The deal is a 50-50 joint venture between Softbank and South Korea's Naver, Yahoo Japan and Line's respective parent companies. The arrangement will lead to the formation of a new company, under which an existing firm called Z Holdings will operate. Yahoo Japan and Line will be brought in as subsidiaries.
Hopes are high for the merger, as Yahoo Japan and Line's combined sales from last year surpassed those of e-commerce giant Rakuten. If the new firm can maintain these numbers, it would become Japan's largest tech-related company.
"Line has successfully attracted lots of young smartphone users," Kentaro Kawabe, President and CEO of Z Holdings, said at a news conference announcing the deal. "On the other hand, Yahoo Japan has many older users because it started business more than 20 years ago. The user bases complement each other very well."
Softbank Group CEO Masayoshi Son is said to have been the key figure behind the deal. Experts say he is hoping the new company will have a similar trajectory to Chinese giant Alibaba. He has been investing in the firm since its foundation and has seen it grow into one of the biggest tech companies in the world.
"In the domestic market, Japanese firms have been losing ground to the American and Chinese giants," says Yasuhide Yajima, Chief Economist of NLI Research Institute. "But this company will have more than 100 million users combined between Yahoo and Line. This will make it better equipped to compete both at home and abroad."
But the new company will start off far behind the major global powers it hopes to compete with. For example, US giant Amazon's annual sales are roughly 230 billion dollars, or over 25 trillion yen. The combined figure of Yahoo and Line is just 1 trillion.
Furthermore, the three major Chinese tech firms are only continuing to grow. Alibaba and Tencent have roughly five or six times the sales numbers as Yahoo and Line.
Yahoo Japan and Line are hoping savvy business strategy will help overcome this financial disadvantage. For example, the new company believes Line's expansive base in Asia will help it capture customers overlooked by its rivals. Line is the largest tech service in both Thailand and Taiwan, with 45 million and 21 million users respectively. And it is the second largest in Indonesia, with 16 million.
"Expanding into the Asian market will mean competing with the Chinese giants," says NLI Research Institute's Yasuhide Yajima. "These companies have a huge advantage, so the Yahoo-Line entity will really have to come up with a good strategy."
Chances of success
American and Chinese tech giants have massive research and development budgets, which Yahoo and Line cannot match. In order to survive, the company may have to pursue mergers and acquisitions to bolster its profile overseas. And perhaps more crucially, it will have to identify areas of business that its rivals are currently overlooking. If it can establish a presence in undervalued markets, then it may have a chance to not only survive, but compete.