Mercari
Corporate History & Strategy

In the late 2000s, Japan's C2C transactions were centered on PC-based auction formats, which involved high friction in listing and trading processes. Meanwhile, smartphone adoption was advancing, creating an environment where individuals routinely used apps for photography and payments. Shintaro Yamada, having previously experienced launching and selling web services, recognized that a service with an intuitive UI for individuals would be the next growth opportunity.

At the time, no C2C platform optimized for smartphones existed in the domestic market, and the latent demand for personal trading had not yet been realized. The starting point for the business concept was the recognition that the transaction experience itself needed to be redesigned, rather than making incremental improvements to existing models.

Against this backdrop, Kozo Inc. was established in February 2013, and development of a flea market app fully specialized for smartphones was initiated. The design aimed to complete everything from listing to purchase and payment within the app, featuring 'immediacy' and 'simplicity' that differed from traditional auction formats.

From the earliest founding stage, a small development team conducted product validation, adopting a policy of rapidly modifying specifications based on user behavioral data. The decision was made to achieve market fit through repeated implementation and improvement, rather than large-scale advance planning.

The smartphone-centric UI and transaction design encouraged participation from demographics that had not previously engaged in C2C trading, broadening the base of personal transactions. The ease of photo posting and price setting, in particular, significantly lowered the psychological barrier to listing.

Through this founding-period decision, Mercari built not merely a substitute for existing markets but a foundation for creating new trading habits. The subsequent rapid user expansion and capital raising demonstrated that this initial design was well-suited to the market structure.

In the early 2010s, personal trading in Japan was dominated by PC-based auction formats, with cumbersome processes for listing preparation, pricing, and transaction completion. Trading was limited to a subset of experienced users, and everyday buying and selling of unwanted items was far from widespread. Meanwhile, smartphone adoption was advancing, and behavioral patterns of routinely taking photos, posting, and making payments were becoming established.

In this environment, there was an assessment that if the experience of 'list it quickly, sell it quickly' for personal unwanted items could be redesigned, the latent demand would be significant. The background to the product concept was the recognition that thoroughly eliminating transaction friction on a smartphone-first basis, rather than extending existing services, was the condition for opening a new market.

In July 2013, the smartphone app 'Mercari' was released. Listing was designed to be completed in minutes from photo-taking to price entry, and the entire flow from purchase to payment and shipping was designed end-to-end within the app. Instead of an auction format, fixed pricing was adopted as the default, prioritizing transaction speed and clarity.

From launch, emphasis was placed on data measurement and hypothesis testing to rapidly iterate product improvements, with frequent updates to UI, wording, and user flows down to the finest details. The fundamental policy for development and operations was to prioritize learning from actual usage behavior over product completeness.

The end-to-end smartphone transaction experience encouraged participation from demographics that had not previously engaged in C2C trading, significantly increasing the velocity of listing and purchasing. The intuitive operations centered on photo posting lowered the psychological barrier to trading and enabled everyday buying and selling.

Triggered by this release, the flea market app emerged as a new category in the Japanese market, and Mercari rapidly established itself as its leading representative. The app launch in July 2013 was not merely the introduction of a single product but became the starting point for reshaping the mainstream of personal trading.

Since the service launch in 2013, Mercari had achieved a certain level of user expansion as a personal trading service optimized for smartphones. However, growth was primarily dependent on word-of-mouth and online advertising, and awareness among the general population was limited. The concept of flea market apps was not yet widely understood, and stronger awareness-building measures were needed to convert latent demand into actual demand.

Additionally, as transaction volume increased, operational challenges such as server load, fraud response, and customer support infrastructure became apparent. Securing investment capacity to stabilize the business foundation while improving the product was a prerequisite for advancing to the next growth stage.

In May 2014, Mercari raised 1.45 billion yen in funding and used those funds to launch TV commercials. This was an exceptional decision for a startup, and there were both supporters and critics of an online-only service utilizing mass media.

Nevertheless, Mercari judged that to penetrate flea market apps beyond a subset of IT-literate users to the general population, large-scale awareness needed to be acquired in a short period. TV commercials were positioned not as a measure seeking immediate return on investment, but as an upfront investment to create the market itself.

