Knowledge Aug 22, 2024 Creating a Society in which Anyone Can Make Their Dreams a Reality, Starting from Japan—KDDI's Launch of "WAKONX (WAKON-CROSS)", a Business Platform for the AI Era

Japan, which is often described as a developed country at the forefront of issues, is directly confronting a range of enormous and complex social issues. The prolonged economic stagnation and significant labor shortages, driven by a declining population, are among the most critical challenges.

With fewer workers available, companies face increased workloads per employee, leading to longer working hours. This stressful environment drives many to leave their jobs, creating a vicious cycle of labor shortages at many companies.

In securing the necessary workforce, companies are increasingly adopting digital solutions to automate and streamline tasks that were previously handled by workers. This shift aims to enhance productivity and add value to business operations.

"As use of digital tools to achieve operational efficiency is well-established in Japan, our focus should be on enhancing productivity through digital means. This, in turn, raises the added value of our products and services. Continuously providing high-value-added products and services leads to sustainable growth and positive outcomes, such as increased employee wages."

In February 2024, KDDI launched a new corporate business brand called KDDI BUSINESS to support such corporate growth. This initiative aligns with KDDI's VISION 2030, which has a goal of "the creation of a society in which anyone can make their dreams a reality, by enhancing the power to connect." Kuwahara explains that this reflects KDDI's commitment to "helping customers grow their businesses." 

"Beyond offering solutions and services for specific issues, we aim to support our customers' business growth and contribute to solving broader industry and social problems. We do this by leveraging KDDI's strengths in reliable, secure communications and networks. Our system flexibly combines a range of solutions, including cloud services, SaaS, and AI, as well as the capabilities of our new group companies, Flywheel and ELYZA. This approach allows us to powerfully and comprehensively drive digitalization for our customers" (Kuwahara).

Kuwahara explains: "Japan excels at adopting and refining technologies and services from abroad in unique ways, enhancing their value. This ability has been demonstrated in a wide range of sectors, from our automotive industry to consumer electronics and even the food culture. Convenience stores are a good example. I believe that driving innovation through the principle of wakon yosai is crucial to accelerating digitalization and value creation."

This business platform is composed of three key layers: the "network layer," which provides optimal networks tailored to the needs of each industry; the "data layer," which securely accumulates, integrates, and analyzes companies' data; and the "vertical layer," which fine-tunes and delivers the necessary AI and software for digital transformation specific to each industry.

The network layer's notable features include 5G and other communication lines as well as globally expanding IoT networks alongside a 24/7/365 monitoring and operational framework.

"We provide IoT services to approximately 50 million customers worldwide, and about 26 million connected services across the globe utilize our platform. One of our strengths is our ability to operate and monitor this extensive global network as a single, unified system which is not segmented by region," explains Kuwahara.

Additionally, KDDI owns over 45 data centers globally, which serve as the backbone of the WAKONX platform's data layer. These data centers, include "connectivity data centers," link with various global mega-platforms, telecom carriers, and Internet providers. As AI usage accelerates, the value of these connectivity data centers is expected to increase. KDDI is also developing large-scale computing infrastructure to support more general AI models and setting up data clean rooms to safely combine and analyze data from different companies.

In the vertical layer, KDDI aims to accelerate the digitalization of various industries by standardizing tools that can be shared across different sectors. For example, KDDI develops and offers optimized solutions tailored to address the unique challenges of specific industries such as logistics, broadcasting, and mobility.

The hallmark of WAKONX is its integration of KDDI's latest AI technologies in all operations and service offerings across these three layers, thus accelerating business efficiency and automation.

Kuwahara elaborates: "AI is central to all three layers of our platform. Our efforts in AI are focused on three main areas.

In April 2024, we incorporated into our group ELYZA, a generative AI startup from the University of Tokyo. Together, we are advancing the development of Japanese Large Language Models (LLMs) and fine-tuning them. By harnessing our group's collective strengths, we continue to evolve the platform and enhance its capabilities."

