With so many new business endeavors taking place these days, I always find market entry strategies one of the most interesting aspects of these activities. The advent of the Internet is certainly making it easier and less expensive for businesses to enter the online marketplace. But the Internet’s low barriers to entry don’t automatically translate into success. Internet business visionaries need a great market entry strategy to minimize risks and increase the chances of succeeding on the Web. They need to have a clear understanding of the market structure.
One of the best ways to comprehend how this structure works is by reading Michael Porter’s book “Competitive Strategy.” Porter’s research defines the five basic forces of competition that are apparent in any industry market: the intensity of rivalry among existing competitors; the threat of new entrants; the threat of substitute products or services; the bargaining power of suppliers; and the bargaining power of buyers.
A very dramatic example of how these forces work is the ease with which anyone can now create an online TV network. Think about it this way: In a couple of days, you can have hours of content, global distribution, monetized advertising sales, and even critical reviews. Andy Warhol was wrong when he said, “In the future, everyone will be famous for 15 minutes because of television.” It’s the speed of Internet that’s doing that, and making the claim to fame much easier.
The ease-of-entry for so many online businesses leads me to believe the viability of most Web endeavors is not good. That’s why analysts have hammered a company like IAC/InterActiveCorp (IACI), which is currently trading at $27.40, down from $38 in April despite being considered “best-of-the-best” among Internet businesses. Where else can you find a company that owns and operates more than 60 specialized Internet brands -- including Ask.com, Evite, HSN, LendingTree, Match.com, and Ticketmaster -- trading at near book value?
With the Internet barriers to entry much lower than standard markets, almost anyone can start-up anything from anywhere. A couple of bad examples are can-opener.com or shopforsurgery.com, where customers can bid for plastic surgery services online. To me, this is bandwidth wasted on unproductive market entries. These sites will probably never have a chance of surviving because they lack a clear understanding of the online market structure. The bottom line is: You need the forces to be with you.
— Lou Volpano, Founder of Ascertain-ment