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Yahoo Japan and Line merge: can they stand up to Google and Facebook?

By Connor Freitas

Yahoo Japan and Line are hugely popular in Japan, but lack appeal globally. Will their merger change this?

Japanese tech companies have felt under threat for quite a while. Compared with the likes of Facebook and Google, they are massively outgunned in terms of size, profitability, and all-important research and development projects. There have even been fears that some of the best-known Japanese brands could disappear altogether unless they join forces and become a force to be reckoned with – not just at home but around the world.

All of this has led to the blockbuster announcement that Yahoo Japan and Line are going to merge in a deal that’s worth an estimated $30 billion. Yahoo Japan was recently rebranded as Z Holdings by its parent company SoftBank, and the conglomerate was clear that it regarded its approach for Line as necessary for its survival. Although both brands are exceedingly popular in Japan, they are rapidly losing ground to internet firms in the US and China, and gaining a bigger foothold in Asia is regarded as instrumental for the future.

Yes, Yahoo Japan and Line’s merger is a marriage of convenience, but this doesn’t necessarily mean that it is a bad decision. It will bring together the country’s largest search engine and messaging app in one place, with plenty of opportunities to tap into the Taiwanese market and economies across South East Asia. Analysts have warned that the tie-up will leave other Japanese brands, such as Rakuten, with “a very big headache”.

How Yahoo and Line stocks reacted

It is worth bearing in mind that Yahoo Japan is now completely separate from the Yahoo brand worldwide. The whole situation involving the once-dominant internet company has been rather curious – while the brand has struggled to maintain relevance internationally, its appeal has endured in Japan, and the company’s Japanese homepage is a crucial piece of real estate that marketing managers would give their right arm to get a client on.

In the aftermath of the announcement, news of the merger was warmly received by investors. When reports first emerged on 13 November, Z Holdings’ share price soared from 384 yen to 449 yen when trading opened the following day – an increase of almost 17 per cent. The Line share price enjoyed an equally healthy 15.3 per cent bump, from 4,585 yen to 5,290, on the same day.

Analysts have been unequivocal about the benefits of their partnership. Data is king in the internet world and pooling their resources together would give Z Holdings and Line much more of an upper hand during tough negotiations with advertisers. Margins would be given a much-needed boost because of the synergies and efficiencies that can be unlocked in a merged company, and services from one brand can be cross-sold to the other.

Yahoo Japan and Line also have big visions for the future. They’re set to collaborate on everything from telecoms to internet search – not to mention big-picture stuff such as artificial intelligence and mobile payments.

Both companies are particularly well-placed when it comes to m-commerce. Last year, SoftBank and Yahoo Japan launched PayPay, and the conglomerate has been pouring hundreds of millions of dollars into building the platform. The service was launched in direct response to the country’s goal of making the economy increasingly cashless, with a target to double the number of digital payments from the current level of 20 per cent by 2025. Its new partner also has Line Pay, which was embraced by an estimated 32 million people in Japan as of May 2019. While Yahoo Japan was running a PayPay promotion worth $91.7m to entice new users, Line had devoted more than $270m to a campaign where current users could give away $9 to their friends. Now, they’ll be fighting the good fight together.

It is hoped that the deal will be finalised by October 2020 – and from here, the newly merged company will have its work cut out to see off the threat of GAFA (the term used to describe Google, Apple, Facebook and Amazon collectively) and BAT (China’s Baidu, Alibaba and Tencent). Initially, the vision appears to become a ferocious third-place competitor to these two formidable groups, driven by sizeable levels of investment to deliver tangible improvements to areas such as personalised advertising.

The Yahoo Japan and Line tie-up is definitely a risk, but given the climate of pessimism and fear in the country’s tech sector at the moment, it could be argued that both companies had little choice but to make the plunge.

FURTHER READING: Softbank to create $30bn tech giant with new merger

FURTHER READING: 5G explained: How different is it from 4G, and when will it arrive?

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