A Review of Michael E. Porter's Strategy and the Internet

Michael Porter’s five forces analysis as it pertains to the internet’s influence on industry structure within the article “Strategy and the Internet” continues to provide excellent thought provoking points.  The internet is a powerful tool that when utilized correctly can aide a company in delivering its core competencies to the market place and build on its current customer base.  “Integrate Internet initiatives into your company’s overall strategy and operations so that 1) complements, rather than cannibalize, your established competitive approaches and 2) create systemic advantages that your competitors can’t copy.”¹   The internet has become far more important business tool that many have initial thought. In reviewing Porter’s five forces, the internet has help to change in some respect the landscape of the way business is done but it hasn’t rendered the five principles obsolete.  In fact it has help to reinforce its vitality in the market place influences. 

The internet has lowered the barriers to entry standards in most markets allowing many who may not otherwise be able to gain access due to lack of finance to acquire physical assets, sales force and general access to channels such those located globally.  As more and more companies enter the market, the price of the products and services can be affected.  Another byproduct of that effect is also the quality of said products and services. All these effects makes things somewhat challenging for brick and mortar business that have been well established but not as difficult as the keeping applications that are a part of the internet proprietary.

Efficiency is another positive which the market place has seen as a result of the internet and it has also allowed for its expansion.  Sometimes there is a bit of bad that comes along with the good and in this case it is the threat of substitutes.  With the growth potential of this new tool has brought with it imitation services and products from new and unassuming companies.

One of the areas the internet has intensified is in rivalry among existing competitors.  It has widened the demographics of the competitive bases globally and has made pricing an essential requirement.  It has also allowed the gap between them to close by reducing the differences between their products.  The competition on price is not what most company’s desire because it lowers the profit margins by reducing variable cost.

The supply base has also felt the effects of the internet.  It provides better access to most suppliers and the ability to gather real time data that can help to enhance their business.  The procurement process has translated into bargain power over suppliers as well as allowed for them cut of the middle man and reach the customers themselves.

Buyers have seen their bargain power increase as a result of the internet. 

The internet may have initially leveled the playing field to the market place but it’s those companies that choose to maximize its abilities that will differentiate them from the competition.  The internet is just another way for companies to reach its customers, suppliers and promote its business.

1)      “Strategy and the Internet” by Michael E. Porter, HBR Articles, Mar 01, 2001.