Since its messaging app debuted in June 2011, Line Corp. has shaken up the online communications landscape in Japan and morphed into a player in smartphone communications infrastructure.

But the smartphone won’t last forever in the fast-changing information technology industry. So Line is planting the seeds of success for what it thinks will be the next big thing: voice-based “AI agents.”

While this artificial-intelligence quest will pit the smaller Line against IT powerhouses Google, Apple and Amazon, among others, Line CEO Takeshi Idezawa likes his chances.

“We are taking on a new challenge because we believe we have the assets to win the battle,” Idezawa told The Japan Times in a recent interview.

Making the right bet

This is quite a change for a firm that owes its success to a prescient bet on smartphones less than a decade ago.

“In 2010, we decided to put all of our resources into pursuing the smartphone business. This was because we thought the shift to smartphones was irreversible,” Idezawa said.

It turns out the Tokyo-based subsidiary of South Korea’s Naver Corp. made the right call. But the times are again changing, and Line now envisions a post-smartphone era when people will control more of their digital gadgets with their voices.

To cash in, Idezawa said Line can focus on providing AI agents in the regions it dominates, most notably Japan, because knowing the market is a great advantage.

Line and Naver also have the technologies and the messaging and search engine data needed to develop a proficient AI agent.

Since smartphones will still be around for awhile, Line will continue to enrich services for handsets by improving its video content and ad revenues, he said.

Unsatisfactory growth

Thanks to the proliferation of smartphones, Line seems to have had nothing but a smooth ride.

It acquired millions of users at an unprecedented pace in its early days and finally listed its shares on the Tokyo and New York stock exchanges last year, raising more than ¥100 billion in capital.

According to its latest earnings report, it logged an operating profit of ¥18.6 billion and a net profit of ¥10.2 billion from January to June.

Yet there have been setbacks.

In the second quarter, Line saw active users dip for the first time ever in the areas it dominates — Japan, Taiwan, Indonesia and Thailand. For the quarter, its user base in the region stood at 169 million, versus 171 million in the previous quarter, the report said.

Although Indonesian users declined, Idezawa emphasized that their level of engagement has improved, especially in terms of messages sent per person.

“The competition is tough, but we will continue efforts to increase users and their engagement level,” he said.

Despite its easy growth and dedication to improvement, Line’s profitability hasn’t been able to live up to the market’s high expectations.

Line saw its share price take its steepest drop earlier this year as user growth and revenue from games and electronic stickers slowed. The shares remained sluggish at ¥3,850 as of Friday — 21 percent lower than when they debuted on the Tokyo Stock Exchange.

It is also losing the race for active users. Rivals such as Facebook’s Whatsapp and Tencent’s WeChat have more or close to 1 billion users each.

Going after AI

“What’s important is to keep growing over the long term in this fast-changing internet industry,” Idezawa said.

“In that sense, while our smartphone business is firmly growing, it is not certain how much longer the smartphone era will last. So we are challenging a bigger field, which we think will contribute to our long-term growth.”

Major tech firms have been increasingly keen on marketing devices with voice-based AI agents. The leaders, including Apple’s Siri and Google Assistant, already come pre-installed on many smartphones.

Upon request, the agents can perform user tasks ranging from finding restaurants and calling friends to providing weather forecasts.

But AI voice agents are increasingly finding their way into other devices, most notably speakers.

Due to improvements in voice recognition and AI technology, the industry believes people will be speaking to digital devices more and more in the near future instead of pressing buttons and typing.

“The momentum of everything getting connected to the internet will only accelerate. When we think of how we control our gadgets — this TV’s interface, for instance, will be voice-based — people will realize at some point that it is actually useful,” Idezawa said.

“In my opinion, it’s not far in the future . . . when that time comes, we aim to make our voice AI agent the smartest one out there.”

Having a widespread voice-based AI agent means a promising market will follow, so Line is developing a cloud-based AI agent called Clova, and its strategy is basically to make the agent as ubiquitous as possible.

Tough competition

Does Line stand a chance of competing?

