Intro
The internet is a relatively new thing in the world and it is taking over even faster. Companies in this industry are looking for new ways to create next generation products and differentiate themselves in the process. When looking at top industry businesses like Google it’s important to analyze and break down where the success comes from. Using the PESTEL model, Porters 5-Forces model, Strategic maps, and VIRO we can really determine everything from strengths, weaknesses, competition, industry dynamics, and core competencies.
PESTEL Model
The Strategic management book describes the PESTAL model as “ A framework that categorizes and analyzes an important set of external factors (political, economic, sociocultural, technological, ecological, and legal) that might impinge a firm” (Rothaermel, p. 67). A firm will conduct the PESTEL model to calculate critical external factors and tendency’s to gives them a competitive advantage that creates opportunities and threats.
The first part of PESTEL starts with the political factors. These factors focus on government actions and how they affect the economy with what they do. Government policies are constantly getting updated and this can really affect the internet industry for their products and services, because new technologies products are constantly coming out. Since technology firms typically have little power in political factors of the government, they intervene other ways like lobbying and public relations. According to Olivia Solon of thegurdian.com “Google, Facebook, Microsoft, Apple and Amazon spent $49m on Washington lobbying last year, and there is a well-oiled revolving door of Silicon Valley executives to and from senior government positions” (Solon). With the payments through lobbying these tech firms gain their own private interests pushed to the top which creates a real positive force for these companies in the internet industry and creates a negative one for other firms. Another political factor that affects the industry could be the strength of the government. Weak governments prove disadvantages because less protection efforts are placed in and stronger ones have the capability to help so.
The second part of PESTEL is the economic factors that affect the internet industry. Economic factors include the different rates and the economic growth, they affect probability and employment as well. The economy really affects the industry because when the economy is stable people are purchasing and investing, which leads to higher probability and more money to make products better and when its doing poor people tend to spend less wich hurts the industry as a whole. The more stable the market the better a firm can predict and thrive. Another factor that affects the internet industry is not just the home country economy but the global economy. Business partners economy’s play a huge role in the internet industry when it comes who to do business with. Just like the home country’s economy, this can be a positive or negative force.
The S of PESTEL stands for the sociocultural factors. This refers to the cultural trends, norms, and the analytics of the culture. A really big sociocultural factor that affects the internet industry is holiday shopping. According to J. Clement of Statista.com “ In 2018, holiday season retail e-commerce spending in the United States amounted to 119.54 billion U.S. dollars with the most money spent online on Cyber Monday” (Clement). This statistic proves the sociocultural demand for western countries around holiday seasons are way higher online. When looking at sociocultural factors you can also look at demographic trends. Population size, buying patterns, gender, age, and demographic class all affect the internet industry in how they buy online services and products.
Next, the T in PESTEL represents the technological factors. Technological factors are crucial for the survival of the internet industry. Technology is a huge factor for the industry because there needs to be technology for there to be an actual industry. Technology also provides the newest products which keeps customers coming back so the industry stays thriving. Advanced process technology can also save companies and consumers money by creating faster, more efficient, and more advanced electronic products and services, Innovations in technology can prove positively or negatively all based on access.
Coming after is the E, which stands for Ecological. These factors have anything that influences with the environment. The carbon footprint of the internet industry and other industries are one of the forces affecting the internet industry for products. Mass pollution can affect the industry by wiping out inhabitable areas and paying fines for too much of it making things more expensive. But according to Aaron Walker of Colocation America “ Changing to the cloud for office services and government services could use up to 87% less energy and therefore, have less impact on mother Earth” (Walker). By using less energy costs go down and brand imagine goes up creating more business. In the end, the condition of the world plays a factor because if the world is good people are happier which will make them buy more compared to the other way around.
The last letter of PESTEL, L, represents the legal factors. In business there are a lot of laws regarding this category. Seeing how the internet industry is relatively new and laws are constantly adapting to new technology, this plays a huge role. According to Hg.org “As of yet, the United States does not have any centralized, formal legislation at the federal level regarding data protection laws, but does insure the privacy and protection of data through the United States Privacy Act, The Safe Harbor Act and the health Insurance Portability and Accountability Act” (HG.org). With lots of different acts in place, internet law is getting more strict, but there are still some loopholes around them. Regulatory changes affect the industry in a big way as well.
A driving force that will have a significant impact on the internet industry in the near future is our advance in technology. With our technology getting more and more advanced every day, next generation products that make everyone’s life easier will be a huge factor in the industry. Another factor that will impact the internet industry is online data privacy laws. As more ways to access peoples information keeps coming out, laws that crack down harder will come with it. Lastly Easier accessibility to the web will play a huge part on the industry. In the future practically everyone will be centered around technology. Country’s that aren’t fully invested or lacking in technology will soon have easier access.
