In order to assess the potential for profit in any industry, Porter's Five Forces analysis can be applied as an important tool.
a) Rivalry among Competitors
* Rivalry among search engine firms is Very Strong. Google has an 80% market share in the search industry with several rivals. The competition among rivals is average, but has high potential for growth. Google constantly has to maneuver to improve their services, and stay ahead of other competitors. Google also faces low switching cost which increases rivalry among competitors: • Rapid growth in online auctions is acting to strengthen rivalry • Technology advances from Microsoft is the strongest source of competition • Recent entry of capable competitors (MSN) has heightened rivalry substantially • Jockeying for position among the search engine competitors is very active. • Competing with internet portals & web publisher for advertising dollars • Rivalry is centered around:
o Name recognition, image
o Services provided
o Relationship with Internet users, web sites, & advertisers o Relevancy of a search results
b) Threat of New Entrants
* The threat of additional entry is weak. The entry barriers for the industry are higher than normal which reduces competition. High customer loyalty as well as high capital requirements also make it unlikely for new market entrants. The threat of additional entry is weak:
• The search engine industry has very few legitimate competitors • Entry barriers are high which lowers threat of new entry • The major barrier is the marketing/advertising costs needed to attract site users in adequate growing numbers lowering this threat • The industry is generating attractive profits which may attract people • The pool of likely entry candidates is small lowering the threat • The biggest potential threat is for new entry comes from existing online firms (like ISP providers) that expand technology and merge horizontally
c) Threat of Substitute Products or Services
* Competitive pressure from substitutes is weak. The threat of substitute products or services in the search industry is high. Buyers will only remain loyal to Google if they continue to have quick and accurate results. Customers are also demanding more complexity with their search tools. The low switching cost in the industry make switching between search engines easy.
• There are few good substitutes
• The number and availability for efficient substitutes are few • Competing with internet portals & web publisher for advertising dollars
d) Power of Suppliers
* Supplier power is relative small and low in the search industry. The few threats to Google are forward integration (the search may not perform well with new software) and countries with barriers such as China.
Suppliers are very weak:
• Computer components suppliers
e) Power of Buyers
* The internet has rapidly become one of the highest sources of advertising. This increase in advertising has made Google attractive to many buyers. The bargaining power of buyers in the search industry is weak for several reasons. Googleâ€™s product delivers quality advertising that is not matched by other brands because of Cost-Per-Click charging as well as reverses bids for advertising. The weakest competitive force is supplier power. Microsoftâ€™s integration of a Bing search toolbar that can be removed, as well as software updates are the only threats to Google. The technology that Google currently has should enable it to adapt to software updates. Buyers Strong: • Advertisers...