102685826 porter s 5 porters 5forces google

7/29/2019 102685826 Porter s 5 porters 5Forces Google

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http://mis7160team4.wikidot.com/forum/t-449120

Both Internet and Computer Software are attractive industries that involve many

companies. However, to become a viable force in either industry, it takes bothinnovation and resources. This reduces the threat of new entrants, but could allowfor 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 Googlemaintains strong market dominance. Because of the ad system they use togenerate income, both the advertiser and the receiver are Google clients. TheAndroid phone system has been selling with great success for all mobile phonecompanies, so suppliers of these items want to maintain a good relationship withGoogle as well, putting them in a somewhat powerless position.

Buyer Power STRONGBuyer power is strong in both the Internet and Computer Software industries. Thereare many competitors that host alternatives to Googles offerings. While many ofGoogles services are free, they rely on advertising to generate a moderatepercentage of their revenue. If people choose not to use their services, this couldcause a drop in advertising clients, affecting Googles bottom line. There are alsomany companies that create mobile phone operating systems, allowing consumersthe choice not to buy Google based phones. Because of this, buyers couldpotentially control pricing if there is a general consensus that prices are too high.

Competitive Rivalry MODERATE

While Google does have current competitors in the search engine game (the twolargest being Yahoo and MSN) it still commands a large majority of internetservices. Its search engine is by far the most used year after year, and innovationslike Google Earth and Street View leave competitors playing catch up. Yahoo andMSN both constantly update their services but they have yet to capture the successGoogle has.When introducing the Android operating system, Google put themselves incompetition with Apples iPhone. While it may be true that Android phones make upa larger share of the market than iOS phones, Apple only has a few versions of aphone that uses their OS. Many different companies have released Android powerphones, making the market much more saturated. However, there is no oneAndroid 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 returnthe results needed. With such a commanding presence, Google Inc. has itselfpositioned for long term success on the internet. As of now, there is no foreseeablesubstitution for the internet. The closest would be a theoretical step backwards by
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depending on physically locating information through publications, which wouldhave 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 entrybarriers. It would take a massive starting capital to build a startup network

infrastructure to compete with all Googles online services and products, and wouldbe a considerable feat to maintain and upgrade services and products at a rate thatwould usurp their current control of the industry.What could pose a threat of new entry for Google is a company focusing specificallyon one of the services offered by Google. BY focusing all of their attention on oneproduct, they could potentially develop a single better product than one of Google'sif they have the talent and information necessary.


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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 companys stock, but also the

employees, customers, suppliers, trade associations, and community. Google decisionsmay 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 stakeholders power to

affect Googles decisions. Googles 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 companys objectives.

It is Googles managements 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 users

right to information and the governments responsibility to protect information or

consequently, the users right to privacy and the governments right to access records.

Management is tasked to weigh the seriousness of each claim and decide whichoutcome will best benefit the majority of their stakeholders.

Porters 5 Forces Analysis

Porters 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
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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 thesearch history of users. Therefore, the threat of new entrants in the internet search

market is relatively low.

Suppliers

Googles ad system is a reliable source of income because both the ad-making partner

and ad-receiving individual are both customers of Googles. So as long as Google

maintains its market dominance with the search product, supplier bargaining power willremain low. Googles 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)

Googles stated goal is to organize the worlds 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 Googles primary source of revenue. In 2007, Google had revenues of


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$16.6 billion which grew an average of 115% annually in the preceding five years

(Google, 2008).

Googles 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 hascaptured the largest volume of searches.

Customers


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As of 2007, 99% of Googles 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 Googles system manyadvertisers 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 theworld 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 weathereach of Porters Five Forces of Competition

as well as stay afloat in a turbulent external environment. Googles ability to please its

stakeholders will continue to define the success of the venture and the future of the

company.


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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 integrationGoogle search may not perform as well with new

software releases from Microsoft and Apple.

Barriers to

Entry

(Potential for

New MarketEntrants)

Yahoo & Microsoft have radically improved their search engines and can onpass/deploy their search tool through their products.

There is no such thing as the perfect search enginethus a better search engine

invented by another will critically affect Google mayhap even mortally as 40% ofthe 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 ) are still evolvingthis could affect Googles 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

Competitive

Rivalry

(Degree of

Rivalry)

. Rules/ethic have not been defined so the environment is easily exploited ormanipulated.

Currently there are only a few rivals (Microsoft, Yahoo) so the degree of rivalry ismore oriented to an oligarchythis 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 Googles tool. Search tools are also used without overt referencing (which impinges on their

discoverability)eBays 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 resultand 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 staffhigh degree of competition for a limited

pool.
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Loss of company/trade secrets if skilled staff more from one search generatingorganisation to another.

Buyer Power Use of the search rankings is a significant leverage point by the owners of search toolsin bargaining.

Loss of ranking has in the past led to costly legal argumentsequivalent ofe_defamation_of_character or denial of services

Users of the search tool are becoming more sophisticated and demanding otherservices also for free.

Substitutes are availableand 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 groupsweb community wanting to search/locate items and the

organisations selling productshave to satisfy both client groups equally. Threat of backward integration?


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https://sites.google.com/site/11900714y/home/5force

PORTERS FIVE FORCES ANALYSISThere are five components in Porters 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 Time

It 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 Scale

The 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 Advantage

In 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 Loyalty

For 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! isoffering. 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 Cost

The switching costs are quite high as customers get used to Yahoo! and it is time-consuming for
https://sites.google.com/site/11900714y/home/5forcehttps://sites.google.com/site/11900714y/home/5forcehttps://sites.google.com/site/11900714y/home/5force


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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 customers

The bargaining power of customers is high because of the followings:

Availability of substitutes

There 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 services

The 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 Cost

The 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 suppliers

If 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 competitor

For search engine, Google is the strongest competitor to Yahoo! as Google already dominates


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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 werearound 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.
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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.
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(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 Cost

As 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 Preference

The 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, users 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
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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 rivalry

The intensity of competitive rivalry is high because of:

High Exit Barriers

Termination 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.

Conclusion

The 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!.


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