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Both Internet and Computer Software are attractive industries that involve many companies. However, to become a viable force in either industry, it takes both innovation and resources. This reduces the threat of new entrants, but could allow for existing companies in either industry to easily branch into the other.
Supplier Power - LOWSupplier bargaining power is currently low and should remain low as long as Google maintains strong market dominance. Because of the ad system they use to generate income, both the advertiser and the receiver are Google clients. The Android phone system has been selling with great success for all mobile phone companies, so suppliers of these items want to maintain a good relationship with Google as well, putting them in a somewhat powerless position.
Buyer Power – STRONGBuyer power is strong in both the Internet and Computer Software industries. There are many competitors that host alternatives to Google’s offerings. While many of Google’s services are free, they rely on advertising to generate a moderate percentage of their revenue. If people choose not to use their services, this could cause a drop in advertising clients, affecting Google’s bottom line. There are also many companies that create mobile phone operating systems, allowing consumers the choice not to buy Google based phones. Because of this, buyers could potentially control pricing if there is a general consensus that prices are too high.
Competitive Rivalry – MODERATEWhile Google does have current competitors in the search engine game (the two largest being Yahoo and MSN) it still commands a large majority of internet services. Its search engine is by far the most used year after year, and innovations like Google Earth and Street View leave competitors playing catch up. Yahoo and MSN both constantly update their services but they have yet to capture the success Google has.When introducing the Android operating system, Google put themselves in competition with Apple’s iPhone. While it may be true that Android phones make up a larger share of the market than iOS phones, Apple only has a few versions of a phone that uses their OS. Many different companies have released Android power phones, making the market much more saturated. However, there is no one Android phone that would come close to the market share of the iPhone on its own.
Threat of Substitution – LOWThe internet has become the primary source for information gathering and queries, and the backbone of this is built off search engines and other services that return the results needed. With such a commanding presence, Google Inc. has itself positioned for long term success on the internet. As of now, there is no foreseeable substitution for the internet. The closest would be a theoretical step backwards by depending on physically locating information through publications, which would have a large negative impact on both time and money of all involved.
Threat of New Entry - MODERATEGoogle Inc. has a low risk of new entry threat because of the high level of entry barriers. It would take a massive starting capital to build a startup network infrastructure to compete with all Google’s online services and products, and would be a considerable feat to maintain and upgrade services and products at a rate that would usurp their current control of the industry.What could pose a threat of new entry for Google is a company focusing specifically on one of the services offered by Google. BY focusing all of their attention on one product, they could potentially develop a single better product than one of Google's if they have the talent and information necessary.
http://www.benmorrow.info/external-analysis-of-google-inc
Google has a responsibility to manage its operations for the benefit of its stakeholders.
Stakeholders include not only the shareholders of the company’s stock, but also the
employees, customers, suppliers, trade associations, and community. Google decisions
may be influenced by the government, activist groups, and the media, all who have their
own agendas and responsibilities to the people they serve. Each stakeholder has a
relationship with Google and this relationship is the source of the stakeholder’s power to
affect Google’s decisions. Google’s distributed business model ensures that no
stakeholder has a level of importance that could singly change the direction of the
company, but the way that the mass of web users, media, and governments interpret
their activity could influence the company’s objectives.
It is Google’s management’s job to ensure the survival of the firm and the long-term
benefits of the stakeholders. Litigation and politics often have an effect on both the
short-term and long-term results and that is why it is important to be vigilant of the
external environment. Some stakeholders have conflicting claims, such as the user’s
right to information and the government’s responsibility to protect information – or
consequently, the user’s right to privacy and the government’s right to access records.
Management is tasked to weigh the seriousness of each claim and decide which
outcome will best benefit the majority of their stakeholders.
Porter’s 5 Forces Analysis
Porter’s 5 Forces analysis is a framework for industry analysis and business strategy
development relative to the competitors of the firm (QuickMBA, 2007).
Potential New Entrants
The barriers to entry in the internet search market are high. The current competitors
have thousands of servers deployed in locations all over the world and have
accumulated many years worth of data about user habits. A new entrant would need to
provide better search results at very fast speeds to compete in this highly competitive
market. With that in mind, it must be recognized that when Google was founded in
1998, Yahoo, Excite, and Altavista dominated the search market and Google has since
eclipsed them all (Viney, 2007). The market now, however, is more mature with a
necessary path dependency to gather data on both the content of webpages and the
search history of users. Therefore, the threat of new entrants in the internet search
market is relatively low.
