“Porter and Online Collaboration?” one may ask. But not really, Michael Porter, that management genius, had to say things universally applicable across industries. Since online collaboration is one of the hottest industries these days, it makes sense to try and apply Porter’s gyaan. Here’s a measure of just how hot the market is.
A few days ago, HP announced its participant in the online collaboration software market titled “HP virtual rooms”. This adds to a list which already comprises Google Apps, Microsoft BPOS, IBM LotusLive, Cisco WebEx, Adobe Acrobat.com, Oracle Collaboration Suite, Salesforce Chatter.com, VMWare’s Zimbra; as well as smaller players like Zoho, HyperOffice, Jive SBS etc.
Using Porter’s five-force model on the online collaboration market may yield some interesting insights. First, a few comments about the model itself. The model analyzes every market on five parameters: intensity of competition, barriers to entry, threat from substitutes, bargaining power of customers, and finally bargaining power of suppliers. The first four parameters or forces, act upon the fifth and determine the competitiveness, and hence attractiveness of an industry. The more the competition in an industry, and the closer it approaches conditions of “perfect competition” the lesser the chances of companies earning a profit.
Barriers to entry: As evidenced by the huge number of players in the market, barriers to entry are very low. Costs of developing a product are relatively low, and a few thousand dollars are all that may be needed to create a product and step into the market.
Threat of substitutes: This is a somewhat dicey point. The boundaries of the “online collaboration” market are very vague. Under the banner of “enable remote teams to work together”, just about anything under the sun can be passed off as an online collaboration solution: email, a document manager, social networking sites, activity streams, project management solutions, mind mapping solutions, web conferencing solutions, intranet tools, real time co authoring, IM and more. Recent times have seen a minor convergence of sorts, where solutions integrating many of the above mentioned tools: business email service, document management, project management, workspaces etc, in a single suite have hogged the limelight.
With all these vaguely similar solutions looking to serve the same core need, you can bet the market is packed like sardines in a tin.
Bargaining power of customers: The answer to this is dependent on the particular segment we are talking about. Since many of the players in this segment are mega corporations, the bargaining power of customers is extremely low for the small business segment. But in the enterprise segment, the customers themselves are mega global corps, the bargaining power is a lot more. Therefore, it is hard to make a sweeping statement for the entire industry.
Bargaining power of suppliers: There are no suppliers to speak of in this industry, since all that is needed is an idea, and some coders to get it up and running.
Competitive rivalry: The above forces have come together to ensure that the market is intensely competitive. But given the huge size of the market, which is still relatively nascent, and the prospects of its growth, the market still offers room for profitability.
As Porter identified, there are three generic strategies companies can use: differentiation, cost leadership, and focus. These strategies are imminently relevant to companies in this market, and their application is in evidence already in different companies.
Google Apps’ strategy is a mix of differentiation and cost leadership. It seeks to distinguish itself from the market as bringing a purely online collaboration model, where companies would need to give up traditional desktop based document software like MS Office. Also using its economies of scale, it also offers one of the lowest cost products in the market at $50 per user per year.
Microsoft BPOS strategy is that of differentiation, where it has positioned itself as the most complex and powerful platform in the market, especially suitable for enteprprise needs.
A company like HyperOffice follows the focus strategies, where solutions have been developed with a view to small businesses, and a service model has been developed around solutions to serve this segment.