The Infinite Possibilities of Open Innovation

An interview series exploring open innovation between large corporations and startups. This installment features KDDI's startup accelerator program, KDDI ∞ Labo (Mugen Labo). The company launched the program in 2011 to support globally competitive internet services. Tomohiro Ebata, Head of KDDI ∞ Labo, and Tomoya Okutani, who promotes open innovation at Dentsu Inc., engaged in a discussion.

From left: Mr. Ebata, Mr. Okutani

Supporting startups with a "give first, startup first" spirit

Okutani: Recently, accelerator programs run by corporations have increased, but KDDI started early and has supported numerous startups. First, could you briefly introduce KDDI ∞ Labo?

Ebata: We launched it in the summer of 2011. It started from a desire to support impactful businesses emerging from Japan.

Okutani: What prompted KDDI to take on this initiative so early?

Ebata: The origins date back to around 2000. Mobile phone screens were getting larger and going color. It coincided with the emergence of businesses like EZweb.
KDDI decided to solidify our communications platform and prepare to deliver new value and experiences to our customers. However, when we shifted in that direction, we realized that as a telecommunications company, we had no assets beyond our infrastructure.

Okutani: I imagine Japanese companies back then tended to be relatively self-reliant, favoring the idea of developing things in-house.

Ebata: Absolutely impossible (laughs). We had no one who could create content.
On the other hand, there were many content and technology startups outside our company. We thought partnering with them and jointly leveraging their assets through mobile and the internet could make for a successful business.

Okutani: It must have been tough initially, lacking experience in collaborating with external partners. What mindset did you consciously adopt?

Ebata: We had a spirit of "give first" and "startup first." Honestly, we didn't know what would help them grow. So we started by listening to them and supporting them. Seeing their growth through our involvement gave us confidence that putting more effort in could lead to even greater growth.

Okutani: You're now in your 11th cohort. Have you seen any changes in startup trends from the beginning to now?

Ebata: Back then, startups were overly focused on digital and avoided the physical world, struggling to adapt to it. Many believed that once you built a product, you could just distribute it on app markets. But now, we're seeing more examples where the physical world offers a larger market and better monetization opportunities.

Okutani: What kind of startups were there?

Ebata: In the first cohort, we had "giftee," a social gifting service. It's a service that lets you easily send gifts via SNS. We still collaborate with them today.

Okutani: "giftee" is a fantastic service. I use it often myself, and it's an excellent product on the B2C side. It also seems like it could scale well as an O2O solution on the B2B side.

Ebata: Another example is "Kei Town," which connects customers with delivery personnel. There are far more individual delivery workers than you might imagine. However, they often struggle to find work. On the other hand, as seen in the current state of parcel delivery, the volume of packages has increased significantly. This platform solves that mismatch within a matching system. Individuals can request services, and businesses can use the platform when they suddenly have more packages than they can handle.

Okutani: So the insight into matching and sharing was spot-on. What criteria do you set when selecting startups?

Ebata: Since we have many partner companies, including KDDI, a fundamental criterion is whether the startup can engage meaningfully with these partners for at least six months and whether the CEO has the willingness to engage. Beyond that, we look at whether they can clearly define their vision and set achievable goals within that six-month period.

Okutani: So the criteria is whether they have a clear scenario for how they will scale using the KDDI ∞ Labo asset.

Ebata: We look at whether the program holds the expectation of growth and whether we can truly meet that expectation. We've consistently declared since the first cohort that we provide no funding whatsoever during the program period.

Okutani: So you're not selecting based on business model or sector?

Ebata: We do look at areas where we can contribute to growth, such as VR, IoT, and other trends.

Employing KDDI employees as mentors. Also for their own skill development.

Okutani: At KDDI ∞ Labo, assigning employees as mentors is also a good approach.

Ebata: We assign mentors who can help the selected startups grow. Mid-level employees in their early 30s are the most common. They have a solid grasp of the company and can visualize where to approach for help when asked.
That said, due to the organization's specialization, mentors often find the scope requested by the startups they work with differs significantly from their own job responsibilities. We hope that after their mentoring period, they can acquire new skills applicable to their own business development.

Okutani: We also support collaborations between large corporations and startups. Interestingly, as startups grow, the corporate side also experiences a sense of growth and transformation, particularly in terms of talent development.

Ebata: Exactly. You gain incredible experience early in your career. If you want to pursue new initiatives at KDDI, this experience makes it relatively easier to realize those ideas.

Okutani: Talent exchange and mobility are indeed crucial, and KDDI ∞ Labo is functioning well in terms of talent development too.

Ebata: At KDDI, talent exchange is happening at an incredible pace, including across group companies.

Even with advanced technology, it's meaningless without high user experience value.

Okutani: As you provide accelerator programs, what do you think needs to happen next for Japan's startup ecosystem to really start thriving?

Ebata: I still think there are far too few M&A (mergers and acquisitions) cases. In the Japanese context, there's a very strong sense among executives that they must protect their company. When it comes to exit strategies, they always aim for an IPO (initial public offering). Instead of one president staying there for life, they should pursue what they most want to do at each stage. Therefore, we need exit strategies beyond just IPOs; M&A is essential.

Okutani: Founders should also aim to become serial entrepreneurs, repeatedly launching and selling companies. Large corporations, by repeatedly engaging in M&A, accumulate expertise—including in PMI (post-merger integration)—which ultimately drives the ecosystem forward.

Ebata: We're also advancing business development by finding partners and pursuing M&A.

Okutani: As things emerge that will rapidly transform the world, like IoT, KDDI will be the infrastructure for that. I believe it's crucial for this company to drive open innovation. We need to create new business models for the IoT era by involving all kinds of partners, including startups.

Ebata: That's right. The post-smartphone era, an era without displays, is coming.
For example, when considering a B2B2C business model, a startup might aim to solve a problem for a company (B). However, when there's a customer (C) at the end of that solution chain, even if the company's (B) problem is solved, the customer (C) is crucial. No matter how advanced the technology, it's meaningless if it lowers the customer's experience value. You must look at both sides – who the value is provided to.

Okutani: That's extremely important. As B2B2C and B2B2B models proliferate, both seed-driven and demand-driven approaches are vital. For instance, with IoT, it becomes a new product or service for the customer, making the user experience critically important—something we also focus on.

Okutani: Please share your future outlook for KDDI ∞ Labo.

Ebata: About two years ago, we started expanding into more real-world business domains. So, around that time, we shifted our approach. While the first six phases were primarily focused on collaboration with KDDI, starting with the seventh phase, we transformed it into a program where major companies from various industries could join as partners. Initially, we had about 13 partner companies, but through inquiries and interest, we've now grown to 33 companies (at the time of this interview).

Okutani: It's truly impressive that you've built this cross-industry alliance of large corporations as an open innovation initiative. While companies naturally want to protect their own business at the end of the day, your ability to be pragmatic—involving other companies to handle areas like distribution that you lack expertise in—is remarkable.

Ebata: We knew we lacked that capability ourselves, so we had no choice but to seek help. Even when talking with startups aiming to revolutionize distribution, we didn't understand the distribution structure. It felt much faster to bring in people who could help us.

Okutani: My consistent impression today was how remarkably broad-minded KDDI is. Whether that stems from the company culture or the top management's mindset, it's impressive.

Ebata: I think the fact that this business has continued is largely due to management's judgment and commitment. New business sections often get shut down if they don't show results within a year.

Okutani: It's huge that the top doesn't demand immediate results but understands the potential future returns. I believe KDDI will keep generating innovations for the new era through KDDI ∞ Labo.
Thank you for your time today.

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