At last Son was a bona fide media baron and a computer-industry power broker.
With control of a third of Japan's software market and the world's leading technology publishing company, Softbank had an easier time securing investors and financing for Son's accelerating wave of acquisitions. With the stated ambition of turning Softbank into a digital “zaibatsu”, an industrial complex focused on digital technology, Son began snapping up stakes in tech startups at the pace of several each month. Among the most important were a 37% stake in Yahoo and a controlling interest in E*Trade. In 1995 Son had enough credibility with investment bankers to pay $900 million for exhibitor Comdex, then a year later, $2.5 billion for memory-module distributor Kingston Technology. By 1996 Softbank's revenues were projected to reach $2.6 billion for the year. At the age of 38 the Corean who had been treated as an outsider all his life was being claimed as one of Japan's wealthiest businessmen, and certainly, it's most exciting.
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“I'm maybe the fourth richest guy in Japan,” Son sneered, unable to hide his resentment of the establishment that had once excluded him. "And the other three inherited real estate from their families.”
Not only was Son a maverick in spirit, he also eschewed the overhead-intensive hierarchical management structure of which establishment Japan was so fond. During his long illness Son had taken a page from Genghis Khan by organizing employees into teams of ten, each responsible for its own business plans and profit-loss statements. He met with each team twice a year to spend hours flyspecking their business plans. By 1996 Softbank had become a network of 64 separate profit centers. Teams that ran out of cash were cut loose. Those that shone were rewarded lavishly. In 1995 Son gave a $1 million bonus to the managing director of networking and $500,000 to the editor of a Softbank magazine about the MS-DOS operating system.
Masayoshi Son was a demanding taskmaster with goals that often had the ring of opium dreams rather than rational business thinking. For example, Son announced that the 80 Ziff-Davis titles Softbank had acquired would be grown into 1,000 titles within 10 years. His logic: since Ziff was licensing its 30 U.S.-based magazines in 100 markets, starting an average of just 10 titles per market would realize his ambition. He had similarly extravagant goals for TV shows and websites based on Ziff-Davis properties, and made far-flung deals in places like Hong Kong and Europe to turn them into potential sources of advertising revenue. Luckily for Son his dreams coincided with the investment world's millennium tech fever in which no business plan was too crazy as long as it was linked to the internet. But the seeming reckless abandon and incoherence of Son's accelerating buying binge struck some observers as excessive even for the times.
The skeptical voices were drowned out by the cheers of the stock market. By February 2000 the markets valued Softbank at $140 billion, making it the world's biggest internet company. That amount was equal to 13% of Japan's gross domestic product. As owner of 56% of Softbank's shares, Son was worth nearly $80 billion, poorer only than Bill Gates. The tech crash was still more than a year in the future. Even as cautious players began quietly retreating from the tech sector, Son continued snapping up so many disparate companies that the unifying logic was apparent only to Son himself. One of the most baffling was his determined bid for Nippon Credit Bank, a bank that had been crushed under the weight of bad real-estate loans and had been taken over by the government regulators two years earlier. In late February Son's consortium beat out an American investment group to win government approval to buy NCB for $907.1 million. The once-despised Corean was now boss of one of three legendary banks that had financed Japan's recovery from World War II. Son hoped to use it as a piggy bank to finance his dream of putting Softbank at the hub of the global internet, clucked financial writers.
As with so many acquisitions, Son's key source of financing for the NCB purchase was the inflated Yahoo shares owned by Softbank. Successive selloffs had reduced its Yahoo holdings from a high of 37% in 1997. In June of 2000 Son raised $336 million of the NCB purchase price by selling another 0.60%, bringing Softbank's Yahoo holdings down to 22.58%. Over the next three years he would keep sending the bucket to the well until Softbank's Yahoo holdings would be reduced to less than 7%. But by then Masayoshi Son would be armpit deep in his quest to overtake NTT to become Japan's leading provider of broadband services.
Son had taken the first tentative steps toward that dream in 2000 by establishing SOFTBANK Networks Inc and BB Technologies Corporation. In early 2001 he used Softbank's 51% share of Yahoo! Japan to start Yahoo! BB. Its business plan was essentially to take over Japan's grossly underdeveloped broadband market from NTT, the Ma Bell of Japan. The conservative NTT had been so slow to gear up broadband services that by mid 2001 there were only 175,000 broadband accounts in all of Japan — less than a twentieth of Corea, a country with a third the population. Japan was a tech giant but an internet midget. Masayoshi Son was determined to be its broadband messiah, even if it meant taking on the company that owned the phone connections to every Japanese home and office. On July 9, 2001 Son held a rock-concert-like press conference to announce the launch of cheap ADSL broadband services under the Yahoo! BB brand.
“Many people call me crazy, and I know many analysts say Softbank will go bankrupt,” Son admitted to reporters. “But I look at things my way.”
No matter which way you looked at it, conditions seemed less than auspicious. As of mid-May of 2001 the tech crash had left Softbank with only 7% of the value it enjoyed in February of 2000. Its stakes in 600 separate companies, including about 20% of Yahoo, were now worth less than $10 billion. Son's brave plan to pump $800 million into the broadband venture, then sign up 3 million DSL accounts by the end of the year to break even for 2001 drew blank stares if not outright derision. He would be lucky to sign up 400,000, said industry graybeards.
The graybeards were right. It would take until early 2004 to hit the 3 million mark. By that time the venture had lost over $2.5 billion and Son had become the favorite punching bag of the Japanese business press. Between Son's broadband announcement and the first half of 2003, countless articles intimated Softbank's descent into inevitable bankruptcy. But Son showed no sign of retreating from his goal to become Japan's broadband king. He even merged the three broadband companies into Softbank itself and renamed the company Softbank BB. Even his detractors had to admit that by offering cheap, ultra-fast DSL (speeds of 10 Mbps at only $20-$33 per month) and forcing NTT to keep up, Son had single-handedly transformed Japan from an internet backwater into a powerhouse. Problem was, even by late 2004 when Sofbank BB had signed up 4.3 million accounts, Softbank BB was continuing to lose $100 million more each month. That swollen river of red ink and its $1.3 billion in short-term debts prevents Softbank from enjoying investment grade credit rating, adding to the cost of financing its money-losing operations.
As ever, Masayoshi Son is taking the long view. That view seems to be focused on amassing such a dominant share of Japan's internet activity that sooner or later Softbank will find itself in the promised land of monopoly power and assured profits for as far as the eye can see. Toward that end, Son has managed to raise enough investment capital to pump $3.1 billion into the purchase of Japan Telecom, the nation's number-three land-line phone company. JT will bring with it 600,000 more residential broadband accounts, 170,000 business accounts and $780 million in positive cash flow. It would also make Softbank BB Japan's leading broadband access provider.
Is that enough to stem the flow of Softbank red ink? Not by itself, admits Son. But he is looking still further ahead to a time — possibly the end of 2005 — when Softbank will have a total of 6 million broadband subscribers eager to be guided toward the internet's more profitable offerings like net phones, music downloads, live sports netcasts, financial services. You name it. Masayoshi Son still sees the endless possibilities that beguiled him lo those thirty years ago when he first laid eyes on that photo of the wonderful microchip. The future he sees will come, that much is certain. What is less certain — at least to the rest of the world — is whether it will bring enough operating profits for Softbank to afford its founder's epic vision.
“I'm maybe the fourth richest guy in Japan,” Son sneered, unable to hide his resentment of the establishment that had once excluded him. "And the other three inherited real estate from their families.”