TV commercial broadcasts rapidly raised Mercari's awareness, and new registrations from demographics that had not previously encountered the service increased. The concept of flea market apps became widely shared, laying the groundwork for personal trading to be accepted as an everyday activity.

While this initiative entailed the cost of increased advertising expenses in the short term, it ultimately led to the expansion of the user base and transaction volume, becoming the starting point for the growth trajectory that led to subsequent large-scale fundraising and market dominance. The 1.45 billion yen fundraising and TV commercial launch were the decisive step for Mercari to transition from a niche service to a mass-market platform.

From 2015 to 2016, Mercari was rapidly expanding transaction volume in the domestic C2C market. The smartphone-centric UI and highly immediate transaction experience had penetrated the general population, and the flea market app was beginning to establish itself as a new market category. Meanwhile, the rapid expansion of the service simultaneously increased operational costs including advertising investment, server upgrades, fraud prevention, and customer support.

Furthermore, in response to Mercari's growth, entry by existing e-commerce operators and emerging startups was anticipated, and the market was approaching a stage where competition would intensify. Whether the company could establish first-mover advantage in transaction volume and user numbers would determine medium-to-long-term competitiveness, and the company was entering a phase where scale expansion should be prioritized over short-term profit.

Given this situation, in March 2016, Mercari raised 8.35 billion yen with Mitsui & Co. among the allottees. The valuation reached approximately 120 billion yen, an exceptional scale for a domestic startup. These funds were planned to be allocated primarily to increased advertising expenses, expansion of the development organization, and system investment to enhance transaction safety.

This decision was a clear declaration of prioritizing the maximization of transaction volume and user base over rushing to profitability. The aim was to establish overwhelming scale and awareness before competitors began deploying capital in earnest, thereby locking in the market structure itself.

Advertising investment backed by the raised capital further accelerated user acquisition, and Mercari established a de facto top position in the domestic C2C market. The expansion in transaction volume strengthened network effects, and the gap with later-entering services widened rapidly.

On the other hand, the advertising-dependent growth model and fixed cost structure formed during this phase also became factors that narrowed adjustment room during subsequent growth deceleration phases. The 8.35 billion yen fundraising was both the decisive blow to establish market dominance and a turning point that locked in a management structure premised on high growth.

In the late 2010s, Mercari had established overwhelming transaction volume and user base in the domestic C2C market. However, this growth placed significant strain on the system architecture built at the time of service launch. The single codebase and tightly coupled configuration required consideration of system-wide impact for every feature addition or modification, making it difficult to balance development speed and stability.

Additionally, as transaction volume increased, the impact scope of incidents expanded, raising the risk of taking down the entire service. While the business envisioned expansion both domestically and internationally and new service launches, there was a growing recognition within the company that the existing architecture had limitations as a foundation to support future growth.

In response to these challenges, in July 2018, Mercari announced its initiative to migrate to microservices. The decision aimed to improve development efficiency and fault tolerance by splitting services into functional units and making development, deployment, and operations independent.

This initiative was premised on short-term reductions in development speed and migration costs, and was not a measure aimed at immediate business results. Nevertheless, a decision was made from a long-term perspective to not leave technical debt unaddressed and to embark on structural renewal, anticipating future business expansion and organizational growth.

With the initiation of microservices migration, Mercari progressively split its system, transitioning to a structure enabling team-based development and operations. This made it possible to iterate development cycles while limiting the impact of modifications to specific features or new feature additions on the overall system.

While challenges such as migration burden and operational complexity materialized in the short term, this decision ultimately contributed to building a foundation that ensured service stability and scalability. The microservices migration of 2018 was an important turning point for Mercari's transition from a transient growth company to a platform company premised on long-term operations.

While Mercari had established high awareness and transaction volume in the domestic C2C market, structural limitations in transaction unit price and commission rates meant that sales growth was beginning to show limits. Additionally, amid intensifying competition in the flea market market, relying solely on extensions of the existing model was making it difficult to explain medium-to-long-term growth.

The COVID-19 pandemic from 2020 onward made the need for online sales apparent to small business operators, while for Mercari it also became an opportunity to incorporate new transaction participants beyond the C2C framework. There was room to expand gross merchandise value by incorporating not only individuals but also business operators.

