The following table is an example of the Porter’s Five Forces Model applied to the Global Internet & Services Industry. I explain the industry infrastructure of Internet companies like Google Inc. according to the threat of entrants, buyer power, threat of substitutes, supplier power, and rivalry.
Threat of New Entrants There is a moderate degree of new entrants into the global internet and services market. It is a very labor intensive industry while depending mostly on highly skilled employees. Overall though, it is a desirable industry to be in. Innovation/technological change, and R&D investment is very important so for potential new entrants it would require a large initial investment. Government regulations and large startup costs may deter new entrants but overall it is an attractive industry.
Buyer Power There is a moderate amount of buyer power in this industry. Revenue for companies such as Google are generated by their advertisements. This business model gives control to the buyers who use those services and “click” on those advertisements. In this case, revenues from advertising are heavily dependent on the amount of people using the software and services. On the other hand, the market players enjoy a wide variety of potential customers, in turn weakening buyer power.
Threat of Substitutes The threat of substitutes is weak. Substitutes in this industry are considered as the more traditional outlets like, print and TV. Leaders in the internet and services industry pose more of a threat to those media outlets, than they do to Google, or other leaders.
Supplier Power Supplier power in this market is strong. Supplier power for Google isn’t very strong because they use their own software and hardware infrastructure. As for other market players, hardware components are usually purchased from large suppliers with differentiated products, giving them more power in negotiation. Servers are a main component of companies that work in the internet and services business and they rely heavily on suppliers to provide them with good quality, great speed, reliable, and energy efficient machines. Success in this market also requires skilled developers/programmers.
Rivalry Rivalry in this market is moderate. The market is highly fragmented even though Google and a few other leaders account for less than 10% of the global revenue. With technology always changing, new products are being introduced and it is creating a more competitive landscape with rivalry increasing. Some of the market leaders operate in a wide range of markets so they are not entirely focused on the revenue from the internet and services industry. This mitigates rivalry between key players.