The internet greatly affects the forces of competition and the structure of industries. The analysis of the internet implications is best understood through the Porter’s model that helps determine the strength of the forces of competition.
Firstly, in the area of substitute services or products, the internet provides platforms for marketing of products (Porter). For instance, the suppliers of electronic gadgets post their products online at cheaper prices offering customers substitutes to the already dominant products in the market. As such, the customers have a choice of opting for cheaper alternatives which they find on the internet.
Secondly, in the area of customers’ bargaining power, the internet provides access to information for customers. As such, they will have sufficient product knowledge, hence increasing their bargaining power (Porter). For instance, if a customer wants to buy a computer, they will search the internet for specifications and price ranges. As such, when they get to the market, they will be in a position to stick to a given price range other than the one set by the supplier.
Thirdly, in the area of suppliers’ bargaining power, the internet offers more channels for procurement as well as access to more customers. As a result, the suppliers need no intervening companies to get to the end users. For instance, in the motor vehicle industries, manufacturers post their products online and all the business transactions are completed online. As such, the bargaining power of the suppliers increases because no brokerage happens between the customer and the supplier (Porter).
Fourthly, in the area of the threat of new entrants, the internet reduces barriers to entry by eliminating the need for sales force and physical assets (Porter). For instance, a jewelry supplier may find it hard to enter into the business due to lack of capital to pay for rent. However, the internet reduces such entry threats by providing a marketing platform online.
Finally, in the area of rivalry and positioning among competitors, the internet lowers the variable costs in relation to the fixed costs thereby increasing the pressure for price discounting. It also widens the geographical market, increasing competition as well as migrates competition to the product prices (Porter). In addition, it reduces the differences among those competing because keeping offerings as proprietary is difficult. For instance, two rival suppliers of mobile phones will always try to position themselves in such a way that they always offer the best discounts for the same products advertised online.
Porter, Michael, E. “Strategy and the Internet.” Harvard Business Review March Issue (2001). Web. Retrieved from https://hbr.org/2001/03/strategy-and-the-internet/ar/1