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.
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.
posted by Harsh at
9:56 PM
2 Comments:
You wouldn't happen to know whether the aforementioned merchants, could be foreign? Like selling from a different country?
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