Both Internet and Computer Software are attractive industries that involve many companies. However, to become a viable force in either industry, it takes both innovation and resources. This reduces the threat of new entrants, but could allow for existing companies in either industry to easily branch into the other. Supplier Power - LOW Supplier bargaining power is currently low and should remain low as long as Google maintains strong market dominance. Because of the ad system they use to generate income, both the advertiser and the receiver are Google clients. The Android phone system has been selling with great success for all mobile phone companies, so suppliers of these items want to maintain a good relationship with Google as well, putting them in a somewhat powerless position. Buyer Power – STRONG Buyer power is strong in both the Internet and Computer Software industries. There are many competitors that host alternatives to Google’s offerings. While many of Google’s services are free, they rely on advertising to generate a moderate percentage of their revenue. If people choose not to use their services, this could cause a drop in advertising clients, affecting Google’s bottom line. There are also many companies that create mobile phone operating systems, allowing consumers the choice not to buy Google based phones. Because of this, buyers could potentially control pricing if there is a general consensus that prices are too high. Competitive Rivalry – MODERATE While Google does have current competitors in the search engine game (the two largest being Yahoo and MSN) it still commands a large majority of internet services. Its search engine is by far the most used year after year, and innovations like Google Earth and Street View leave competitors playing catch up. Yahoo and MSN both constantly update their services but they have yet to capture the success Google has. When introducing the Android operating system, Google put themselves in competition with Apple’s iPhone. While it may be true that Android phones make up a larger share of the market than iOS phones, Apple only has a few versions of a phone that uses their OS. Many different companies have released Android power phones, making the market much more saturated. However, there is no one Android phone that would come close to the market share of the iPhone on its own. Threat of Substitution – LOW The internet has become the primary source for information gathering and queries, and the backbone of this is built off search engines and other services that return the results needed. With such a commanding presence, Google Inc. has itself positioned for long term success on the internet. As of now, there is no foreseeable substitution for the internet. The closest would be a theoretical step backwards by

.MODERATE Google Inc. which would have a large negative impact on both time and money of all involved. It would take a massive starting capital to build a startup network infrastructure to compete with all Google’s online services and products. BY focusing all of their attention on one product. and would be a considerable feat to maintain and upgrade services and products at a rate that would usurp their current control of the industry.depending on physically locating information through publications. What could pose a threat of new entry for Google is a company focusing specifically on one of the services offered by Google. has a low risk of new entry threat because of the high level of entry barriers. they could potentially develop a single better product than one of Google's if they have the talent and information necessary. Threat of New Entry .

but the way that the mass of web users. A new entrant would need to provide better search results at very fast speeds to compete in this highly competitive . Google’s distributed business model ensures that no stakeholder has a level of importance that could singly change the direction of the company. Potential New Entrants The barriers to entry in the internet search market are Google has a responsibility to manage its operations for the benefit of its stakeholders. customers. and community. but also the employees. Google decisions may be influenced by the government. Litigation and politics often have an effect on both the short-term and long-term results and that is why it is important to be vigilant of the external environment. the user’s right to privacy and the government’s right to access records. media. Porter’s 5 Forces Analysis Porter’s 5 Forces analysis is a framework for industry analysis and business strategy development relative to the competitors of the firm (QuickMBA. 2007). activist groups. Some stakeholders have conflicting claims. It is Google’s management’s job to ensure the survival of the firm and the long-term benefits of the stakeholders. Management is tasked to weigh the seriousness of each claim and decide which outcome will best benefit the majority of their stakeholders. trade associations. The current competitors have thousands of servers deployed in locations all over the world and have accumulated many years worth of data about user habits. Stakeholders include not only the shareholders of the company’s stock. suppliers.benmorrow. all who have their own agendas and responsibilities to the people they serve. and governments interpret their activity could influence the company’s objectives.http://www. such as the user’s right to information and the government’s responsibility to protect information – or consequently. Each stakeholder has a relationship with Google and this relationship is the source of the stakeholder’s power to affect Google’s decisions. and the media.