In response to this environment, in March 2021, the wholly owned subsidiary Souzoh (second generation) was established, and development of the B2C service 'Mercari Shops' was initiated. Unlike the existing C2C platform, the design incorporated new operational elements such as merchant screening and product management.

By deliberately making it a separate company, the aim was to separate it from the culture and KPIs of the existing business and ensure decision-making speed as a new business. The decision was to leverage the platform's customer-attracting power while pursuing growth through expanding the range of transaction participants.

Mercari Shops succeeded in expanding the number of stores and making certain demand visible. However, the costs associated with merchant management and support were heavier than expected, and transaction expansion did not immediately translate to profitability improvement.

As a result, an impairment of 2.8 billion yen was recorded, and business adjustments including workforce reductions were necessitated. This initiative clearly demonstrated the difficulty of establishing B2C on the extension of a C2C platform, and the fixed cost risks associated with business expansion.

Around 2020, Mercari was expanding transaction volume and user numbers as one of Japan's largest C2C platforms. Payment, shipping, identity verification, and various other functions were integrated, enhancing the platform's convenience, while the increasing system complexity and external integrations were also expanding the attack surface for security threats.

In particular, risks such as unauthorized logins, account takeovers, and misuse of payment information had a structure that made them more likely to materialize in proportion to the increase in users. The fact that the system configuration and operational flows were in a transitional phase as the microservices migration progressed also increased the difficulty of risk management on both the technical and operational fronts.

In May 2021, in response to the ongoing occurrence of data breaches and fraudulent payments, Mercari made the decision to go beyond responding to individual incidents and strengthen its security measures and risk management framework. In addition to identifying the scope of impact, notifying affected users, and providing compensation, the company indicated a policy of reviewing its system monitoring and fraud detection mechanisms.

This was a management decision to systematically allocate resources to the governance domain, which had tended to be deprioritized under a growth-first operational policy. The distinguishing feature was that the tradeoff between convenience and security was recalibrated, with maintaining trust positioned as a priority issue.

Through responding to ongoing fraud incidents, Mercari came to accept the increase in security investment and operational costs. While this depressed profit margins in the short term, it was an unavoidable choice to maintain the platform's trustworthiness.

This phase indicated that Mercari was transitioning from a stage of prioritizing growth speed above all to a phase emphasizing stable operations and risk management. The series of fraud issues in 2021 became a turning point that reaffirmed the importance of responsibility and governance as a platform company.

In the late 2010s, Mercari was seeking growth opportunities overseas, particularly in the U.S. market, leveraging its dominance in the domestic C2C market. The U.S. had early widespread smartphone adoption, and the market for personal trading was large, suggesting the potential to replicate the model established in Japan. However, existing e-commerce platforms and secondhand trading culture were already well-established in the U.S. market, making it difficult to differentiate through simple UI improvements or convenience alone.

Furthermore, the U.S. business had prioritized user acquisition, continuing advertising investment and headcount expansion, resulting in a structure where monetization lagged behind despite growing transaction volume. Investment had continued on the premise of the domestic profit base, but changes in exchange rates and the competitive environment were gradually revealing divergence from the expected growth curve.

In June 2021, Mercari made the decision to record a massive impairment at its U.S. subsidiary Mercari, Inc. This was a judgment to conservatively reassess future cash flow projections and revise the growth assumptions that had been in place. The recognition was that business value assessments needed to be brought down to realistic levels, even at the cost of accepting short-term earnings deterioration.

This impairment did not negate overseas expansion itself, but rather meant revising the assumptions about investment scale and payback period. It was positioned as an accounting adjustment for transitioning to operations with selection and concentration, rather than expansion across the board.

The recording of the massive impairment had a temporarily significant impact on Mercari's consolidated results. It became clear that the overseas business, which had priced in growth expectations, would not contribute to profits in the short term, and the strategy's validity was questioned anew by investors and the market.

On the other hand, this impairment can also be viewed as squarely facing the current state of the overseas business and establishing the preconditions for redesigning future strategy. As a result, Mercari transitioned to a stage of re-examining the overseas expansion from a long-term perspective, reconsidering investment efficiency and business priorities. The impairment in June 2021 became a turning point involving realistic recognition within the global growth strategy.