Economy & Tech
Predictions 2024: SoftBank Looks Like a Fintech Winner, but Its AI Bets Need Better Luck
"Whether you like it or not, the AI revolution will come," said the SoftBank CEO, who will likely make a fresh round of AI bets in 2024 — but will it pay off?
Happy New Year to JAPAN Forward readers. We are pleased to bring you "Predictions 2024," a special New Year's series sharing the foresight and expectations of selected contributors for the coming year in their fields of specialty, continuing with Duncan Bartlett, the Diplomatic Correspondent for JAPAN Forward.
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The celebrated tycoon and SoftBank CEO Masayoshi Son says he was inspired by his entrepreneurial father, Mitsunori. As a young man, Mitsunori farmed pigs, peddled bootlegged shochu, ran a fish farm, and for a short while, operated a pachinko parlor. Players were invited to bet on how many balls they could retain in games of vertical pinball.
By the time Masayoshi was born, Mitsunori had moved on to other more reputable business ventures. But I believe the founder and CEO of SoftBank has retained a fondness for pachinko. I wonder if it was the gateway to a gambling habit that has escalated dramatically over the years.
I remember reading in 2018 that Masayoshi Son had won and lost more money than anyone else in the history of Japan. Since then, he has thrown away another fortune but also made further big wins. So what does 2024 have in store for this remarkable risk-taker?
Pachinko by Phone
The last time I ventured gingerly into a pachinko parlor, I noticed players topping up their supply of balls using an app on their phone called PayPay, which is owned by SoftBank.
This gave them the privilege of playing more quickly — and in most cases losing their money quicker, too. They owe this dubious privilege to a fintech revolution that is sweeping Japan. There are now at least seven million touchless terminals connecting people's digital wallets to shops, drinks vending machines, and restaurant counters.
Japan's Digital Minister Taro Kono wants more digital payments. The use of cash — especially coins — will inevitably decline in 2024.
Currency specialists, known as numismatists, tell me that ¥500 JPY (around $3.6 USD) coins are becoming rare and risk extinction. That would be a shame. I like those valuable coins, which are decorated with an engraving of the paulownia tree.
The flower of that tree is also the symbol of the Prime Minister of Japan. The life expectancy of a paulownia is 100 years. Prime Ministers these days are lucky to stay in office for more than a season.
Floating PayPay
The financial news service Bloomberg predicts that PayPay will be listed on the Tokyo exchange, although it didn't say when this might occur.
If the IPO takes place in 2024, it will be a popular event, as SoftBank claims that PayPay has gained a two-thirds share of QR-code payments in Japan. SoftBank could use a PayPay float to reassure investors that it sometimes makes the right call when it comes to trends in tech. It also makes many spectacularly expensive errors.
SoftBank Group recorded a net loss of ¥1.41 trillion JPY (around $10 billion USD) in the first half of 2023. To put that figure in perspective, it is about seven times the total amount people gamble on pachinko across Japan annually.
Nearly half of all leisure time in Japan is spent in pachinko parlors, according to Business Insider. The magazine also claims the industry hires more people than the country's top ten car manufacturers combined.
So based on statistical probability, when a salaryman is unwinding from work, he is probably gazing at pachinko balls, rather than pursuing a more uplifting cultural activity.
Still Gambling
For SoftBank, the gambling never stops. It is still investing around $500 million USD each month in startups, although it takes a more conservative approach than it did in its freewheeling heyday.
In 2024, its managers will be busy monitoring the performance of hundreds of companies to which SoftBank has already given money.
Their most pressing dilemma is how to generate a profit from WeWork, an office rental company that filed for bankruptcy in 2023. Mr Son reckons he can turn that subsidiary around by taking a new approach but it has already cost him billions.
In 2024, SoftBank plans to launch fleets of self-driving buses in fifty locations across Japan to cater to rapidly aging communities. The vehicles can carry up to eight people and are controlled remotely. They are manufactured by an Estonia-based company called Auve Tech which has partnered with the SoftBank subsidiary, Boldly.
Softbank is also working with an American company called Mapbox. The latter uses artificial intelligence (AI) to make sophisticated route-finders for drivers or operators of autonomous vehicles. Robots like to be given very clear directions.
AI Evangelist
At the age of 66, Masayoshi Son's enthusiasm for AI remains undiminished.
During a presentation in Tokyo in October 2023, he appeared on stage beside an illustration of a goldfish in a fishbowl. "People who refuse to use AI will end up akin to that goldfish, unable to process information like language," he said. "The sum of knowledge that AI will command will be ten times that of all humanity within ten years."
Noting that more than 70% of companies in Japan either ban — or are considering banning — the use of generative AI, Mr Son waved his arms in frustration.
"Wake up, Japan!" he cried.
"Saying 'Don't use AI' is like saying don't drive a car or use electricity," he said. "Whether you like it or not, the AI revolution will come."
In 2024, the governments of Japan and other countries are set to decide what kind of global body they want to regulate artificial intelligence. If they turn to Mr Son, he will dispute the doomsayers who warn that the AI revolution will cost millions of creative people their jobs, or even pose an existential threat to humanity.
Mr Son takes the view that AI will allow people to live more comfortably and happily. He does, however, admit he is not omniscient.
"I've made many, many mistakes in my AI investments, some of them embarrassing," Masayoshi Son told SoftBank shareholders in Tokyo in June 2023. "But among the many failures, there are a number of buds that will blossom very soon."
Blossoming Investments
The WeWork debacle damaged Mr Son's reputation. Nevertheless, he bounced back in September 2023. The chip designer, Arm Holdings — which is still 90% owned by SoftBank — floated a proportion of its shares on the New York Stock Exchange.
By the end of its first day of trading, Arm had achieved a market value of more than $65 billion USD. Since then, Arm's stock has been "a top performer" according to Investors Business Daily.
One of Arm's most striking achievements is its ability to partner smoothly with companies in Japan, China, South Korea, and the United States. Arm has its headquarters in the British university city of Cambridge.
I expect that Mr Son will be tempted to splurge a lot more money on a fresh round of AI bets in 2024. This would be a risky approach. So far, SoftBank's key portfolio returns have been heavily reliant on consumer internet companies, not AI.
Games After Dark
I am told that in an era before digitalization, pachinko parlor operators had a sneaky trick.
When the doors were closed and the lights turned low, the owners would quietly change the settings on the machines to make them less predictable. Unwary players who thought they'd found a winning formula were caught out the following day. Profits for the pachinko groups rose as a result.
The rules of the global technology game for 2024 are being reset. I wonder if Mr Son has retained the skills he needs to win.
RELATED:
- Read other predictions from our series, Predictions 2024
- Masayoshi Son of SoftBank Encourages Generative AI Partnership with ChatGPT
- Japan Gears Up for Autonomous Mobility as Companies Put Their Tech to the Test
- Japan's Trending Words in Our 2023 Stories: 'Generative AI'
Author: Duncan Bartlett, Diplomatic Correspondent
Mr Bartlett is the Diplomatic Correspondent for JAPAN Forward and a Research Associate at the SOAS China Institute. Read his other articles and essays.
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