Google’s cost of revenue as a percentage of sales in 2007 was 40% (Google. Suppliers Google’s ad system is a reliable source of income because both the ad-making partner and ad-receiving individual are both customers of Google’s. and to merit they have created many complimentary products to their main internet search service. Targeted advertisements based on the information they collect with their products are Google’s primary source of revenue. Google had revenues of .market. 2007) suggesting that both companies are equally efficient at maintaining supplier-seller collaboration. Excite. however. Current Competitors Figure 2. the threat of new entrants in the internet search market is relatively low. 2007). With that in mind. In 2007. supplier bargaining power will remain low. (Google. and Altavista dominated the search market and Google has since eclipsed them all (Viney. 2008) Google’s stated goal is to “organize the world’s information” (Google. is more mature with a necessary path dependency to gather data on both the content of webpages and the search history of users. Therefore. So as long as Google maintains its market dominance with the search product. it must be recognized that when Google was founded in 1998. The market now. This number is the same for Yahoo (Google. 2007). 2008). Yahoo.

2008).1 billion respectively (Google.6 billion which grew an average of 115% annually in the preceding five years (Google. The competitive rivalry is strong and ongoing in this industry because large amounts of advertising dollars flow to the website that has captured the largest volume of searches. Customers . Google’s main competitors. This large market share enables them to improve the quality of their search results and targeted ads more quickly than their competitors.0 billion and $51. 2007). Figure 3. posted revenues of $7. There is a dizzying amount of money made in this industry. 2008) Presently. (Agence France-Presse. and Microsoft (operating under their respective brands – MSN and Live Search). Google commands 57% of internet searches in the United States (Agence France-Presse. Yahoo and Microsoft lag behind with 23% and 11% respective market shares (Figure 3) (Agence France-Presse. This creates a sort of self-perpetuating draw for customers as the search results constantly improve. 2008).$16. 2008). Yahoo.

but there are no obvious substitutes to organizing information on the internet. there really is no suitable substitute for search. Google’s ability to please its stakeholders will continue to define the success of the venture and the future of the company. the internet has become the mode chosen by millions of people all over the world to request and retrieve information. However. This means that no single buyer has a controlling interest.. 99% of Google’s revenues are derived from advertising (Google. Information can be organized in different ways including categories and sorted by date. 2008). In light of this fact. 2007). . A substitute product may be invented in the future. Popular keywords like “Dallas Texas” are sold for much higher value-per-clickthrough than obscure topics (Google. but Google provides tools to complete these tasks as well as conduct searches. Google has positioned itself well to weather each of Porter’s Five Forces of Competition as well as stay afloat in a turbulent external environment. no single account contributes more than 3% to net revenue. 2008). In Google’s system many advertisers bid on keywords. and less than 5% of the revenue is generated by any given network partner site (Google Inc. Potential Substitutes In 2008.As of 2007. This distributed approach allows Google to attract both large companies and small “mom-and-pop shops” keeping buyer power low.


Competition Elimination and Substitution: Microsoft embedding their search tool into their Explorer browser. Yahoo) so the degree of rivalry is more oriented to an oligarchy – this could bring attention of UN or individual countries as a restriction of trade in the future. Rules/ethic have not been defined so the environment is easily exploited or manipulated. Currently there are only a few rivals (Microsoft. Yahoo & Microsoft have radically improved their search engines and can on pass/deploy their search tool through their products. Technology requires extremely skilled staff – high degree of competition for a limited pool.blogspot. cloaking <reference>) are still evolving – this could affect Google’s current technology and philosophy. Switching costs are mostly related to hardware (storage of indices and speed of information return) and accuracy related (webbots/crawlers) Search tools are easily scalable. Improving on the search engine and its features is a significant task for a large number of highly skilled IT technologists. Switching costs for most of the search tools are Force Supplier/Power Impact on Google    Google is regionally not globally dominant. Online marketing and the rules governing what is good and bad practices (e. Brand identity is important (if not paramount – Google has made the language as a noun and a verb) Rival search tools are not dissimilar to Google’s tool.html Porter's 5 forces for Google Repost from James original in full..g. Ad Revenue is directly related to use . While there is currently not a great degree of ‘legislative interference’ this will most likely change <web reference to Google and Big Brother> <Level>. Threat of forward integration – Google search may not perform as well with new software releases from Microsoft and Apple. Search tools are also used without overt referencing (which impinges on their discoverability) – eBay’s search tool is Google. Barriers to Entry (Potential for New Market Entrants)       Competitive Rivalry (Degree of Rivalry)        Treat of Substitutes (Product & Technology) Development      .http://mbtgoogle2.even the loss of a small percentage of use can mean significant revenue loss to Google or the other search generating companies. Switching costs are negligible Buyer inclination to substitute is primarily driven by speed and accuracy of the result and also by the overt pushing of ads that are included with the search results and pages. There is no such thing as the perfect search engine – thus a better search engine invented by another will critically affect Google – mayhap even mortally as 40% of the company revenue comes from advertising which is driven through the search engine. Users of the search tool are demanding more services and complexity or sophistication with the search tool to remain ‘loyal’ to its use. High.

