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.
The ease of market entry facilited by cheap start up has not done the market any favors in terms of valuations - and most internet visionaries should read both of these to brush up on what attracts QUALITY capital to new ventures
great points. strategically though, i am most convinced that traditional value will remain the benchmark for a long time - as evidenced by the current valuation example of IAC.. or yahoo.. the forces must be with you!
"These sites will probably never have a
chance of surviving because they lack a clear understanding of the
online market structure."
What exactly do you mean by surviving? These aren't physical locations with rent and real people working inside of them. The code is done. The hosting is cheap. If the sites aren't used they sit patiently waiting to be. Sure they can be deleted...but theoretically they wouldn't need to be.
You note the decline in barrier to entry but fail to follow that to its logical conclusion; its easier and cheaper so more will be made given the obvious demand. Sites like the ones you reference are actually successfully living in the backside of that long tail everyone is going on about.
Look, the online market structure more fully realizes traditional market theory because of one very important feature: a more efficient feedback loop.
Traditional market theory seeks to describe what can be described by bridging the gaps in information too complex or unwieldy to collect. In the online market more of that information is available and at near real-time.
To illustrate, imagine how a terrestrial radio broadcaster measures audience and an internet broadcaster measures audience. There is much more voodoo in the traditional medium measurement because traditional mediums inherently have less efficient feedback mechanisms -- whereas the ibroadcaster peruses his logs (more on the topic of this example).
While this better feedback loop may ultimately make it easier to predict market forces on the net, how controllable these forces are is the real question here.
I'll state that they are more controllable than traditional markets because of the increased data in them...but even then I am teetering on the edge of some chaotic non-linear efficient markets hole.
I'll end by pointing out how silly it might be to try and differentiate between online/offline market forces because clearly one is eating the other...
I think you raise an interesting point. Without doubt the internet offers unprecedented opportunities for market entry. This of course does not imply that every grassroots internet entrepreneur has bigger chance to become successful just because he operates online. You still need a decent business plan and an internet-specific entry strategy to succeed, and you were right to point this out. The 90s dot-com craze in many ways reminds me of the Klondike gold rush: money-blind fortune seekers without a clear strategy.
However, there are traces that the internet as a medium poses some serious problems to conventional economic theory – in revealing tendencies that traditional theorems like Porter's have a hard time to grasp. Yochai Benkler –also at Harvard– points out that economic development online tends to go against taken-for-granted economic laws like the Power Law (Pareto) Distribution. It turns out that not simply a very small amount of entrepreneurs succeeds while the big majority keeps struggling. While indeed only few are successful on a macro scale, many manage to build fruitful enterprises within (semi)closed networks and social groups.
So, it's not that I don't agree with your these. I do think however that we need to pay attention to the complexity and particularity of online economic practices in relation to conventional market entry strategies. Benkler's book is freely available online by the way, I can highly recommend it.
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Hollywood writers are on strike because they're rightfully afraid that the networks will launch "InterNetworks" off their backs and re-use TV content online without offering the writers an extra cut of the revenues.
There’s a weird dichotomy happening around Mobile TV. Takeup rates in Asia are HUGE, increasing at something like 100 percent a year. Yet in America, the focus groups reveal that no one wants it! Here we have more like a 1 percent takeup rate.
How's the music industry going to fix its "Internet strategy"? There is a huge opportunity for digital music companies to create better recording and listening technology that would be worthy of payment. They can focus on the quality of the experience in addition to improving the way we get our music. It's economics.
Big-data and analytics tools enable marketers to understand customers as individuals, identifying unmet needs and addressing each customer as a "segment of one," says John Kennedy, VP corporate marketing, IBM.
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The whole Amazon.reader debate is a double-stupid. It's stupid to think that there's any e-book buyer who doesn't know Amazon's URL, and it was stupider to let ICANN launch the whole free-form TLD initiative to start with.
While NFC's original goal was to enhance mobile commerce applications, it is finding its way into a number of other uses, which is creating both opportunity as well as challenges for IT departments.
Enterprises would like to move to cloud computing but are hesitant because they are concerned about providers’ ability to secure company data. Here are some tips that help to ensure that if breaches occur, the business is not left holding the bag.
Edmunds separates customers into segments based on the info it collects on its site and from partners, and uses that to push out custom content, said Brian Baron, director of business analytics for Edmunds.com, at Predictive Analytics Innovation Summit.
So here we are, the last day of the 2013 US Open Golf Championship at Merion, and Phil Mickelson -- who has been a US Open runner-up five times now but never taken the trophy -- is right up there at the top of the leaderboard.
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