Case Study : Multi Jurisdictional Compliance: Yahoo ! Inc.

Case Study: Multi-jurisdictional Compliance, Yahoo Inc.


Introduction:

Yahoo! Inc. is a company running multiple websites in different countries offering various services including search engine and auction places. On its French auction site some third parties posted Nazi related documents and books which were considered racist and anti-Semitic. Two non profit French organizations working against racism and anti Semitism warned yahoo and asked it to remove those postings. Yahoo removed such postings from its website hosted from France but those organizations found similar postings on yahoo’s website hosted from the U.S. which was accessible even for French people.

For yahoo it wasn’t 100% technically possible to block French user accessing those postings. French organizations filed lawsuit against Yahoo for those postings but yahoo claimed that French court cannot enforced in the US under the laws of the US.


Jurisdiction by foreign courts over e-business:

It’s matter of debate since a long time for the new medium of internet in context of jurisdictional issues. Foreign courts can assume jurisdiction over e-business apparently on a few reasons mentioned below

• Website or e-commerce Company is offering product, material or publication which hurts feelings or beliefs of foreign residents.

• The material published on the website is an offense as per the laws of the foreign country.

• The website is hosted from the foreign country itself or is solely established for the people of the foreign country.

Here, third consideration is quite significant while foreign court decides to file lawsuit against an e-commerce company. It’s possible that the website is having material which is not suitable for foreign nationals. Though foreign nationals are able to access that website, if the website is not hosted from the foreign country and it’s not explicitly meant for the foreign nationals, it cannot be the base for the foreign court to file a lawsuit against the company provided that the country from where the website is hosted has no restriction for such material. The reason being for the same is that internet is a global open place and such restriction could harm rights of nationals of so many other countries.


Should the French court hold Yahoo Liable?

While Yahoo has removed controversial material from the website hosted from France, French court should no more hold yahoo liable because of the reasons mentioned below.

• Website having Nazi material is hosted from the US and it is not meant for French nationals.

• The US laws do not restrict Yahoo from publishing the material and French court cannot enforce lawsuit in the US
• Now when the material is not solely for French nationals, it is up to the person whether he/she wants to access it or not and yahoo doesn’t force anyone to access that material.

• Such jurisdiction can harm freedom of internet if every country starts enforcing its laws for the websites as internet doesn’t belong to any country and it’s a global open place.

Alternatively, France has an option of blocking any website from its gateway if it finds that the material is offence to the country rather than asking the e-business company to remove or block French nationals from accessing the same.


Recommendations for Yahoo:

Though Yahoo could get clean chit from the US court, company should have taken care when the very first time it let the third party publish offensive material on company’s website hosted in France.

To prevent such law suit in future, yahoo should

• Do prior research about the country’s culture and regulations before hosting its website in the country.

• Prevent third party to publish offensive material on company’s web space located in foreign country.

• Though it is not technically possible, Yahoo should try its best to block foreign nationals accessing its US website’s material which is not suitable for them or which can harm their feelings. Though it is not required by US law, would help Yahoo in maintaining good relationship with foreign country for its future endeavors.

Case Study: Next Card

Case Study: Next Card

Introduction:

NextCard was founded by Jeremy and Molly Lent in 1996. It was an innovative, internet oriented credit card issuer. The credit card issuing bank was known as NextBank and was fully owned by NextCard Inc. NextCard provided fastest credit card approval. They collaborated with companies like Amazon and provided its customers with promotional offers

Competing for customers:

There is stiff competition among credit card issuing companies for customer acquisition and retaining. Companies occasionally come up with promotional offers, incentives and rewards to attract customers. Here are a few attractions credit card companies offer.

Rebate: Rebate on certain products purchased using company’s credit card
Frequent flyer miles: Customers can collect frequent flyer points while flying through certain airlines using credit card and later those accumulated points can be used to get discounted or free air traveling.

Extended warranties: Credit card companies tie up with certain other companies and offer its customers extended warranty on those products provided that the customers buy those products using credit card.

Rewards: Credit card companies affiliate with some other companies and offer its customers reward points which could be spent while shopping with affiliate.

Cash Back: Credit card companies offer 1 to 2% cash back on the amount spent using credit card. Companies use fees earned from merchants for this cash back.

Annual Percentage Rate: Credit card companies offer 0% APR for first several months to attract new customers. Companies also compete by offering low APR later to retain their customers.

Instant Loans: Instant loan approval to the customers who have good credit history.

These offers reflect the fact that the customers have to spend money to save money and that is how credit card companies retain their customers and earn profit.

Analysis: NextCard

Strengths:

NextCard was innovative; it provided online applications and approval to the customers signing up. It had a consistent mission of providing internet oriented credit card service.

NextCard offered fastest credit card approval, less than two minutes to get balance on credit card and to transfer of balances from other accounts.

NextCard offered varying Annual Percentage Rate for different customers according to their credit profile. This way, customers with good credit profile were benefited and retained by NextCard.

NextCard was technology enabled and used it to track customers from the websites on which NextCard advertised. Ongoing assessment of the sites on which it advertised, NextCard could decrease its customer acquisition cost by 70% in 1999.


NextCard had earned recognition by its technological approach and was awarded with No. 1 internet credit card by Gomez

NextCard received approval from premiere site like Amazon.com and offered the Amazon credit card which helped NextCard in generating trust among its customers.

NextCard’s low charge off rate and Amazon deal kept it on a good financial position and its stock price went over 50%.

There was an increase of 22.1% in U.S. ecommerce market which was in favor of the company.