Substitutes are available – and for the same price: free No real reviews are undertaken on what features the web community would like to see so each search company employs researches to straw poll/guess directions. Threat of backward integration? Buyer Power        . Loss of company/trade secrets if skilled staff more from one search generating organisation to another. Loss of ranking has in the past led to costly legal arguments – equivalent of e_defamation_of_character or denial of services <add references> Users of the search tool are becoming more sophisticated and demanding other services also for free. Two client groups – web community wanting to search/locate items and the organisations selling products – have to satisfy both client groups equally. Use of the search rankings is a significant leverage point by the owners of search tools in bargaining.

1 million users in 2010(David Viney. the power of customers. cheaper and more efficient plan to gather information from different parties or to distribute the information from itself. a new entrant would have to provide even better search results at faster speed and presents information from diverse sources in a more unified and customized way. 2007). Absolute Cost Advantage In this competitive market. Brand Loyalty For new entrants. the market now is more mature with a necessary path dependency to gather data on both the content of web pages and the search histories of users. This is used to analyze the external environment of Yahoo! Inc in a clear and structured way.https://sites. the threat of entry rather low. have numerous servers in all over the world and has captured so much data about user habits. the power of suppliers. for example. Switching Cost The switching costs are quite high as customers get used to Yahoo! and it is time-consuming for . new entrants have lower cost of producing the services compared with Yahoo!. Google & Altavista. the threat of entry. the threat of substitutes. And it takes a long period of time to build up the company will and attract millions users. Also. Yahoo! is the second largest web-based e-mail service with 273. and competitive PORTER’S FIVE FORCES ANALYSIS There are five components in Porter’s Five Force Model. Economies of Scale The threat of new entrants in search engine market is relatively low because competitors. namely. The large amount of users makes the new comers difficult to join and compete. this brand loyalty is a tough entry barrier to overcome unless the rival product offering is of fundamentally and significantly greater value than what Yahoo! is offering. new entrants have to come up a better. The threat of entry The threat of entry is weak because of the followings: Capital Requirement and Time It needs millions of dollars to develop a site similar to Yahoo! for a new entrant. understand the strengths of Yahoo! and threats from competitors and substitutes. the new entrants have to possess an absolute cost advantage comparing to others. Or. in email service industry. It is not likely that competitors will enter the market. With such competitive and mature market and strong competitors.

If companies that supply content or programming increase price. According to Gregory Dess (2007). it reveals that the decreasing switching costs can enhance the bargaining power of customers. Therefore. The bargaining power of suppliers The bargaining power of suppliers is medium because: Numerous suppliers If programmers refuse to work. The threat of substitutes The threat of substitutes is strong because of the followings: Strong competitor For search engine. there are other companies in the same space that do the same exact work. Google is the strongest competitor to Yahoo! as Google already dominates . Users can switch to other engines if others have better performance. customers can check the product prices on many websites by a few mouse clicks. Switching Cost The switching cost of Yahoo! customers is rather low. therefore. YouTube instead of Yahoo! Video. For example.them to switch to new web-portal or other services or they simply would switch to other strong competitors in the market but not new entrants. slight differences in services could enhance customers’ bargaining power in this industry. for instance. there are thousands of people can replace them. other main suppliers are the companies who advertise its business in Yahoo! Search Marketing and Yahoo! Advertising and they are reliable source of income because both the admaking partner and ad-receiving individual are both customers of Yahoo!’s and there are thousands of suppliers for Yahoo! so no single supplier can influence the profitability of Yahoo!. users can choose Taobao instead of Yahoo! Auction. “The Internet and wireless technologies may increase buyer power by providing consumers with more information to make buying decisions and by lowering switching costs”. provides similar or even better features than Yahoo!. and Hotmail instead of Yahoo! Mail. Yahoo! can hire any programmers it chooses to accomplish tasks and can bring the work in house or hire new contractors or new companies to complete the work. Undifferentiated services The services offered are undifferentiated like Yahoo! Dictionary as Reference. The bargaining power of customers The bargaining power of customers is high because of the followings: Availability of substitutes There are different search engines on the market besides Yahoo! Search.

