The PC industry can be analyzed using Porter’s Five Forces. The first force is threat or barriers of entry. Here, the threat is high and barriers are low. Although certain brands own the majority of the market, the costs to manufacture are extremely low, and the prices of these components are declining yearly at 25% to 30%. The capital required is relatively inexpensive, as well. Also, unbranded “white box” PC makers have become prevalent overseas; showing anyone who can make a PC could make sales. In Buying Power, consumers have great power. There are a high number of users but consumers have a wide variety of brands to choose from and have put much pressure on companies to make satisfactory products at good prices. Customers also have low switching costs. This force along with high demand was also partly responsible for the “vigorous price war” as many companies cut prices to match one another and satisfy consumers. Supplier power was also high. Intel and Microsoft ran near-monopolies in supplying microprocessors and operating systems, respectively. By 1998, 96% of all PC’s ran on “Wintel.” These two suppliers drew profits from all PC companies and minimized differentiation, as there were few substitutes and little options of switching to another supplier. The industry’s degree of rivalry reflected its fierce competition. As computers became more common, demand rose, prices decreased, and demand grew stronger, boosting competition between manufacturers. This rivalry is essentially what sparked Dell’s competitors to try to emulate their business model and attempt to gain a competitive advantage for the future. Lastly, the threat of substitutes was low but growing. Consumers were becoming reliant on PC’s as they became commodities but new technologies such as laptops, PDA’s, and smartphones among others were slowly emerging. Business Model
Although Dell sold to a diverse range of customer segments, they generally targeted the “educated...
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