Amazon launched a “smart speaker” in 2014 and now leads the U.S. market. Google and Apple were caught by surprise and are trying to catch up.

“Some people think that we are no match for major firms in Silicon Valley, but this is a joint project with Naver, which has a dominant share of the search engine market in South Korea,” Idezawa said.

“Naver has been accumulating high technologies while Line has its own technology related to communications. So we have a very solid technological foundation,” he said, adding that these technologies and large store of data are essential to developing a sophisticated AI.

Line also has substantial market penetration. As of July 26, it had more than 200 million active global users.

Another advantage for Line is that it already provides a variety of services, including shopping, food delivery and cab reservations, that can be controlled through a voice-based interface in the future.

Because of these factors, some experts say Line has a good chance of succeeding.

For instance, they said it wouldn’t be hard for electronics makers like Sharp and Panasonic to create voice-controlled devices, but they wouldn’t have the services to go with them.

Line launched its first AI speaker recently but no major U.S. firms are selling smart speakers in Japan yet.

“By launching the product early, we can obtain data on how people use it to improve the response speed and precision” before our rivals’ products arrive, Idezawa said.

Asked what countries or regions will be its main targets for the AI business, Idezawa said it will focus on Japan and South Korea first and then other areas where Line’s presence is strong, including Taiwan and Indonesia.

As Line gears up for its AI battle, Idezawa said it will remain important to strengthen its smartphone-based services.

Leveraging the messaging app’s huge user base, Line has been luring users to other services, including digital comics, live videos, shopping, games and payments.

Focus stays on smartphones

With the growth of its base, Line’s business model has shifted as well.

Before, its main profit driver was games. But ad revenue now accounts for 44 percent of sales.

“It’s a good thing because we can expect stable growth in ads … it’s no doubt ads are our profit driver in the short term,” he said.

Another thing Line aims to beef up is videos. Idezawa thinks people will be sending more video messages and watching more video content through Line, providing another chance to boost ad revenue.

Line operates a live streaming video service called Line Live but has yet to sell ads on it.

“We are also running a project to make it easier for Line users to send more video messages. This is not really about making ad revenue, but about making users enjoy Line more. But ads will probably be displayed there in the future,” Idezawa said.

“So videos and ads are the big key words.”

Key events in Idezawa’s life

1996 Graduates from Waseda University, joins Asahi Mutual Life Insurance Co.
2001 Joins Livedoor Co.’s predecessor On the Edge
2003 Becomes vice president of Livedoor
2007 Becomes president of Livedoor
2010 Line Corp.’s predecessor NHN Japan buys Livedoor
2012 Becomes director at NHN Japan
2014 Becomes chief operating officer of Line
2015 Becomes CEO of Line

Reflecting on the past, looking to the future

More excerpts from the interview.

It’s been about 2½ years since you started leading Line. What are your impressions of those days?

When I became president, Line was preparing for listing, so being able to get our shares listed was a big event for the company — a milestone in five years of our business.

We would be able to increase public trust and raise money through the IPO, so it was also about getting ready for our new challenge in the AI business.

What has been your most memorable experience since launching the Line messaging service?

It was when we had the first Line Conference in 2012.

Back then, Line was not as popular, so many people weren’t familiar with it. I made a very important speech on Line’s concept there, and I think people got to know what Line was about through the media coverage of the event.

What do you think are Line’s strengths and weaknesses as a company?

I think our strength is that we have diversity, which is quite rare for a Japanese company. We have a high ratio of non-Japanese workers. (Line does not disclose the ratio but says it has employees from more than 25 countries.)

We now have more than 4,000 people and more than a half are working overseas. Under this kind of environment, younger employees are very active and they debate freely with others. I think this is our strength and what makes it possible for us to grow and have the spirit of challenge.

We have been competing with major firms in Silicon Valley with the messaging app, and it will be the same with our new AI challenge. In many aspects, they are much bigger than us, for instance with human resources … so we went public to attract more workers for this challenge.

This section runs exclusive stories on top business leaders and executives interviewed by The Japan Times.

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