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Learn how the Internet has affected the Porter 5 Forces

Internet has changed some of the bases that Michael Porter started in 1980 when he published 5 Forces involved the success or failure of a sector or a company.
Michael Porter
Over recent years, Porter has been modifying and clarifying 5 forces. In this article we will see how they have evolved to adapt to new times.

Michael Porter will be in Spain during the 12th and on May 13 giving a lecture under Expomanagement Madrid 2005. It will be an excellent opportunity to see first hand their views on the changes that the Internet is occurring in our economy and moment forces the move.

What are 5 forces of Porter?

In 1980 Michael Porter developed this method of analysis in order to discover what factors determine the profitability of an industry and its companies. For Porter, there are 5 different types of forces that mark the success or failure of a sector or a company:

  1. The rivalry between competitors
  2. The threat of new entrants into the market
  3. The threat of products that substitute to ours
  4. The bargaining power of buyers
  5. The bargaining power of suppliers

When the analysis of Porter's 5 Forces used?

  1. When you want to develop a competitive advantage over your rivals.
  2. When you want to better understand the dynamics that influence your industry and / or what your position in it.
  3. When you analyze your strategic position and looking initiatives that are disruptive and make you better.

But the Internet has changed some of the bases from which Porter started in 1980 for each of the 5 factors. Porter himself, over the years has been modifying them and adapting them to today's world.

In this article we will discuss 5 forces and see how the Internet has changed the rules of the game and what we should consider if we want to continue to use this type of analysis.

1. The rivalry between competitors:

Porter focuses on developing its recommendations differences between our products and those of competitors, to avoid falling into competing on price, a strategy that ultimately end up affecting the profitability of both companies.

  • Pero Internet ha permitido que realmente se puedan reducir los costes en empresas cuyos costes están relacionados con la comunicación, con la recepción de información o con la concertación de transacciones. Así que una gran parte de las empresas que han sabido aprovechar las ventajas que les brinda Internet y la tecnología asociada a la red, acaban pudiendo ofrecer precios más bajos y por lo tanto, compitiendo por precio en su mercado. Ante un mismo producto, con dos precios diferentes, la fidelización del cliente sólo influye en la pequeña cantidad de diferencia de precio que el cliente tolerará antes de abandonarnos e ir a la competencia. Internet permite que la rivalidad sea por precio, sin que esto lleve a una guerra donde no haya ganador.
  • Internet has also made appear on the market many products that were previously only intended for a local market, so even if our product was unique in our market, now appear identical products to our ... so again just competing by price .
  • La relación entre competidores ha cambiado radicalmente con la globalización de los mercados. Los clusters locales especializados en la producción de determinado producto o servicio, hacen que la relación entre empresas competidoras sea colaborativa, con objetivos con miras a desarrollar juntas tecnologías, investigación que hagan subir la productividad y la innovación de las empresas que participan en el cluster. Silicon Valley y Hollywood son los clusters más famosos, pero existen cientos de miles de clusters locales que han cambiado radicalmente la relación entre competidores.

There is information on the effect of local clusters in the relationship between competitors in various articles published by the same Michael Porter. At the end of the article we quoted one.

2. The threat of new entrants:

The threat of new entrants to enter our market is higher, when barriers to entry are low, when companies involved in a market do not want to fight the new players and when a new player has high expectations of profits if it goes into the market. So Porter advocates increasing entry barriers in a market. Their recommendations are as follows:

  1. Take advantage of economies of scale to lower costs
  2. Create differentiated products and patent them.
  3. Develop the brand image of the company, for customers to them more difficult to switch brands.
  4. Close access to distribution channels.
  5. Have restrictions for new players, dictated by government institutions.


  • Este modelo es válido para mercados estáticos. Internet ha propiciado multitud de mercados dinámicos que no permiten aplicar las recomendaciones de Porter. La consolidación de las empresas puntocom supervivientes al crac del 2000/2001 han cambiado los modelos de negocio y las cadenas de valor. Las puntocom han destruido eslabones de la cadena y han creado nuevos escenarios competitivos en los que han sido aplicaciones asesinas de muchos servicios ofrecidos hasta ese momento sólo por el mundo offline (ejemplo: las bolsas de trabajo online, las páginas web de clasificados de compraventa, las subastas online, etc.).
  • Network externalities, on the other hand, lead to the creation of natural monopolies because they generate positive feedback processes that make each new user of a service it has more value for the next user.

