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Strategic Management and Policy
The Internet is available to any person who has access to a computer, whether it is located in their house, at work, or even at school. With new technology being developed everyday, every company must compete for customers to use their service. The most common used analytical tool for examining the competitive environment is Porter’s Five-Forces model of industry competition. It helps to define the competitive environment in five basic competitive forces, which are: the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute products and services, and the intensity of rivalry among competitors in the industry.
Porter’s Five-Forces Model of Industry Competition can help to analyze Yahoo’s ability to compete in the Internet market. First, is the threat of new entrants have risen in recent years due to lower barriers of entry. When Yahoo! began dabbling in the Internet business they were able to create a website that was inexpensive. With the low entry cost Yahoo! was able to design a web site with equal if not more options for the consumer to use. “Thus, scale economies may be less important in this context and new entrants can go to market with lower capital costs,” (Dess, 2007, p 282). In addition, Yahoo! may experience lower start up costs such as: office rent, printing, employee salaries, and etc. Second, Yahoo! has easy access to the distribution channel. An example of this would be providing on-line surfers with “An Internet Theme Park,” (Shamsie, 2004, p 795). Yahoo! can offer free service such as: music, games, unlimited information, and e-mail.
Second, is the bargaining power of buyers. “The Internet and wireless technologies may increase buyer power by providing consumers with more information to make buying decisions and by lowering switching costs,” (Dess, 2007, p 284). Yahoo customers wanting to buy a product on-line do not have low switching costs due to the fact that they can compare the prices of a single product against several different companies by just a few clicks of the mouse. This low switching cost gives the buyers more bargaining power. Yahoo! has significantly lowered switching costs by decreasing the cost of searching.
The bargaining power of supplies is the third idea. Yahoo! is able to increase the time for suppliers to acquire raw materials. The greatest threat that Yahoo! has upon the Internet industry is that the company has the ability to offer highly distinctive products or services. Another factor that increases supplier power is communication. Yahoo! can reach more users without intermediaries.
Fourth, the threat of substitutes, has increased because of wide spread use of the Internet. An example of this is that Yahoo! has developed numerous services of doing business, such as improving search capabilities and integrating more and more information.
The final force is the intensity of competitive rivalry. One of Yahoo!’s main competitors is Google, which now is considered to be the prominent search engine in the Internet industry. To help differentiate them from Google, Yahoo! has developed new products for the consumer. These products would include Yahoo! purchasing Inktomi technology, broadband access, as well as digital music and games.
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In the high speed Internet Industry, Yahoo! must update their strategies to gain new possibilities and future customers. This corporate company can do this by using the differentiation strategy.
Yahoo! has many available options to differentiate themselves from their competitors, such as: brand image, technology, and innovation. Creating new and efficient ways to use their web site they can create higher entry barriers for their competitors. To do this, they must continue to create and develop their search engine. In addition, buyers will benefit from the lower switching costs, and suppliers will also benefit. An example of this would be that “small suppliers that had difficulty getting noticed can more easily be found, and large suppliers can publish thousands of pages of information for a fraction of the cost,” (Dess, 2007, p 291).
To continue to develop new innovation, Yahoo! hired Terry Semel. He stepped in and implemented his concept of network optimization. This worked by not only making money for Yahoo!, but it also helped project Yahoo!’s other business in the industry.
Yahoo! was able to reduce buyer power by providing more suppliers listings, thus reducing buyer power because buyers would lack comparable alternatives.
To lower supplier power, Yahoo! offered customers the ability to buy differentiated products and services. In turn, this helped suppliers to be able to offer differentiated products and services.
Finally, Yahoo! will have high customer loyalty. This loyalty comes from offering services not existing by any other search engine like Google. Higher customer loyalty will lead to less threat of substitutes than its competitors.
Yahoo! can improve competition position by using the differentiation strategy. This strategy will create a defensible position for overcoming Porter’s five forces. In addition, creating unique products that are valued by customers will help propel Yahoo! into the leader of the Internet industry for search engines.
- Dess, G. Gregor, Lumpkin, G.T., and Eisner, B. Eisner (2007).StrategicManagement 3e. McGraw-Hill Irwin.
- Shamsie, Jamal. (2004). Yahoo!. Michigan State University. P. 792 – 797.
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