Suppliers
Google’s ad system is a reliable source of income because both the ad-making partner
and ad-receiving individual are both customers of Google’s. So as long as Google
maintains its market dominance with the search product, supplier bargaining power will
remain low. Google’s cost of revenue as a percentage of sales in 2007 was 40%
(Google, 2007). This number is the same for Yahoo (Google, 2007) suggesting that
both companies are equally efficient at maintaining supplier-seller collaboration.
Current Competitors
Figure 2. (Google, 2008)
Google’s stated goal is to “organize the world’s information” (Google, 2008), and to
merit they have created many complimentary products to their main internet search
service. Targeted advertisements based on the information they collect with their
products are Google’s primary source of revenue. In 2007, Google had revenues of
$16.6 billion which grew an average of 115% annually in the preceding five years
(Google, 2008).
Google’s main competitors, Yahoo, and Microsoft (operating under their respective
brands – MSN and Live Search), posted revenues of $7.0 billion and $51.1 billion
respectively (Google, 2007). There is a dizzying amount of money made in this industry.
Figure 3. (Agence France-Presse, 2008)
Presently, Google commands 57% of internet searches in the United States (Agence
France-Presse, 2008). This large market share enables them to improve the quality of
their search results and targeted ads more quickly than their competitors. This creates a
sort of self-perpetuating draw for customers as the search results constantly improve.
Yahoo and Microsoft lag behind with 23% and 11% respective market shares (Figure 3)
(Agence France-Presse, 2008). The competitive rivalry is strong and ongoing in this
industry because large amounts of advertising dollars flow to the website that has
captured the largest volume of searches.
Customers
As of 2007, 99% of Google’s revenues are derived from advertising (Google, 2008).
However, no single account contributes more than 3% to net revenue, and less than 5%
of the revenue is generated by any given network partner site (Google Inc., 2007). This
means that no single buyer has a controlling interest. In Google’s system many
advertisers bid on keywords. Popular keywords like “Dallas Texas” are sold for much
higher value-per-clickthrough than obscure topics (Google, 2008). This distributed
approach allows Google to attract both large companies and small “mom-and-pop
shops” keeping buyer power low.
Potential Substitutes
In 2008, the internet has become the mode chosen by millions of people all over the
world to request and retrieve information. In light of this fact, there really is no suitable
substitute for search. Information can be organized in different ways including
categories and sorted by date, but Google provides tools to complete these tasks as
well as conduct searches. A substitute product may be invented in the future, but there
are no obvious substitutes to organizing information on the internet.
Google has positioned itself well to weather each of Porter’s Five Forces of Competition
as well as stay afloat in a turbulent external environment. Google’s ability to please its
stakeholders will continue to define the success of the venture and the future of the
company.
http://mbtgoogle2.blogspot.in/2008/09/porter-5-forces-for-google.html
Porter's 5 forces for GoogleRepost from James original in full.
Force Impact on Google
Supplier/Power Google is regionally not globally dominant. Competition Elimination and Substitution: Microsoft embedding their search tool
into their Explorer browser. Threat of forward integration – Google search may not perform as well with new
software releases from Microsoft and Apple.
Barriers to Entry
(Potential for New Market
Entrants)
Yahoo & Microsoft have radically improved their search engines and can on pass/deploy their search tool through their products.
There is no such thing as the perfect search engine – thus a better search engine invented by another will critically affect Google – mayhap even mortally as 40% of the company revenue comes from advertising which is driven through the search engine.
Online marketing and the rules governing what is good and bad practices (e.g. cloaking <reference>) are still evolving – this could affect Google’s current technology and philosophy.
Switching costs are mostly related to hardware (storage of indices and speed of information return) and accuracy related (webbots/crawlers)
Search tools are easily scalable. While there is currently not a great degree of ‘legislative interference’ this will most
likely change <web reference to Google and Big Brother>
Competitive Rivalry
(Degree of Rivalry)
<Level>. Rules/ethic have not been defined so the environment is easily exploited or manipulated.
Currently there are only a few rivals (Microsoft, Yahoo) so the degree of rivalry is more oriented to an oligarchy – this could bring attention of UN or individual countries as a restriction of trade in the future.