3. The threat of the development of substitutes:

Porter is considered a substitute of another product, only if you replace a product of a different industry sector to yours. For example, the price of aluminum beverage cans, is based on fluctuations in the price of glass bottles and plastic bottles. They are substitutes packaging, but are not rivals coming from the aluminum packaging industry.

  • La tecnología cada vez más permite la generación de nuevos negocios que hasta ahora eran impensables. Los cambios tecnológicos radicales que estamos sufriendo no permiten realizar ningún tipo de predicción ni análisis previo sobre este punto. Por ejemplo, pensemos en el mercado del ancho de banda: tenemos las conexiones vía cable telefónico, vía satelital, vía red eléctrica, etc… todas aparecidas y desplegadas en un espacio de tiempo relativamente corto. Se hace difícil poder prever y contrarrestar los efectos de este tipo de productos. El usuario cambiará tan pronto como perciba que el coste del nuevo producto es más bajo o cuando obtenga nuevas funcionalidades.
  • Internet also enables other ways to meet needs and functions, creating new and unimaginable substitutes.

4. The bargaining power of buyers:

For Porter this threat must be neutralized with an appropriate strategy to pursue this end.

  • The truth is that thanks to the Internet, customers increasingly have more power. Although it is seen from the point of view of the traditional company that is not exactly positive:
  1. Internet increases the information on products and market reality.
  2. Increases the bargaining power because it provides more direct routes and eliminates customer links in the distribution of products.
  3. It provides an unbeatable consumers to join and perform lobbying against certain companies when customers are dissatisfied frame.
  4. To better understand this point I recommend reading the summary of the conference by Philip Kotler at the World Forum of Marketing and Sales (Barcelona 2004): The 10 principles of "new Marketing

5. The bargaining power of suppliers:

Porter focuses the analysis of this point by remarking that the power of suppliers depends on the importance of them (think of providers who have captive market for example .: Telefónica, Microsoft, etc.).

  • The current trend is to treat suppliers as business partners, and share with them the ultimate goal of meeting the needs of our customers. The customer-supplier relationship is changing.

Although all qualified in the comments at 5 forces suggests that the Internet has forced companies to compete on price, the Internet has also led some of them have achieved great success in their differentiation strategies. These companies are the companies that are strong in:

  • Scientific investigation.
  • Product development teams with talent and creativity.
  • Sales teams with great communication skills and awareness of the needs of a changing market.
  • Brand image that conveys innovation and quality.

But the risks associated with differentiation have also been magnified by Internet:

  • Imitation of our products by others that have not invested in R & D.
  • The changing and unpredictable tastes of customers.
  • So to round off the article I say that the Internet has made the analysis of Porter's 5 forces still remain valid today, is much more complex than it was and with many more variables to consider.

Related information

Article by Michael Porter on Local Clusters.
Harvard Business Review: Local Clusters

Article summary of the conference about the New Philip Kotler Marketing and increased consumer power. Philip Kotler: the 10 principles of "New Marketing"

Information about Expomanagement, Madrid 2005, where Michael Porter will lecture about the results-oriented strategy:

  • The results-oriented strategy
  • The economic logic of higher returns
  • How to recognize what kind of business your company competes
  • The importance of abandoning the destructive competition and adopt strategic competition
  • What are the five keys to an effective strategy
  • Why most companies have no strategy
  • How to find the right strategy
  • How to successfully communicate and implement a strategy: essential steps


Why free content raises the billing? (OGame)

We all know, giving value for nothing is one of the best weapons to succeed online. If you can provide a good percentage of your free service without this just your results having a positive impact on your business will suffer.

Algo que los que llevamos años creando negocios en Internet sabemos a ciencia cierta, no es siempre fácil de explicar a terceros. En charlas y clases veo caras de escepticismo cuando tratamos este tema. La gente se pregunta ¿Cómo puedo ganar dinero ofreciendo cosas gratis?, o piensan que si das parte de tu contenido o lo que sea, gratis, mal acostumbras a los usuarios o piensan también que estás devaluando tu imagen… nada más lejos de la realidad. Pero ¿cómo se lo explicas para que lo entiendan?

