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Yahoo Internet Industry
In today’s society, the internet has become a very important tool that can make or break a company. All companies large and small can rise, or fall, by the click of a mouse. The internet has influenced the way that the world does business. The world is doing business faster, cheaper, and more condensed.
Many companies are depending on the internet to help run their businesses as well as using it to plan a strategy around. The internet is shaping up to be one of the most useful tools since man invented the wheel. To compete in the internet industry it takes careful planning, extensive analysis, and structure. These items form together to create a strategic plan that will take a company to the top of its industry.
Porter’s Five Forces Model is the best model to analyze the industry structure that Yahoo is participating in. This method allows the firm to analyze the industry that it competes in as well as the structure that it will have to conform to in order to be a major competitor. By using this model, Yahoo will be able to analyze its industry and how the internet has affected the industry structure. Once the analysis is complete, Yahoo will be able to come up with new and innovative strategies that will help them to become the major market player that they once were.
The results of Yahoo’s analysis by Porter’s Five Forces will display Yahoo’s ability to continue competing in the industry, as well as if large market share is an eventual result of Yahoo’s efforts and strategic plan. The five major areas that have to be analyzed include: the threat of new entrants into the marketplace, the power of the buyers, the supplier’s power, the possibility of substitute products, and the overall rivalry among the firms in the industry.
The industry that Yahoo is operating in is the internet industry. With the growth of technology, Yahoo’s goal is to become an “Internet theme park” for the technologically savvy. Yahoo is creating a website that will be a digital Disneyland that will attract and keep users glued for hours. Yahoo offers a barrage of services for all ages of consumers, businesspeople, and even children. Yahoo offers games, answers, 24 hour stock market quotes, music, sports, maps, job listings, and so many other products and services all available at a convenient “one stop shop.”
In the internet industry, one of the first and most important things to look at is the threat of new entrants into the industry. The reason being is that with the increase in digital based business and internet technologies, the barriers to entry are quite low. It is reasonably simple and easy for a new firm to create a web site that will compete or even surpass that of a large firm.
This is a further advantage that the internet industry provides for its users: the firms are able to put together websites that portray them as strong, stable competitors in a specific industry without actually showing the size and quality of their operations as compared to a larger firm. What this means for the industry is that there is a relatively high threat for new entrants into the market.
On top of this threat, the web page creation allows smaller and older firms to create top quality web pages that will enable them to travel down new roads in product sales. These firms are now able, with the help of the internet, to directly sell their products and services to consumers. They no longer have to go through expensive distribution channels or retailers that charge large amounts to carry their products on the shelves in their stores.
The next issue that this industry must be aware of is the bargaining power of the buyers. The internet has the ability to increase buyer power by having information available for better decisions as well as a low switching cost for consumers. However, there are two different types of buyers that are affected in different ways due to the technology boom of the internet. Therefore, the overall power of the buyers ranks in the medium range for the industry.
First, the end users’ buying power is increasing. With the internet, they now have the option to go directly to the manufacturer and buy the product. They also have the ability to go to other internet sources that are auction based or bargain based, such as EBay or Amazon.com. At these sites, consumers can buy new or near new products at half the price of purchasing them at a retail shop.
EBay has also increased buyer power by creating auctions, allowing both the seller and the buyer to come to a price that is beneficial to both of them. On the other side of the street, there is the second type of buyers that are losing their market power. This group is referred to as the “middlemen,” or the retailers, wholesalers, and distributors.
Due to the ability that the consumers have to go directly to the manufacturer, these middlemen are losing their power simply they are because not necessary anymore. Consumers and other businesses are no longer willing to pay extra to get their products or services from a retailer shop, if they are able to go online to directly order their goods. This presents the possibility of buying cheaper goods, getting them faster, and being able to gross a higher profit in the long run of the business that is selling the goods.
The bargaining power of the suppliers is an issue that falls almost in the same category that the power of the buyers fell into. It has both its advantages and its disadvantages to the industry and to different groups of suppliers depending on where they are in the supply chain. Suppliers face the benefit that through the internet they are able to reach more possible businesses and consumers to sell their product to.
On the other hand, they are also at a disadvantage with the internet because it allows buyers to shop around and do price checking on the internet, making it difficult for these suppliers to hold on to their customer base. Yet, there are some good things that can come out of the internet that will help the suppliers.
With the speedy access that the internet provides, suppliers are able to create more channels at which they can sell their products. This may also create an easier purchase process for the buyers, allowing a lasting relationship to form. This relationship can help deter buyers from switching to a new supplier or turning to a substitute product.
