Looking for Attractive Online Markets

By David Golding |  Print This Post

Thanks to Michael Porter’s five forces model, we can better understand how attractive a market is. Unfortunately, many internet entrepreneurs just dive into projects assuming that the market is ripe for the picking without consulting this or other effective frameworks.

The other day, I discussed a web site idea with a friend. He wanted to sell sports products online. Here’s how the five forces model helped us understand that it probably would be a bad idea.

Potential Entrants

What is the threat of new entrants into the market? Well, with almost anything online, the threat is going to be higher than usual because of the relatively low barriers to entry: just buy a good domain name, host the thing, and you’re off—for less than 50 bucks, most of the time. So selling sports gear online will not be immune from lots of potential entrants. Favorable? No.

Suppliers

How much bargaining power do suppliers bear? Sports gear has many suppliers. Because of the high volume of athletic equipment, their bargaining power is somewhat average. Favorable? More or less.

Substitutes

What is the threat of substitute products or services? Again, with the web being so agile, there actually is a greater threat of possible substitute websites out there. Already, a user can go to some pretty big online retailers and get their products there. The best bet is to go for a highly specialized market, say boxing equipment websites, etc. Still, there does exist the possibility of many thousands of substitute products online. Favorable? No.

Buyers

How much bargaining power do buyers have? Lots of bargaining power. They are just a click away from going elsewhere, so your price will be compared for sure. Supply/demand for online retail fluctuates with big promotions from the big boys. For a start up, buyers probably are going to go elsewhere unless you have a ridiculously low price. Favorable? No.

Competition

What rivalry exists among present competitors? Huge rivalry, huge competition. Already some significant leaders exist making this one unfavorable for sure. It will surely be an uphill battle to build a successful sports equipment web site.

Overall

You can see that the five forces model shows that it’s highly unlikely that a start up web site will go far on little capital for this particular market. Too bad web developers just take the dive off the board without this simple tool for gauging the market difficulty.

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