The explanation is simple: the viral marketing that generates something free is much higher than can be generated with a payment product. So if you are able to transform users coming to your site into customers, you have the game won.

For several days, I have new arguments to convince my students ...


If there is something that I love are the games ... and of all the games, strategy games. Since early January 2005, I'm playing oGame (http://es.ogame.org) A strategy game framed within the genre of massively multiplayer games turn (turn based massive multiplayer game). It is being played by the web, without requiring software installation. Typical game of colonizing planets (note for those over 30: is like the VGA Planets shifts but without sending email). Is free. It's addictive.

Right now we are more than 7,000 players playing in the same game.

I've been analyzing the growth of oGame since I joined him. Can anyone guess growing daily as the number of players?

The number of new players daily grows 6%. Daily!!

Can you imagine a business to grow at a 6% daily geometric?

Well ... certainly hard to imagine. In this case would be considered cheating OGame is a business. At least as far as the Spanish version is concerned. The German and English versions, and water are another matter.

Administrators of the game (German) so far have ruled the Spanish market. The business model for the other versions is as follows:

Business model: selling advertising on the German community and English version of the game + pay no advertising and more features that facilitate the organization of your strategies.

Advertising in the Spanish version exists but is minimal, poorly segmented, is by pop-up's (with which you can skip the all if you want) ... and worst of all ... it's all in German. Hence my assertion that the Germans have decided not to exploit the Spanish market at the moment.

But back to what interests us in this article. How to prove to unbelievers that offer something free, you end up doing the billing?

Consider the growth of the game:

El secreto está en la estructura de red que está detrás del juego. No es propiamente una red de Metcalfe (para conocer qué es una red de Metcalfe leer: Análisis del “Por qué eBay (y posiblemente Google) abren su código fuente a los desarrolladores”. Si analizamos su crecimiento veremos que no sigue una curva potencial típica de las redes de Metcalfe (crecimiento=número de usuarios ^2). Tampoco sigue la curva de crecimiento de una red grupal (crecimiento=número de canales ^usuarios), sino que es una especie de mezcla de ambos, que acaba mostrando una gráfica parecida a la curva de implementación de una nueva tecnología, la hype curve de Gartner (ver imagen adjunta). Es decir, primero sufre un crecimiento muy fuerte (en enero llegamos a un crecimiento de un 15% diario), luego baja de golpe, y acaba por estabilizarse un poco más arriba de los mínimos en los que ha bajado (al 6% diario que estamos ahora).

OGame viral marketing also works as a network of contacts ... small explosions as the recommendation is coming to small groups of friends or communities. Hence somehow it ends up showing a curve that combines the group growth with the growth of networks Metcalfe.

Anyway ... just a steady growth of 6% daily. These are many new visitors to a web page daily. Many more than we can attract with any marketing campaign, search engine indexing, advertising in Adwords, ... or anything that we can devise to increase visits to our website.

Again, I repeat, the secret is in knowing the views convert into customers. And that if the viral marketing or free content, and have nothing to do. They have already fulfilled their mission: bring users to the page. Here only consider our ability as business managers.

How do we convert visitors into customers?

This longer be the subject of another article. But not to leave readers dissatisfied, commenting that there are several models:

  • Online games: Offer a pay version of the game, with more functionality without micromolestias such as advertising. This is the model chosen by German managers ogame for their other communities.
  • Sites selling content: Offer expanded and better quality content, but by the same authors, for a reasonable price.
  • online marketplaces and classified: Offer a package of value-added services to complement the services they receive for free all users, but we know from interviews with some users, some of them would be willing to pay for. These packages can deliver advertising its products, more visibility, extra features, etc.

There are more models, but as I said before, the subject deserves a separate article. The important thing to remember is that there is no better way to attract users to your website that offering free content to generate viral marketing at speeds hyperlumínicas ;-)

Related links:

oGame: http://es.ogame.org

Article about networks Metcalfe: Metcalfe networks

Power Point presentation about the networks Metcalfe: Metcalfe networks

Discover how the creator of Radio Rivendell and how a radio works on Internet

Entrevista a Anders Dahlgren

Anders Dahlgren (the one in the picture), A Swede, 29, CapGemini consultant working on Sony Ericsson, is the creator of the first radio station that broadcasts music of epic fantasy genre, 24 hours a day, designed to acclimate roleplaying.