Switching costs for most of the search tools are nothing. Brand identity is important (if not paramount – Google has made the language as a
noun and a verb) Rival search tools are not dissimilar to Google’s tool. Search tools are also used without overt referencing (which impinges on their
discoverability) – eBay’s search tool is Google. Improving on the search engine and its features is a significant task for a large
number of highly skilled IT technologists.
Treat of Substitutes(Product & Technology) Development
High. Switching costs are negligible Buyer inclination to substitute is primarily driven by speed and accuracy of the result
and also by the overt pushing of ads that are included with the search results and pages.
Users of the search tool are demanding more services and complexity or sophistication with the search tool to remain ‘loyal’ to its use.
Ad Revenue is directly related to use - - even the loss of a small percentage of use can mean significant revenue loss to Google or the other search generating companies.
Technology requires extremely skilled staff – high degree of competition for a limited pool.
Loss of company/trade secrets if skilled staff more from one search generating organisation to another.
Buyer Power Use of the search rankings is a significant leverage point by the owners of search tools in bargaining.
Loss of ranking has in the past led to costly legal arguments – equivalent of e_defamation_of_character or denial of services <add references>
Users of the search tool are becoming more sophisticated and demanding other services also for free.
Substitutes are available – and for the same price: free No real reviews are undertaken on what features the web community would like to
see so each search company employs researches to straw poll/guess directions. Two client groups – web community wanting to search/locate items and the
organisations selling products – have to satisfy both client groups equally. Threat of backward integration?
https://sites.google.com/site/11900714y/home/5force
PORTER’S FIVE FORCES ANALYSISThere are five components in Porter’s Five Force Model, namely, the threat of entry, the power of customers, the power of suppliers, the threat of substitutes, and competitive rivalry. This is used to analyze the external environment of Yahoo! Inc in a clear and structured way, understand the strengths of Yahoo! and threats from competitors and substitutes. The threat of entryThe threat of entry is weak because of the followings: Capital Requirement and TimeIt needs millions of dollars to develop a site similar to Yahoo! for a new entrant. And it takes a long period of time to build up the company will and attract millions users. It is not likely that competitors will enter the market. Economies of ScaleThe threat of new entrants in search engine market is relatively low because competitors, Google & Altavista, have numerous servers in all over the world and has captured so much data about user habits, a new entrant would have to provide even better search results at faster speed and presents information from diverse sources in a more unified and customized way.Also, in email service industry, Yahoo! is the second largest web-based e-mail service with 273.1 million users in 2010(David Viney, 2007). The large amount of users makes the new comers difficult to join and compete. Absolute Cost AdvantageIn this competitive market, the new entrants have to possess an absolute cost advantage comparing to others, for example, new entrants have to come up a better, cheaper and more efficient plan to gather information from different parties or to distribute the information from itself. Or, new entrants have lower cost of producing the services compared with Yahoo!. Brand LoyaltyFor new entrants, this brand loyalty is a tough entry barrier to overcome unless the rival product offering is of fundamentally and significantly greater value than what Yahoo! is offering. Therefore, the market now is more mature with a necessary path dependency to gather data on both the content of web pages and the search histories of users. With such competitive and mature market and strong competitors, the threat of entry rather low.
Switching CostThe switching costs are quite high as customers get used to Yahoo! and it is time-consuming for them to switch to new web-portal or other services or they simply would switch to other strong competitors in the market but not new entrants. The bargaining power of customersThe bargaining power of customers is high because of the followings: Availability of substitutesThere are different search engines on the market besides Yahoo! Search. Users can switch to other engines if others have better performance. For example, users can choose Taobao instead of Yahoo! Auction, YouTube instead of Yahoo! Video, and Hotmail instead of Yahoo! Mail. Undifferentiated servicesThe services offered are undifferentiated like Yahoo! Dictionary as Reference.com provides similar or even better features than Yahoo!. Therefore, slight differences in services could enhance customers’ bargaining power in this industry. Switching CostThe switching cost of Yahoo! customers is rather low, for instance, customers can check the product prices on many websites by a few mouse clicks. According to Gregory Dess (2007), “The Internet and wireless technologies may increase buyer power by providing consumers with more information to make buying decisions and by lowering switching costs”, therefore, it reveals that the decreasing switching costs can enhance the bargaining power of customers.The bargaining power of suppliersThe bargaining power of suppliers is medium because: Numerous suppliersIf programmers refuse to work, there are thousands of people can replace them. If companies that supply content or programming increase price, there are other companies in the same space that do the same exact work. Yahoo! can hire any programmers it chooses to accomplish tasks and can bring the work in house or hire new contractors or new companies to complete the work.Also, other main suppliers are the companies who advertise its business in Yahoo! Search Marketing and Yahoo! Advertising and they are reliable source of income because both the ad-making partner and ad-receiving individual are both customers of Yahoo!’s and there are thousands of suppliers for Yahoo! so no single supplier can influence the profitability of Yahoo!.