5-Forces Model
Porters five forces is one of the most conclusive and greatly admired business strategy tools we have today. These forces examine what factors affect the business environment.
Rivalry is the first force and in the internet industry it would be classified as a strong force. In the Internet industry competitors come from multiple industries and there is many of them. The quality of the products in each competitor in the industry are just as technically advanced as their competitors. Intense marketing strategies are put in place to try and differentiate themselves from competitors.
Threat of new entrants is the next force and has a weaker force. In the internet industry top firms are on top for a reason. People have trust and loyalty in these top internet brands and rarely will switch up from them. This gives them market control and capital to keep investing creating newer and better products for people to keep coming back to. To become a new entrant, large amounts of money, time, and research is needed to create a product to compete with top line businesses, that might not even get a chance taken on it.
The third force is threat of substitutes and this force is moderate. This force is moderate because there is a chance people decide to switch top competitors because most of the technology is at the same point. Most products are the same category price firm to firm so there’s always the possibility of a switch up. Bad publicity can cause a person to substitute if they strongly disagree with the event.
The 4th force is buyer power and it’s a weak force. Because there are only a few dominant industry firms providing the technology that they do, firms are free to price their products as high as they want and they know people will still buy them. The amount of people that own next generation technology also weakens buyers power.
The final force of Porter’s forces is the supplier power. This force is also weak because of the high availability and the desire to partner with these billion dollar companies. Suppliers dream of partnering with these firms and would do anything to do so they have weak power in the say.
Based on the 5-Forces analysis the profit protentional will never be capped once you establish yourself. Top Internet firms will continue to invest their money in research and design and people will always come back craving the best product. The internet industry is relatively new and the possibility to create products for these firms that we wouldn’t even think are possible are closer then we think and they are going to make a whole lot of money off them.
Based off the strategic group map I have created Google leads the way with the most market coverage and most added value. With Google being the top ranked website and most used search engine it makes sense that they have the most highest market coverage and added value. Right behind Google is Amazon. With Amazon being as big as they are now, they are right with Google for added value and market coverage. Next is Facebook which is just as big as the other two companies. The reason why eBay is as far back as they are is because Amazon has taken a lot of their market coverage and business. Last is Twitter. Twitter doesn’t add as much value as the other companies but still controls a good amount of market coverage.
Industry Dynamics
Technology is constantly changing and sometimes we don’t even notice how fast. The structure of the U.S. internet industry is changing and cloud computing and artificial intelligence are leading the way. Artificial intelligence has the power to create new technology without human contact. By learning from experiences AI has the ability to perform human like tasks and it never stops. More and more things will be digital and a new electronic structure will be created to structure around it.
SWOT
The first part of the SWOT analysis is the strengths for Google. One of Googles biggest strength is they are the leader in search engines. Google also created away to make billions off their advertising by charging for companies to post adds on their search engine. Another Google strength is their ability to create new platforms and services that make them billions and life easier for their customers
The next part of SWOT is weaknesses. With a company as successful as google there are a few weaknesses. One of the biggest weaknesses is the reliance of advertising. With most of the revenue coming from ads, if anything went wrong they could be in trouble. Another weakness is some of the companies Google has purchased. Although it could have seen like a good investment idea at the time they have lost billions off failing companies.
The third part of SWOT is the opportunities. With as technologically advanced as google is the opportunities are endless. With billions of dollars going into research, googles opportunities for big ideas are coming. Another big opportunity they have is their relatively new product cloud computing. Cloud computing allows user to save unlimited data wirelessly. Instead of having to purchase new products with more storage you can save as much data as you want whenever.
The last part of SWOT is Googles threats. One of Googles biggest threats is social media. With social media taking off more and more people are investing their time and resources into it and that’s leaving out Google. Google doesn’t possess a lot of threats besides competition in the internet industry and maybe the unrealistic possibility of the internet collapsing.
Google Core Competencies
Google has established themselves as one of the biggest technology companies of all time. The way they differentiate themselves is by creating unique products and services that leaves customers no option but to use them because of how convenient they are. From their new era business structure to their dominance in the market. Google has many core competencies that keeps them on the top.
Google has sustained a competitive advantage through their technology, business strategy, market dominance, and services. With as advanced technology as google has and the funds to keep upgrading, they will always be competitive. The way Google makes their business decisions as strategic as they are will always put them on top. Googles market dominance puts them at a huge advantage compared to other industries. Lastly their products and services is what makes them most competitive. Companies worldwide are trying to figure out how Google creates the things they do.
After conducting in depth research on top internet industry companies by using models such as PESTAL, 5-Forces, Strategic maps, and VRIO, its clear to see why they are so successful. From dominate next generation products to commitments to make life easier for the average individual. The internet industry has just began to create a difference in the world and its here to stay forever.