The next issue to be addressed is the threat of substitute products and services being available in the industry. The internet has not only expanded the ability of today’s modern businesses, but it has also created a totally new way to do business. The traditional channels are still present; however, the internet has created a new channel for firms to use. With this simple addition they have now changed the way almost all firms have to do business.
A firm’s strategic plan and structure must now factor in this new channel that is available for use worldwide, thus making the threat of substitutes rise to a new level. Economics is the fundamental reason that consumers seek substitutes. Consumers are satisfied with a product until another product is created that meets the same needs and can be acquired at a lower cost. An example of this is today’s college bookstores. The internet allows students to search for the same books online and at a cheaper price compared to the local campus bookstore.
Websites such as half.com allow students to acquire books from all over the country and have them shipped direct in approximately three days at a fraction of the cost. This causes the students to have to make a decision on where to buy, as well as requiring the companies to fight for the students’ business.
The final issue that needs to be addressed is the rivalry that exists between the firms in the internet industry. The internet has created more ways to access information faster, cheaper, and easier. Today’s consumers have access to businesses twenty-four/ seven, and are able to purchase products at all hours of the day as well as from anywhere in the world. This ability allows consumers to switch companies at any time and for any reason.
Because of that ability, the rivalry between companies to try and keep consumers coming back has increased dramatically, putting it in the high state. Thanks to websites such as Yahoo, MSN, and Google, consumers can get almost anything they are looking for at one spot. However, technology is now allowing consumers to go to one spot and search all websites that have similar products. The search can then be narrowed to give only the places with the lowest prices.
This is a very difficult hurdle for a firm to jump because they are being canceled out based on price alone, and possibly customer service ratings, which is becoming increasingly important for repeat business. To gain an edge in the market a firm has to create a product or service that is faster, smarter, cheaper than the competitors. Although, as the book states, this is a very difficult gain to sustain because technologies have the ability to be imitated so quickly (Dess, Lumpkin, Eisner, 2007).
A very good example of this is the online music stores that have been created. Apple i-tunes and Napster are two of the big names that were among the first to enter into the online music store industry. Yet, as technology further advances other websites such as Yahoo and MSN are following the trend to further create a “one stop shop” for consumers, getting them to make purchases through the search engines as well as spending hours simply browsing the news, stocks, jobs, and hundreds of other links and services that are offered by these “Internet Theme Parks” (Dess, Lumpkin, Eisner, 2007).
Overall, the internet industry can be both a predator and prey. The internet itself has helped businesses and consumers save money and time when purchasing products and service. On the other hand, the internet has created many business rivalries as well as hurt certain parts of supplier and especially the wholesale, retailer, and distributor buyers of many different industries.
With the growth of technology and the increasing development of the world, the internet is only going to become a more vital part of society and the economy of the world. It is an industry that will be treated like all other industries and at the same time be treated like no other industry.
Many times the internet industry is referred to as a stand alone industry that can be analyzed by itself as any other industry could. When you look at the internet industry, the possibility of analyzing it by itself is not out of the question. Yet, when taking a closer look at this particular industry it is not like any other industry out there. Industries sometimes overlap into other industries when a certain change or mishap occurs.
However, nothing has ever been quite like the internet industry. When internet access first cam out, it had an affect on every consumer, supplier, and buyer out there. So much of business today is based on the use of the internet and technology. So when another industry is compared to the internet industry, there is no comparison. Everything that takes place in the internet industry has an affect on so many businesses and consumers all over the world, making it a truly worldwide industry.
The next step is to use Porter’s Three Competitive Strategies to analyze what Yahoo has done in the internet industry and what they can do to continue to grow and be a successful company. There are three competitive strategies that can be used: Overall Cost Leadership, Differentiation, and Focus. A firm can choose one of these three strategies, or a combination of all three. These will be used try to gain a share of the market that will allow them to grow and sustain the competitive advantage that they have created through these strategies.
Yahoo was a “free for all” type of company that seemed to have no real structure. This was a plan that worked for them for multiple years. However, it began to work so well, that they began to have an arrogant attitude towards the advertisers that were funding the company. The free flowing idea method can work for a period of time yet, it most always results that there is a need for some sort of strategic structure and planning in an organization.
Yahoo found this out in the late 90s when they began to lose advertisers, along with much of their stock value. After the acquisition of a new CEO, Yahoo began to realize they would have to implement some sort of structure into the company. Yahoo needed a formal structure that would create a process to present an idea to the board of directors, where it would be voted into implementation or thrown out. This would allow Yahoo to have some kind of a structure that would help them compete successfully in the volatile internet industry.
