Porter’s five forces have been originally published in 1979 were updated later by the Harvard School of Business. They are used to depict strategic thinking to help companies think beyond their existing competition, as well as anticipate new market entrants. The model also describes how a business’ supply chain is affected by buyers and suppliers.
Originally as of 1979 The 5 Porter’s forces were as following:
- Threat of new competition/rivalry;
- Bargaining power of suppliers;
- Threats of new entrants;
- Bargaining power of buyers;
- Threats of substitutes Industry.
Changes required in the Social Media Sites
The business environment of the 1970s or 1980s is very different from today’s business models; hence, there is a need to adjust the working methods to ensure success and profits. We will take a look at the specific changes that can be applied to Facebook, Inc., as an example of a social media company. Therefore, forces such as the threat of competition are very important, as a company can become irrelevant if its competitors are offering consumers better services. An example here can be MySpace which has seen stiff competition from Facebook. Due to the superior and relevant services of the latter, the former was dislodged from its pole position. Since then, MySpace has been on a downward trend (Wortham, 2011). Other more relevant forces are threats of substitutes as well as the bargaining power of buyers.
The Threat of Competition
This factor is seen to be very high (WikiWealth, 2012). In social media, there are several businesses competing with Facebook, as social media gets more and more attention. Some of them include MySpace, Twitter, Reedit, LinkedIn, Foursquare and so on. According to Porter, the introduction of more competition within the same industry will threaten the incumbents personally and the whole industry in general. Competition here includes direct competitors and brands that can steal the mind-space of Facebook consumers. However, strong brand names are required in the face of strong competition, and Facebook has that advantage (Strawn, 2012).
The Power of Buyers
Buyers have a medium power in Facebook. The web-resource gives power to several thousands or millions of individual consumers who can promote them by mentioning the brand within their networks or talk about the brand within their social networks. This is unlike the original 5 Forces model where buyers have power over B2B business models (Hausman, 2011).
Bargaining Power of Suppliers
In distribution it is the suppliers who have the control. In case of Facebook and social media in the whole, the networks have all the control. Due to many existing chains, the purchasing power of suppliers is low, as Facebook has a lot of intellectual stock in third party networks that they do not own (Strawn, 2012).
Threats of New Entrants
Threat of new entrants into social media is low as far as Facebook is concerned. Although there is a possibility that the new entrants into the Social Media Industry may be tremendous with low advertising costs on the internet giving them an easy access to the market. However Facebook has already established itself as a leader in this industry and this threat remains low. In this digital age, Porter’s five forces model is to help improve on strategies (Hausman, 2011). An example here is when Facebook, Inc. has purchased Instagram, because the management suddenly realized that it may bring some unwanted competition in the sphere of Social Media. Nevertheless, new entrants like Mobile Journal Path can bring some real competition that Facebook, Inc. has to take into account (Kakkar, 2012).
Threats of Substitutes
Facebook has a medium threat from substitutes. As seen earlier, it is competing not only with its direct competitor like Twitter or MySpace; but also with anything that can distract its users (consumers) from the brand. As a social media business, Facebook has facilitated conversations for its CRM (Customer Relationship Management) to be of high value, as they are well aware that anything can substitute people’s online attention. As such, their perceived level of uniqueness to their content is high, the services are easy to use, and the bounce rate is also high making Facebook services exceptional indeed (Strawn, 2012).