Remaining relevant in business requires a clear understanding of the external forces that might affect an organization. Porter mentions that businesses have to stay wary of the external forces that might bombard the organization, and affect its position in the market.[1]
Forces such as competition from established rivals, buyer power, supplier power, threats from new entrants and threat of substitution play a critical role in the business environment. Internet businesses such as eBay, Facebook and Uber must, therefore, take note of these forces, especially threats from new entrants and buyer power to stay competitive in the market and maintain their market share.
Porter notes that for an established business, threats within the industry may cause concern. The first force companies worry about is the threats from already established competitors, who already have a market share.[2] Competitive rivalry keeps the businesses on check, and customers and suppliers may opt to change when they feel they can get a better deal. Companies such as eBay and Amazon, for instance, compete within the same segment and must keep up with their rivals to remain competitive, and maintain a market share.
Additionally, the threat of substitution is a force internet companies must observe. If competitors come up with new ways to supplement a product, one is offering or a cheaper product, then it becomes easy for such a company to substitute a business in the market.[3]
Substitution may occur through the introduction of new, better products, or the introduction of cheaper products or services. Either way, internet companies are at risk of substitution and must keep up with competitors to stay viable.
Every organization or company must have suppliers. People who supply raw materials, or services to internet companies can have the potential power to switch to other, better companies. Organizations with few suppliers are at risk of being exploited by the supplier due to excess supplier power over them.[4] If an organization has many suppliers, the company becomes superior and is not affected by supplier power.
In the recent past, the revolution of the internet and technology has enabled many internet companies to rise. For internet companies, the threat from new entrants is very real, even if they are already established in the market. Before Facebook, Myspace was very famous and the only social networking company. Facebook entered the market and took over, taking the largest market share among social networking sites. Amazon and eBay are established companies offering similar products and services too. The threat of new entrants should concern these organizations, unlike ordinary organizations.
It is important to note that one may argue the threat of new entrants does not cause much concern. New entrants are bound by factors such as economies of scale, cost disadvantages, large capital requirements, government policy, and even distribution channels.[5]
Nevertheless, internet companies can succeed despite these barriers. The internet as a platform is unique and businesses relying on the internet do not follow similar protocols. A business like Uber, for example, may be established in its market. However, considering the internet platform, good marketing and the constant need for new exciting services might have a new company rise easily.
The buyer power, just like the threat of new entrants is critical for internet companies.[6]
Internet companies such as Facebook deal with young people, who are always eager for new and exciting things. If an organization is not careful, losing buyers to new companies is possible.[7]
Facebook identifies new companies that buyers have an interest in and buys the companies to avoid buyer exploitation. Facebook acquired companies such as Snapchat and WhatsApp because they noticed the buyers were interested in them.
In conclusion, Porter’s five forces are critical to every organization, even the internet organizations. Internet organizations are mostly affected by new entrants and buyer power, what with the dynamism on the internet, and the constant need for new and exciting services people need. It is, therefore, important for internet companies utilize Porter’s five forces strategies to stay competitive in the market.
Bibliography
Fung, Han Ping. "Using Porter Five Forces and Technology Acceptance Model to Predict Cloud Computing Adoption among IT Outsourcing Service Providers." Internet Technologies and Applications Research
1, no. 2 (2014): 18. doi:10.12966/itar.09.02.2013.
Magretta, Joan. Understanding Michael Porter: The Essential Guide to Competition and Strategy. Boston, MA: Harvard Business Review Press, 2012.
Porter, Michael E. "Harvard Business Review." How Competitive Forces Shape Strategy, 2000, 137-45. doi:10.1007/978-1-349-20317-8_10.
[1] Michael E. Porter, "Harvard Business Review." How Competitive Forces Shape Strategy, 2000, 137.
[2] Ibid., 137
[3] Joan Magretta, Understanding Michael Porter: The Essential Guide to Competition and Strategy (Boston, MA: Harvard Business Review Press, 2012), 34.
[4] Ibid., 36
[5]
Michael E. Porter, "Harvard Business Review." How Competitive Forces Shape Strategy, 2000, 138.
[6] Ibid., 141
[7]
Han Ping Fung, "Using Porter Five Forces and Technology Acceptance Model to Predict Cloud Computing Adoption among IT Outsourcing Service Providers," Internet Technologies and Applications Research 1, no. 2 (2014): 18.