In the article: "If you're an Elf, now you have your radio station"Said the discovery of this radio station where you can listen to any time of day without interruption, the soundtracks of films like" The Lord of the Rings "and" Braveheart "or soundtracks of games like Neverwinter Nights and Warcraft III.

Following the aforementioned article, Anders has been kind enough to satisfy my curiosity about him and this fabulous radio station that broadcasts over the Internet since 2002 and has allowed it to entrevistase Noticias.com.

How did Radio Rivendell?

Well ... it began as a diversion from some friends that played a role. We had several CD's with different music we used to liven up the games. One day, I was testing a Shoutcast server and one of my friends suggested us to use this server to listen to our songs, rather than CDs. Radio Rivendell was born that day.

(Note: SHOUTcast is Nullsoft technology that lets you create online radio stations created with Shoutcast stations are automatically tuned with WinAmp [also Nullsoft].).

What is the target, your target audience?

Anyone interested in good fantastic music.

What are the sources of income of Radio Rivendell?

Mainly donations from listeners. Although all the money we receive we use it to pay the new server on which emits Radio Rivendell. So in the background ... returns to the listeners themselves. Unfortunately, with these revenues we do not cover all expenses that yields the station.

It all started as something small, and now we have become a community. Now I have to stay online, as long as listeners, but I have to find a way to reward everyone who makes it possible. Without going any further, a Finnish friend is the one who makes it possible for us now to have 200 users connected simultaneously.

How have you grown the station?

At first only were broadcasting commercial fantastic music (like "Lord of the Rings") we had on CD. But as time has gone by and more people have been known Radio Rivendell, many composers nonprofit, send me your songs. In return, our listeners can appreciate their music and they are disclosed. Now they begin to come some small record companies to offer their titles. And we have some "success stories" explained on several websites.

What makes happiest is to see who can give musicians something they deserve and have earned.

Tell us about your work outside the radio station:

For 4 years, I work as a consultant for one of the largest consulting firms in the world: CapGemini.

Generally, I am assigned to Sony Ericsson, where he developed new mobile phones.

I love work allows me to fully enjoy all kinds of gadgets! And besides, I just trying absolutely all phones are released to the market.

What do you like about the radio station?

Above all, that since has grown, people really appreciate the music that we issue. I do not receive many emails, but I get are really giving me energy to keep working hard.

Another great source of energy is when artists contact me directly and I request that their songs are issued by our radio!

Some labels, such as Waerloga Records (Swedish company), are making music compilations and we apply what songs to include in their CD's. So Radio Rivendell has begun to be a small showcase for lesser known artists. And this is precisely what I want, help all brilliant musicians that are out there that are more known.

What are you most proud of?

As I said before, above all, that artists come to me. I also like Radio Rivendell search on Google and see us mentioned in many places.

When I read that one of the artists being promoted on Radio Rivendell has sold CD's thanks to us, also I'm glad a lot.

And to finish,
where do you see yourself in 10 years?

With Radio Rivendell? Hmmm ... personally, I see vivendo me in a hot country, with beach, cheap drinks and a direct Internet connection :-)

Hopefully in 10 years, Radio Rivendell still alive and has grown tremendously. Now we have reached the 207 simultaneous listeners. Perhaps then we are the largest and Shoutcast station!
It is possible that at this time we are no longer specialized in fantastic music. Now we play some music outside the genre but it sounds good in what is our specialization. But who knows in ten years ...

My dream would be to devote full time Radio Rivendell. Now I can only devote to the station on weekends and some evenings.


That Ehlonna, goddess of forests, hear you and make your wishes come true.
Since Noticias.com we also want it so.

Radio Rivendell can be heard from their own website: Radio Rivendell or by downloading the WinAmp and looking for Radio Rivendell between preset radio stations.

If you're an Elf, now you have your radio station

If you've ever noticed that in the light of the stars and moon could see twice as far as other people ... if when others were bewitched by a girl, you permanecías completely immune ... if you always find right doors where others only see walls ... and you've always known that you do not need eight hours sleep ... do not hesitate, for your elven blood veins.