000. Compared to other main competitors like Google and Microsoft. unique visitors for Yahoo! Site were around 600.000. The difference is huge. The following part will examine the competition between Yahoo! and other strong competitors: From the source of Comscore in the late December 2010. .the search engine market share.000 and 850. Apart from that. Besides that. Google launches iGoogle which could be a great threat to Yahoo! Web portal because it also provides a customized web portal for users that they can customize their own homepage.000 respectively.000. the numbers of unique visitors of their site were about 900.000. YouTube also dominates the video sharing service industry.

000 results. Yahoo! has 239. Google(Figure 2b) and Yahoo! (Figure 2c).“Information system management” is used to search in the three engines. The number of search results and time needed is different among them.000 results.000.000. Google has 575.000 results. Bing has 237. .000. namely bing(Figure 2a).

age. the cost of switching from advertising on search engine to doing the same on social networks is almost non-existent.(source: http://marketshare. All they have to do is clicking the mouse. Also. customers can switch from Yahoo! to Google or Bing without great switching cost. In short. social networking sites offer a real threat to Yahoo!. In Nov 2010. They are therefore able to offer advertisers a suitable and wider range of target. family the numbers of . user’s gender. Figure 1(P. This shows that Google is the strongest competitor of Yahoo! in search engine market. the inclination toward social networks is natural and is much more powerful than the simple brand recognition. social networking sites hold a lot of user information. friends. we can know that the search engine market is dominated by Google which owns 82. Besides.4% of the market.84% only. Therefore.hitslink.aspx?qprid=4&qpcustomd=0#) From figure 3. Some advertising on Yahoo! may switch to those social networking sites because users login every day and the advertisement can reach its target directly. Most users of social networking sites log in their accounts every day and spend a few hours on interacting with friends/ checking status of friends. They provide a multi-functioned and convenient platform for users.7) shows that Facebook is also a famous social website which attracts millions of visitors. It is because there is longer airtime compared to search engines where the advertisements last only a few minutes at the most before the user clicks on the link they need and exit the search engine. And Yahoo! owns 6. Many outsourced applications provided is also a successful component of Facebook. Switching Cost As there are many search engines in the market. say. and so on. habits. Customers’ Preference The rise of social networking sites are great threats to Yahoo!.

Yahoo! has built its brand value laboriously at great costs and such cannot be easily ignored. Clearly. The competitive rivalry The intensity of competitive rivalry is high because of: High Exit Barriers Termination of a large number of servers. Furthermore. Besides that. It shows that the threat of entry is low because of the domination of a few companies in the market. Moreover. Lastly. the bargaining power of customers is strong as their switching costs are low.unique visitor on Facebook even exceeded the numbers of Yahoo! Sites. the intensity of competitive rivalry high because of high cost in existing the business. Unprecedented lawsuits and bad brand equity for any brands associated with the closed operation if suddenly withdrawn. Based on the above analysis. increasing market share and user growth of competitors reduce the competitiveness of Yahoo!. the bargaining power of supplier is medium as the number of suppliers is huge in the market. the threat of substitutes is strong because the existing corporations are strongly competitive. . personnel. goodwill and legal issues would cost million dollars for Yahoo! to quit the business. Conclusion The Five Force model helps analyzing the external environment of Yahoo! in a detailed and organized way. it can be concluded that the strong competitors in the market indeed cause problems or somehow challenges to Yahoo!. Moreover. Yahoo! handles much personal and other confidential or vital information belonging to users.

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