The threat of substitutesThe threat of substitutes is strong because of the followings: Strong competitorFor search engine, Google is the strongest competitor to Yahoo! as Google already dominates the search engine market share. Besides that, YouTube also dominates the video sharing service industry. Apart from that, Google launches iGoogle which could be a great threat to Yahoo! Web portal because it also provides a customized web portal for users that they can customize their own homepage.The following part will examine the competition between Yahoo! and other strong competitors:
From the source of Comscore in the late December 2010, unique visitors for Yahoo! Site were around 600,000,000. Compared to other main competitors like Google and Microsoft, the numbers of unique visitors of their site were about 900,000,000 and 850,000,000 respectively. The difference is huge.
“Information system management” is used to search in the three engines, namely bing(Figure 2a), Google(Figure 2b) and Yahoo! (Figure 2c). The number of search results and time needed is different among them. Bing has 237,000,000 results. Google has 575,000,000 results. Yahoo! has 239,000,000 results.
(source: http://marketshare.hitslink.com/search-engine-market-share.aspx?qprid=4&qpcustomd=0#)
From figure 3, we can know that the search engine market is dominated by Google which owns 82.4% of the market. And Yahoo! owns 6.84% only. This shows that Google is the strongest competitor of Yahoo! in search engine market. Switching CostAs there are many search engines in the market, customers can switch from Yahoo! to Google or Bing without great switching cost. All they have to do is clicking the mouse. Besides, the cost of switching from advertising on search engine to doing the same on social networks is almost non-existent. Therefore, social networking sites offer a real threat to Yahoo!. Customers’ PreferenceThe rise of social networking sites are great threats to Yahoo!. Most users of social networking sites log in their accounts every day and spend a few hours on interacting with friends/ checking status of friends. In short, the inclination toward social networks is natural and is much more powerful than the simple brand recognition.Some advertising on Yahoo! may switch to those social networking sites because users login every day and the advertisement can reach its target directly. It is because there is longer airtime compared to search engines where the advertisements last only a few minutes at the most before the user clicks on the link they need and exit the search engine.Also, social networking sites hold a lot of user information, say, user’s gender, age, habits, family members, friends, and so on. They are therefore able to offer advertisers a suitable and wider range of target.Figure 1(P.7) shows that Facebook is also a famous social website which attracts millions of visitors. They provide a multi-functioned and convenient platform for users. Many
outsourced applications provided is also a successful component of Facebook. In Nov 2010, the numbers of unique visitor on Facebook even exceeded the numbers of Yahoo! Sites. Clearly, increasing market share and user growth of competitors reduce the competitiveness of Yahoo!. The competitive rivalryThe intensity of competitive rivalry is high because of: High Exit BarriersTermination of a large number of servers, personnel, goodwill and legal issues would cost million dollars for Yahoo! to quit the business. Yahoo! has built its brand value laboriously at great costs and such cannot be easily ignored.Moreover, Yahoo! handles much personal and other confidential or vital information belonging to users. Unprecedented lawsuits and bad brand equity for any brands associated with the closed operation if suddenly withdrawn. ConclusionThe Five Force model helps analyzing the external environment of Yahoo! in a detailed and organized way.It shows that the threat of entry is low because of the domination of a few companies in the market. Besides that, the bargaining power of customers is strong as their switching costs are low. Moreover, the bargaining power of supplier is medium as the number of suppliers is huge in the market. Furthermore, the intensity of competitive rivalry high because of high cost in existing the business. Lastly, the threat of substitutes is strong because the existing corporations are strongly competitive.Based on the above analysis, it can be concluded that the strong competitors in the market indeed cause problems or somehow challenges to Yahoo!.