KDDI's unique strengths that bolster these efforts are its "recurring model" and "multi-contact points."

"Unlike the traditional business platforms provided by system integrators, WAKONX is based on a monthly subscription model according to communication and operations, namely a 'recurring model,' that allows us to maintain a constant connection to our customers. This enables us to continuously monitor usage patterns, and based on the analysis results, offer recommendations for better utilization, fostering a cycle of value creation for our customers. Additionally, beyond our extensive global IoT network, we have about 30 million au mobile users and 2,000 au shops. We also have a capital and business partnership with Lawson, which is a popular convenience store chain in Japan, giving us access to around 14,600 Lawson stores. This blend of real and virtual multi-contact points is a significant advantage. It enables us to add new services and value through digital transformation and data utilization based on these real-world connections." (Kuwahara)

To accelerate Japan's digitalization, KDDI is utilizing the three functions of WAKONX to pursue two core missions: collaboration and competition.

Kuwahara explains: "Across various industries, collaboration is already underway. The idea is to create common frameworks to solve challenges within areas where companies can work together, and to convert these frameworks into services for broader use. This reduces investment costs, allowing our customers to focus on creating and enhancing their own value-added services, effectively concentrating their efforts on competitive areas. We believe that our mission is to speed up both collaboration and competition."

Under these dual missions, several initiatives are already in progress to support business growth and to address social issues.

For instance, KDDI and Toyota Motor Corporation have rolled out a global communication platform for connected cars. In addition to Toyota, this initiative involves Mazda and Subaru, showcasing a successful model of inter-company collaboration that helps reduce costs while addressing social issues. Moreover, to facilitate a safe and secure mobility society, KDDI plans to provide solutions that utilize AI to analyze big data from human and vehicle movements, as well as historical traffic accident statistics. These solutions will help visualize locations at high risk of traffic accidents.

Moreover, in response to the "2024 problem of logistics" (resulting from regulations on truck drivers' overtime work), KDDI, in collaboration with Itochu Corporation, Toyota Industries Corporation, Mitsui Fudosan, and Mitsubishi Estate, is advancing business development of the Physical Internet.

Additionally, constructing optimal transportation routes requires a network of relay warehouses across the country. To achieve this, KDDI, in partnership with Tsubakimoto Chain, has established a company that provides automated warehouse solutions. Together with this company, KDDI aims to drive digital transformation in logistics to help address labor shortages and other social issues.

"WAKONX will continue to evolve into a more user-friendly platform by fostering innovation and welcoming a variety of partners into our network." (Kuwahara)

Kuwahara mentions a significant reason why innovation in Japan lags behind compared to the West: support for and collaboration with startup companies. In the United States, startups often experience rapid growth, but Japan seldom sees such growth.

"In the US, most startup companies are acquired by big tech firms through M&A. By contrast, in Japan, about half of startups go through an IPO (initial public offering). I believe that supporting startups is crucial for revitalizing innovation in Japan. That's why we started an initiative called 'Swing-by IPO.' This method involves a large company acquiring a startup through M&A, helping it to grow its business before eventually spinning it off in an IPO. This combines the traditional methods of M&A and IPO into a new strategy. Moreover, the startups that join through this approach can bring new features and value to WAKONX, enhancing what we can offer to our customers."

Japan is now entering a period called the "demographic onus period" that is characterized by a declining and aging population, which increases the burden of social security costs and poses a threat to economic growth. Despite these challenges, Kuwahara expresses a strong desire to revitalize the Japanese economy and transform it into a model that can thrive and compete successfully internationally.

"Even during this demographic onus period, I want to help realize a society in Japan where everyone can achieve their dreams. I believe that Japan can be the first country on earth to realize this vision. Unless we do this, Japan's future does not appear promising."

KDDI's new business platform may usher in an era in which Japan once again shines brightly on the world stage.