what Sony once was for electronics.

SoftBank spokesman Matthew Nicholson said the Altaeros investment opened up opportunities. "We believe that their Buoyant Airborne Technology (BAT) is a promising renewable energy solution that could be used at remote islands and locations in Japan and the wider Asia-Pacific region," he said in an email. "When combined with communication and surveillance technologies, it could also lead to new business opportunities for SoftBank."

That kind of Google-style moonshot play, while small, is very unusual for a Japanese telecom company -- but not unexpected from Son. The upstart innovator introduced the iPhone into Japan in 2008, shaking up the local smartphone market and proving rivals NTT DoCoMo and KDDI wrong about the smartphone's appeal. Apple's iOS now accounts for a 48 percent market share in Japan, according to Kantar Worldpanel.

The company has seen its greatest successes in Internet gambles, from Yahoo Japan in 1996 to Alibaba in 2000, which massively paid off this year. Softbank recently invested in Tokopedia, an Indonesian online marketplace that it sees as representative of the growth potential in Asian online businesses.

Even though SoftBank could count 756 subsidiaries as of March 2014, Son seems to have lost little of his appetite for risk. In one of its more provocative ventures, next year SoftBank is planning to sell a potentially groundbreaking domestic communications robot, Pepper, for only about the price of a high-end PC. Developed by SoftBank's French robot unit Aldebaran Robotics, the droid has been working as a retail assistant for the past few months, helping launch the iPhone 6 in Japan and hawking coffee machines for Nestle Japan, which plans to field 1,000 Peppers across the country.

Not all of SoftBank's plays work out as planned. It was stymied in Sprint's failed attempt to acquire T-Mobile USA amid regulatory challenges. But that doesn't seem to have ruffled Son very much. He has recently trumpeted the success of his $20 million investment in Chinese e-commerce behemoth Alibaba back in 2000, a share that's now worth about $86 billion following its IPO in September.

"SoftBank wants to be like the goose that lays golden eggs," Son told investors at an earnings presentation in November, at which he displayed a large slide of the fabled fowl with the caption "SoftBank = Goose."

"My style of decision making is based on 10-, 20- and 30-year forecasts," he said, predicting that China and India will be the top two economies over the next few decades and that Snapdeal could become the next Alibaba. He pointed to successful investments in Yahoo Japan, video game maker GungHo and telecommunications infrastructure company UTStarcom, adding that over about 10 years, SoftBank has turned a ¥387 billion ($3.2 billion) cumulative investment in Internet companies into ¥11.6 trillion ($96.7 billion).

SoftBank's orientation as an Internet company has benefited its communications business, according to its spokesman, Nicholson. "For example, our partnership with Yahoo Japan played a major role in the success of our broadband service, Yahoo BB, and continues to do so, and our US-based SoftBank Capital invested in Fitbit, whose wearable products are a major component of our SoftBank Healthcare service."

Net income at Softbank for the six months to Sept. 30 was up 37 percent from a year earlier, and the company is hoping that it can continue to benefit from synergies with its network of group companies that have infrastructure, services and content. The biggest millstone around its neck, though, is Sprint, which is struggling to reform its business as the third-largest mobile carrier in the U.S.

"Obviously telecoms (principally Softbank/Yahoo and Sprint) dominates SoftBank's revenue and income, but it stands out from the average telecoms/Internet firm by how strong its position is outside of core connectivity services," Strategy Analytics wireless analyst Philip Kendall wrote in an email.

"It has taken on a real challenge in turning round Sprint and early signs have been promising, but there is a long way to go there. More generally, we are quite early in Softbank's corporate journey -- telecoms dominates today, but it is on a long path to increasingly commercialize and monetize its investments."

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Tim Hornyak

IDG News Service
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