Reasons for failure:

NextCard was approving almost one in every four credit card applications online with low APR offering which was having higher level of risk involved than traditional channels.

Because of ease of application on internet, so many people with bad credit history took advantage of getting credit card from NextCard, many of them were potential frauds.

Economy started weakening in year 2000 which resulted in reduced demand of consumer credit.

NextCard had to tighten its criteria of eligibility to limit new account origination because of being announced undercapitalized by regulatory board and at the same time company pretended that the losses were related to fraudulent account origination and not credit or loan losses.

NextCard ran out of capital relative to the credit losses incurred in third quarter statement of 2001.

Company tried to find out some entity with large capital to sale the business but it couldn’t succeed.

A class action lawsuit was filed against NextCard for violating GAAP requirements by publishing materially false and misleading financial statements in year 1998, 2000 and 2001 showing credit and loan losses as fraud losses.

Aggregation of credit and law problems led NextCard to decline of 84 percent in its stock price.

Recommendations:

Though NextCard came up with innovative and technology enabled services, it should also have tightened its criteria of approving credit card applications. Though it could attract large number of credit card holders through its internet channel, not all of them were loyal and some of them never benefited the company.

While approving customers and defining their credit limit, company should have mapped its capital with potential credit consumers which would have helped the company in predicting consumer balances and it wouldn’t have become under capitalized.

Company should have been honest in its financial statements. Since 1998 the company knew that it is becoming under capitalized. It had enough time to sale the firm or gaining some capital by selling stocks, but it kept practicing the same way and finally when the fact opened up it was too late for NextCard to gain some capital.

Case Analysis: Rakuten Inc.

Case study: Rakuten

Introduction:

This Japanese company was founded in 1997 by Hiroshi Mikitani with the name MDM Inc. Later in 1999, it changed its name to Rakuten Inc. Rakuten went through a fast growth, starting with a small e-commerce company in 1997, by 2004 Rakuten has diversified itself into portal, auction, community, lottery and many more services like these. Rakuten is also a leading company in the field of online travel and securities brokerage. With its rapid growth and revenue generation, now it is time for the company to decide its next moves.

Rakuten’s Business Model:

Rakuten started e-commerce business with Business to Consumer model. It created a portal having a number of stores selling their products and / or services online. Affiliates had to pay a fixed monthly charge to Rakuten regardless of what sales they made. In return, Rakuten allowed merchants to list up to 1000 products on their virtual stores. Rakuten never went short of cash because of its fixed charge policy.

Rakuten also provided its merchants with an easy to use software called Rakuten Merchant Server (RMS) which allowed them to edit their online stores. The company also set up a support center which could be contacted by the merchants for troubleshooting the problems they come across while using this software or other features of the online store.

Case Analysis:

Strengths:

A huge portal with around 16200 merchants and 8.4 million product generating yearly revenues of around 18.1 billion yen and operating profits of 4.8 billion yen.
An excellent experienced management team with an MBA from Harvard leading it.
Low initial investment as inventory is managed by merchants and not by the company.
A well designed merchant server software designed exclusively for Japanese market characteristics.
Low web space rental cost compared to other online malls.
Rakuten has generated trust in affiliated merchants by giving them education for improving their competitive and technical abilities, holding their retreats to discuss marketing strategies, publishing electronic magazine for keeping them updated and by helping deciding strategies for the merchants who are struggling to increase sales.
At the same time Rakuten also has generated trust in their consumers by taking regular feedback from them about purchases they made and screening the merchants according to that.
Standing second among e-commerce portals of Japan with a huge clientele of 20.6 million unique consumers.
An up to date corporate culture. Mikitani motivated his employees and generated sense of responsibility in them by establishing a stock option plan for them at the time of its IPO.
Rakuten has also generated additional source of revenue by jumping into travel and financial services by acquiring huge shares of Japan’s biggest online travel booking services and third largest online securities Brokerage Company.
Japanese internet connections have increased to 77.3 millions and usage charges have gone down. Rakuten could acquire more and more consumers at this time.

Opportunities:

· Rakuten can diversify its business in more categories and products and can attract consumers by offering everything under one roof.
· Rakuten can start its business in new countries by contracting with international merchants and consumers and can obtain global identity.

Challenges:

Obtaining global identity
Maintaining the business and achieving the target of 100 billion yen profit.
Competing with companies like Yahoo and Amazon which are much more experienced and are doing business globally.
Retaining merchants and consumers in e-commerce industry where new companies are coming up with new technologies as there is no long term entry barrier and initial investment is quite low.

Recommendations:

According to data of past five years, Rakuten’s high profit growth rate is result of its e-commerce business. With rivals like Amazon and Yahoo in the market which are providing both B2C and C2C services with its well established brand names, it would become tough for Rakuten to maintain its profit rate in Japan itself. Thus, Rakuten’s first step should be diversification. Rakuten should concentrate on strengthening C2C services and expand its business in as many categories as it can.

After getting control over its domestic consumers, merchants and profit rate, Rakuten can think about expanding internationally. Rakuten’s present strategies are highly specific to Japanese market. While Rakuten is diversifying its business in Japan, it can start observing characteristics of other countries. Rakuten should also keep in mind that expanding internationally means direct competition with many more companies like Yahoo and Amazon. Rakuten will have to provide at least all the services currently provided by them as consumers would not like to switch their favorite online store if they are not getting something new and reliable.

Thus, Rakuten should make a long term strategy. It should first diversify its domestic services, retain consumers and after doing proper study of international market, it can expand internationally.