Mood to also test the new interface download programs ... and incidentally, why not upgrade my WinAmp, decided to get out the new version of this player sounds ... And thank goodness I did, the discovery was of the highest caliber!

On one side the same WinAmp is infinitely better than the previous version. By default includes 2 skins, the classic orange and black version and a much more modern and well designed in gray and blue. As for functionalities include automatic default lists the songs that we hear, of which we have heard more recently and etc. other variants. But the most spectacular is the inclusion in the same interface WinAmp TV stations and radio stations.

And it is among the radio stations where the pearl of my discoveries is: Radio Rivendell, A station where only music is played New Age, chosen among the best of the genre and as varied sources as soundtracks Braveheart type films, The Mission, Dune, Pearl Harbor, Gladiator, The Lord of the Rings and many other original titles the fantasy and science fiction, as well as soundtracks for video games such as Warcraft III, Neverwinter Nights or Morrowind.

Although the best thing is that you find that you are not alone, there are more people like you, listen to this music, which is fascinated by some tastes and aesthetics that are completely different from the rest of mortals. From the same WinAmp you can see how many listeners are connected at that moment to the station.

The station is on the network from a year ago, according declare themselves on their website Radio Rivendell, music is meant to be the background music in roleplaying. No speakers or interruptions. Most music is instrumental.

It's just great.

If you want to hear no more you have to look Radio Rivendell in the search engine box that appears in the WinAmp v5.03c, pressing Internet Radio.

You can download the WinAmp from Softonic (step ... and you admire their new website).

Why eBay (and possibly Google) open source code to developers

Quick to "why" answer: so what is the logical evolution of a Save the Metcalfe a Red Group. If you are interested in topics ... read on.

Lets start by the beginning:

What is a Network Metcalfe?

A Save the Metcalfe is a business with a particular structure thus generating value from Metcalfe's Law.

(... yeah okay, thank you)

What is Metcalfe's Law?

Metcalfe's Law postulates that the value of a network increases as the square of the number of system users. This is not true 100% (after I explain why), but the truth is that this law is of great application to determine the expected growth for a business and creating value that is linked to this growth.

Consider this ...

The structure of traditional business

(Whether they are online as if you are offline)

In a traditional business, a provider offers a service or sell a product to a number "n" of customers. And the number of potential transactions to be performed in a given repeat customers without time, exactly equals the number of customers you have. (See Figure 1)

Traditional business

Image 1: Business with traditional structure

The value of this business depends on the number of customers who have (of course, there are more factors that influence business value, but in a hypothetical formula for calculating the value, our "n" is one of the variables ... and it is in this article we will analyze).

In a traditional business, the number of possible transactions grows linearly. That is: +1 customer equals +1 possible transaction.

The structure of business networking

Hay ciertos negocios, como el de una red telefónica, que no funcionan como un negocio tradicional. Todos los usuarios son oferta y demanda a la vez (emiten llamadas y reciben llamadas), así que el número de posibles transacciones es prácticamente n^2 (“n” al cuadrado) … y digo “prácticamente” porqué en realidad es n*(n-1) ya que la oferta son todos los usuarios, pero la demanda, son todos menos tú mismo… no se realizan llamadas sobre uno mismo. (En el resto del artículo, consideraremos que es n^2 para no complicar las fórmulas, pero por favor, téngase en consideración).

The first person to apply a law on this kind of behavior in a business was Robert Metcalfe (or so the legend goes), inventor of the Ethernet when Xerox invented the first laser printer in 1974 and did not know how to connect more than one computer while this printer. Metcalfe's Law It postulates that the value of a networked system grows at approximately the square of the number of users of the network itself. (See Figure 2)

Save the Metcalfe

Image 2: Business Network structure Metcalfe

Hence businesses with circular structures where all users can be supply and demand at the same time, they are called Metcalfe Networks.

El ejemplo más bello de Red de Metcalfe lo tenemos en eBay. Tiende a la perfección, concretamente, en su vertiente C2C (consumidor a consumidor). Cualquier usuario es un potencial vendedor y cualquier usuario es un potencial comprador. Su crecimiento es lo más cerca de n^2 que podemos encontrar en Internet.

