Strategy and the Internet

Brief Summary

Companies must distinguish themselves through the strategy to survive, especially those involved in e-commerce. Many will argue that the internet technology has rendered strategy obsolete, but Porter argues that it is just the approach that has changed. He says "the time has come to step back and take a clearer view of the internet," he calls that marketers return to the basics of business. Porter claims that the internet has not brought any thing new; it just changes the approach that must be taken to remain competitive.

There are two fundamental factors that determine the profitability of business in today's technological driven business: Industry structure and creating a sustainable competitive advantage. The internet has created some new industries that have revamped internet market structure, such as on-line auctions and the digital marketplace. Porter says "whether an industry is new or old" it still faces the five underlying forces of competition

1. Barriers to entry

2. intensity of rivalry among competitors

3. Threat of substitute products or service

4. Bargaining power of suppliers

5. Bargaining power of buyers

All of these areas are affected by internet technology, affecting different industries in different ways. Porter says that some of these trends are positive, by boosting efficiency and market size, but most are negative.

There are also many different influences present on the industry structure. These influences will eventually make the markets more efficient, expanding the size but the internet will always allow for substitute products, equal access to suppliers, reduced barriers to entry through availability of the internet, widening of markets to - increasing competition for customers, shifts power to buyers, and will result in a flood of new entrants with a lack of propriety. With the negative influences in mind, they can also help industry if positioned correctly, as mentioned above, by raising bargaining power by giving access to more customers reducing differences in offerings, eliminating powerful channels ( or middlemen) reduces barriers to entry for those trying to break into the market.

This overall impact will affect value chains, how the products or service is created and delivered to customers. This will require constant change and evolution in the strategic plans of a business and will make or break many companies. This will affect all areas of the value chain, leaving traditional methods a thing of the past. With the value chain in mind, the strategic positioning will be required in a environment that where profitability has been weakened, companies must find ways to distinguish themselves from traditional styles competition. Porter believes that once management sees internet as a compliment rather than a cannibal, companies will take a different approach to strategy and incorporate it as a mainstream portion of their strategy.

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