With the internet industry set up the way that it is and the ability for almost anyone with a computer to create a web page, Yahoo is going to have to create a strategic plan that will differentiate its website from the other search engine based Internet companies. Yahoo began with an idea of differentiating when the business was founded in 1994. When creating a differentiation type strategy, a company has to create a product or a service that will be looked at as unique, high quality, and have a good reputation, as well as a strong brand identity.
Some companies have the ability to gain a premium price that goes along with their differentiation strategy. The creation of the internet is a way for firms today to create competitive advantage through differentiation. Brand loyalty is most likely one of the best ways to attain competitive advantage in an industry. This is similar to Yahoo’s case. Yahoo is continuing its differentiation strategy more now than it ever has. Advertiser’s such as “Coca-Cola, General Motors, and the Gap have been Flocking to Yahoo’s sites,” due to its use of modern technology to move beyond static banner advertising, offering eye catching animation, videos, and other rich media formats (Dess, Gregory, Lumpkin 2007).
With this form of strategic plan and its ability to differentiate from other internet based search engines, Yahoo has accomplished some amazing feats. If Yahoo members held hands to form a chain they would wrap around the earth 14 times. Yahoo has had tremendous success in the past few years, nearly doubling their gross profit each year from 2002 to 2004.
Yahoo has recently made a deal with Overture Services, an advertising company who sells advertisements spots next to links on other websites, for nearly $2 billion (Dess, Gregory, Lumpkin 2007). Innovative deals and ideas such as this are the kinds of new age differentiation that Yahoo will need to continue to create if they want to stay at the top of the search engine based Internet companies.
In the internet world, a firm can only differentiate so much. That is why Yahoo will have to continue trying to innovate and come up with new ways to entice advertisers and visitors to their site. Another way that Yahoo can achieve this is through another business strategy called focus. When looking at Yahoo’s competitors, each of them seems to try to cater to a different demographic category.
MSN focuses more on the news and the finances of our world today, assuming this website is directed toward a slightly older, business related user. Yahoo and AOL are similar in many aspects, in that they supply creative pictures next to all the links and animated advertisements. AOL made a name for itself with its “Instant Messenger” application that would allow, mostly students, to communicate immediately via the internet.
Yahoo has also created brand recognition with its Yahoo Finance link as well as for its clever television marketing adds singing “Yahoo!” Yahoo has the ability with its bright colors and animation to target the younger age group of the world’s population. Yahoo should design its Focus strategy towards high school, college aged, and recently graduated young people. Yahoo offers music, videos and lots of other information, such as a “how to” link.
This link is designed to receive a request for anything into the search bar and get a how to directional to pop up that will tell the visitor exactly how to accomplish the task. On top of these applications, Yahoo has chat rooms, discussion boards, and blogs that allow users to create communities of people with common interests.
Yahoo has had its user base at the forefront of their decisions and has managed to differentiate their website from the competitors in the internet industry. If they can continue to innovate and come up with more differentiation strategies, as well as including a focus strategy, Yahoo should be able to maintain its current growth and competitive advantage.
Yahoo can turn its advertising efforts towards schools and Universities to achieve their focus on a younger population. This will help them to sustain their competitive advantage, continuing to rise to the top of the search engine based internet industry.
Dess, Gregory G., G. T. Lumpkin, and Alan B. Eisner. Strategic Management. 3rd ed. New York, NY: McGraw - Hill Irwin, 2007. 792-797.
Porter’s Five Forces
- The threat of new entrants
- Existing companies and small companies expanding websites
- Large and small software/computer based company’s entering the market
- Increase in digital technology and internet based businesses equals low barriers to entry
- Low switching costs
- The bargaining power of the buyers
- End users and the power that they have attained
- “Middlemen” and the power they are losing
- The bargaining power of the suppliers
- Ability to reach more end users
- The possibility of those end users switching to another supplier
- Many distribution channels, creating a lasting relationship, and creating buyer loyalty
- The threat of substitute products and services
- Creating a new channel for firms to use
- Economics of consumers
- Example: college book stores
- The intensity of rivalry among competitors in an industry
- Ability to access companies 24/7 from around the globe
- Each company is similar to the other – business is based on price only
- The creation of a new technology is a huge gain, however usually short lived
- Example: online music stores
Over all the rating for the Porter’s Five Forces Model of Industry Competition is a High/ Medium Rating.