Las webs de contactos que tanto están proliferando estos últimos años, también son claros ejemplos de bellas redes de Metcalfe perfectamente redondas. Y digo redondas, porqué hay redes cuya estructura no es redonda como la de la imagen 2. Son las redes donde claramente hay un lado con oferta y otro con demanda. En ese caso, el número de transacciones potenciales sigue siendo oferta*demanda, pero no tiende al cuadrado ya que son números distintos. Por supuesto, están elevadas a un coeficiente que es mayor que 1, que sería el del negocio tradicional; pero es menor que 2, que sería el de una Red de Metcalfe perfecta.

An example of this type of network would be SoloStocks.com not perfect, where companies sell their stocks, are not all potential buyers of stocks (except if all brokers ... then yes, you see the difference?). (See Figure 3)

Metcalfe red variant

Figure 3: Business with varying network structure Metcalfe

If the number of potential transactions in a perfect network Metcalfe 8 users would be 8 * (8-1) = 56, the number of possible transactions in a network noncircular 8 users (4 suppose that offer and 4 demanding) it would be 4 * 4 = 16 ie the coefficient network externality that market would be 1.33 instead of 2, and therefore value generation grow at lower speeds than those of a Save the Metcalfe perfect since it offers more value to its users, but higher than those of a traditional business that offers much less.

In a market like SoloStocks it is interesting to note that the greater the imbalance between the number of bidders users and demanding users, the lower the growth of the business and therefore always have to struggle to balance the number of bidders and plaintiffs .

Veamos un ejemplo de esto: supongamos una red de 8 usuarios donde 5 son oferta y 3 son demanda, el número de potenciales transacciones sería 3*5=15 y, por lo tanto, el coeficiente de externalidad de red 1,29. Si la desequilibramos más y tenemos 6 ofertantes y 2 demandantes el número máximo de transacciones es de 12. Y así…, hasta llegar al máximo desequilibrio posible, que sería el negocio tradicional (o cualquier comercio electrónico), donde hay 1 vendedor y 7 compradores (…para seguir con una red de 8 como teníamos antes); el número de potenciales transacciones sería 1*7=7 y por lo tanto el coeficiente de externalidad de red, sería 1, que es justamente lo que comentábamos cuando hemos explicado al principio la estructura de un negocio tradicional: el número de transacciones potenciales equivale al número de clientes.

Well ... if you have not giddy with both numbers and letters, and you read on, we will pass to the next level of evolution of a network and discover finally :-) why eBay and maybe Google (judging by the rumors by the network) open source code:

Las Redes Grupales o Group Forming Networks

When a Save the Metcalfe technology allows users to organize around common interests or goals, begin to appear small Metcalfe networks gravitating around a large network to which the feed. (See Figure 4)

Red Group

4: Business structure Red Group or Group Forming Network

For some time, eBay has been creating or participating in the creation of small sites specializing in certain types of auction and, therefore, has evolved into this model of network structure reminiscent of a daisy. Opening its code, leads to an infinite number of programmers begin to develop applications that revolve around the great network and eventually forming daisy petals.

With closed source, only they can create the petals. With open source have a chilling potential of possible petals to be created.

Growth Networks group tends to this formula: a ^ n, where "a" depends on the number of possible channels that can be opened, and where "n" is the number of users.

The theoretically perfect business would be one that consiguiese that for each user of the main network, possible to create a subnet. Its structure would be something like: n ^ n (I know of none and I'm sure it's just a theoretical model ... but the less, it is interesting to keep in mind).


Traditional businessesGrow linearly as the number of clients (plaintiffs service) having: supply * 1 * suit or buyers

Businesses with network structure MetcalfeGrow almost square of the number of users who have: n * (n-1) or simplifying: n ^ 2

Businesses with Red Group structureGrow exponentially: a ^ n
Opening codes applications accelerate this growth, growing "a".

If you have not already bored and you're still reading, here's a gift:

What happens when you join several networks Metcalfe?

Business 1: m number of users

Business 2: n number of users

Sum of traditional business users 2: m + n
Sum of users 2 networks Metcalfe:
(m+n)^2=m^2+n^2+2mn –> synergy appears !!! 2mn

(... and yes ... this is the Binomial of Newton studied at school! ;-)

Growth Metcalfe two networks together is greater than the sum of both growth separately.

Is not it beautiful to see the word "synergy" represented mathematically?