The Influential Internet

Since the creation of the internet the power each force has in Michael Porter’s Industry Structure Model has shifted. These shifts have been advantageous to some forces while detrimental to others.

The Internet has had an overall negative impact on the five forces, one of which being the ‘Rivalry Among Existing Competitors’. The Internet has taken the distinctive experience out of shopping. While car dealerships use to rely on showrooms and trendy clothing stores relied on music and motif, when put on the web these differences do not translate to the internet. The online shopper isn’t looking for a new experience, they are looking for a quick, convenient, and cheap way to get what they want. This makes competition based more on price than quality of the experience making it hard for competitors to distinguish themselves. The internet also has eliminated the importance of location–now that orders made over the internet can be shipped next day, there is little advantage to being local to the consumer (since cost and convenience carry more weight than stimulating local economy these days).

The Barriers to Entry of industries have also been negatively affected. Instead of needing to rent a space for your new tchotchke store you can simply run it out of your basement. This also eliminates the need for physical assets such as cash registers, tables, and chairs, and other products depending on the size of the operation. For example, if I’m setting up Yahoo!, all I need is the trailer at my school and their servers to start off. Once I’m in the market I will require more assets but this is once I’ve broken the entrance barrier and it no longer matters that I started with nothing. The process was easy and I broke through. The issue is anyone can do this and new entrants can come into the market at any time (and they do). And since my idea is difficult to keep proprietary, new entrants can easily come in that prove more convenient and decrease my influence.


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Comments
2 Responses to “The Influential Internet”
  1. Differentiation did go away in many industries and price became the most important aspect. However, I do think differentiation in some industries became all the more important. The example I’m thinking of is myspace vs facebook. Similar services but one failed and the other succeeded. Now im sure there are many reasons why fb won that battle but I think part of it was that they are able to differentiate their service enough from myspace.

  2. After I read your post, I was trying to think of two purely internet-based companies and what they used to differentiate themselves. The first example that came to mind is Amazon.com versus Overstock.com. Many people think of Amazon as a “one stop shop” for anything from electronic books to lawnmowers, and for many they are the go-to website for shopping for pretty much anything, so we can only imagine the challenges that Overstock faced while trying to make a name for themselves. Overstock used their fixed shipping rate as a differentiator, as well as their Worldstock Fair Trade section, which sells handmade items from various countries. Even though Overstock isn’t nearly as popular as Amazon, they do a good job in making sure their users have a different shopping experience than at their competition.

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