An introduction to Michael Porter’s five forces industry analysis
Porter’s five forces is a model for industry analysis, the framework for which was provided by Michael Porter. The model analyses an industry as being affected by five different forces. Executives of organizations who look to edge out rival firms can get a better understanding of the industry in which they operate, by using the five forces model. The model assumes the presence of five important forces, which determine the competitive power of any firm in an industry. The five forces for Google are:
Threats due to new entrants in the market: With Yahoo and Microsoft considerably improving their search engines, they are in a position to easily install their search tools along with their products. The competitiveness of any firm is affected by the ability of new players entering the arena. Any better search engine developed by any company will drastically effect the performance of Google. It needs to be emphasized here that around 40% of the revenues of Google come from advertising in association with its search engine.
Google can be affected by the presence and absence of any specialist knowledge, in any functional aspects of the firm, that can make a big difference to the competition. Regulations for online marketing are not fully evolved and the evolving rules can affect the Google’s current technology. Power of Suppliers: Suppliers are capable of driving up prices based on their presence in the market, particularly when their services or products are unique. Google is a more regionally dominant player, rather than a major global player. Microsoft embedding its search tools into Google’s browser brings value to Google.
However Microsoft’s tools are unique and cannot be easily replaced or substituted. When synergies exist for the suppliers, they are more powerful, given the fact that Microsoft has its own search tool too. As far as the threat of forward integration is concerned, there is a possibility that Google Search might not be very effective with new product releases from Microsoft and Apple. Availability of Substitutes. With switching costs being negligible, buyer’s intention to substitute is basically on the performance of the search tool.
The speed and accuracy of the search tools and the dumping of advertisements could affect buyer inclination to switch. When alternatives to its service are available, which more than meets their requirements; customers will not hesitate to move away from Google. For users to be loyal they require more complex and sophisticated services, for which Google needs to constantly update its services and improve performance. Since the ad revenue is linked to usage, even a small percentage use loss can mean significant dip in earnings for Google.
Any loss of trade secrets associated with staff moving from one company to another can affect Google considerably. Competitive tactics: As the guidelines have not been fully defined, the operating environment can be easily exploited. The number of competitors in the market and their abilities has its affect on the power of Google. With only very few rivals in the fray (Yahoo, Microsoft) the rivalry is more oriented to an oligarchy, which in the future could be interpreted as an restriction of trade by individual countries. When the firm’s offerings are easily obtained, then it is difficult to maintain a very strong position.
Unfortunately switching costs related for most search tools is little and search tools of rivals are similar to Google’s tools. Improving search engines is a difficult task involving several skilled IT technologists and any successful feature improvement by competitors can make a huge difference to Google. Power of Buyers: Search engines are used by a large number of people and any minor set backs could cost a lot to Google, with people moving away from it. Search rankings is a important leverage point by search tools owners in bargaining with their buyers, although loss of ranking has in the past led to disputes and defamation suits.
The search tool users are getting more knowledgeable expecting more services for free. As substitutes are also available free, Google has to constantly provide more features for free. Search companies can only develop features based on guess and polls, since there is no real direction on what the web community expects. This can lead to development of less required and less useful tools at very huge investments that can eve threaten Google’s sustenance. Reference James. (2008) Porter’s Five Forces for Google Retrieved on 6th March 2009 from http://mbtgoogle2. blogspot. com/2008/09/porter-5-forces-for-google. html