According to Porter’s five forces model, in my opinion, competition has generally increased as a result of the Internet and electronic commerce. The Internet and information technology have made it possible to focus on both top and bottom performers, expanding market share and lowering costs. Many products and services exist only online, major companies have gone online to successfully augment traditional corporations, and the playing field reaches to the far reaches of cyberspace, wherever that may be. We will continue to evaluate this step through the five forces.
Buying power is greater when buyers have more options. Companies are forced to add value to their products and services to gain loyalty. Many loyalty programs include great services that customers demand online. Customers want their problems resolved and are often more successful online than over the phone. In addition, we see savvy Internet businesses springing up that offer more valuable goods and services at lower costs. Now, with the advent of eBay, many people are taking on roles as dropshippers. People can have a business selling products from larger companies without having to carry inventory.
Supplier power is greatest when buyers have fewer choices of whom to buy from. As mentioned above, drop shipping has increased the number of available vendors. All an individual has to do is train and agree to sell products for the company. The company handles all logistics. The same goes for the partner programs offered by Amazon.com and Google.com. Associates allow a webmaster to earn money by recommending other’s products. This increases the offers of the suppliers.
The threat of substitute products or services is high when there are many product alternatives. This is different from having many providers. Examples of alternatives are brand swapping, substituting credit card capabilities, and seeking better value from cheaper sources. The Internet enables this with the “global economy”. I can substitute my product by buying it from companies abroad where labor, services and products are cheaper, but of comparable quality.
The threat of new entrants is high when it is easy for new competition to enter the market. Well, what have we been talking about? Now, small operations can open a store for less than $10.00 per month and make a lot of money. No matter how inventive people are, there are always opportunities to improve a product or service or simply create and sell something new. Recently, many new entrants have made even more money creating e-books that tell others how to do what they did. Competitive rivalry is high when competition is most intense within industries.
Online bookstores and catalog companies are a prime example. Amazon.com and Barnesandnoble.com are very competitive. However, there are also many smaller niche affiliated bookstores which, when combined, take a huge market share. They offer even more competition. However, both major bookstores have used IT to create value for their customers. These values include partner programs, easy checkout and many, many others.
The Internet offers avenues of competition for existing businesses and opportunities for start-ups. Now businesses can enter the online marketplace with low barriers to entry. Porter’s Five Forces Model can help demonstrate the appeal of starting your business online. A business person should use the model to identify the competition, make a plan, and implement the process.