P5

[UPDATE: before reading, scroll all the way up, on the left side is my music box. Press PLAY, and listen to the music while reading.]

Porter five analysis has been well accepted in the academic world. It has been around since 1979 and it has been probably edited and improved since then. It is hard to find any glitches, problems with it's effectiveness, so rather let me jump to the example.

The music business in the internet world.
1. Bargaining power of suppliers. When you are talking about internet business, there are a number of different suppliers. One problem with Porter 5 is that it works well with traditional businesses, but with internet sites, it gets a little fuzzy. Here is why: if you are making an internet site for music, you have a number of different suppliers with very different nature:
- Suppliers of servers. There has been lately so much internet stuff going on that hosting providers are around every corner. Prices are low, competition is high, bargaining power is LOW
- Suppliers of music. We can either talk of random people putting up content (high supply, but not in the traditional way, since we are not paying for it) or we can talk of record label companies who have extremely high bargaining power due to their legal powers. HIGH
2. Bargaining power of customers. A lot of the sites lately are free around and based on advertisement models. In that sense, customers really have LOW power to bargain, since they are not paying for anything.
3. Threat of new entrants in the pure online business is HUGE. Barriers are low, money is available, technology is available...everything screams, "Come make a business online!"
4. Threat of substitute products is also HIGH. there are a million sites that are around. Pandora, like.fm, youtube if you want also has music etc...
5. Comeptitive rivalry within industry. Again, low barriers of entry, high number of substitutions, HIGH number of companies to rival each other.

Generally that would be bad. But in the internet business prices to start a business are low and in such environment you may hit sometimes. Also, even though competition is tight, the demand grows, since more and more people start using the internet.

So my final verdict for that industry is "GO FOR IT". Though it is not easy with so much competition, it doesn't hurt to try. You can see my brand new business, just launched at:
http://thefeelgood.com/
(firefox and safari only for now)