Porter’s Five Forces Are Dead

Web 2.0 has brought about interesting changes in business strategy.  Initially, the generally accepted framework for business strategy, Porter’s Five Rules, applied across the board, no matter the sector or industry.  Today, Porter’s rules are under fire.

WinMarket has a great post (although it is an ‘alpha’ version) about the differences between traditional business framework and the new, perceived 2.0 framework.   In it, Nilofer Merchant details the following:

  1. Manufacturing costs have been reduced
  2. Investment costs have been reduced.
  3. Marketing is decentralized.
  4. Many different revenue models have emerged.

Personally, I think that Porter’s model needs to be tweaked, no different than some of Jack Welsh’s quotes and teachings do.  But elements of the legacy view are still true.  Every business still has customers and suppliers, just in different forms.  New entrants and substitute products must be  taken into consideration, even in an online marketplace.  And competitive rivalry still exists, hence Google and Microsoft.

Web 2.0 opens up a lot of new revenue models and a very low cost of entry, but a startups external environment needs to be accounted for which isn’t apparent in the WinMarkets article.  External factors is one of the reasons I truly don’t understand how there can be so many clones.  Digg for example has 26 comptetitors the last time I checked, which tells me that someone either hasn’t done their homework, or doesn’t care.  Either way, externalities need to be considered.

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