{"id":716,"date":"2015-03-31T17:38:21","date_gmt":"2015-04-01T00:38:21","guid":{"rendered":"http:\/\/www.gordonbenzie.com\/blog\/?p=716"},"modified":"2023-01-13T15:51:58","modified_gmt":"2023-01-13T23:51:58","slug":"what-happens-if-a-supplier-enters-your-market","status":"publish","type":"post","link":"https:\/\/www.gordonbenzie.com\/blog\/what-happens-if-a-supplier-enters-your-market\/","title":{"rendered":"What Happens if a Supplier Enters your Market?"},"content":{"rendered":"

\"Google-wireless-competitor-threat\"<\/a>Google just announced plans to offer wireless service<\/a>. What might this mean for AT&T, Verizon, Sprint and T-Mobile? How would you respond if a new supplier announced they are going \u201cupstream\u201d and will now offer the exact same product or service you offer?<\/p>\n

I was amused when I read about this announcement, including the quotes provided by Google, and the reporter\u2019s assessment, so I thought this might be a good topic to explore in greater depth.<\/p>\n

<\/p>\n

To start, the words \u201cGoogle is now entering your marketplace\u201d are likely to bring considerable levels of concern to most business owners. It just isn\u2019t good to have another competitor \u2013 especially if they are Google or Apple \u2013 given they often see the world quite differently. These types of companies have a history of being disruptive technology providers.<\/p>\n

With regards to the impact of this announcement on the wireless Telecom industry, I suspect it is not all bad news. In order to help understand what this type of announcement might mean to your business, it is helpful to review the Porter\u2019s Five Forces model, as referenced in this article<\/a>.<\/p>\n

Porter\u2019s Model<\/h3>\n

According to the model, there are five \u201cforces\u201d that determine your competitive environment (the Google announcement clearly applies):<\/p>\n

    \n
  1. Supplier Power:<\/strong> This force is more from a cost and control perspective \u2026 worst case scenario is if you have only one supplier; they can then charge you top dollar, and you have no negotiating ability to achieve better terms.<\/li>\n
  2. Buyer Power:<\/strong> This force comes from your buyers \u2013 how effective can they pool purchase decisions across channels and geographies to drive down prices?<\/li>\n
  3. Competitive Rivalry<\/strong>: This force speaks to your competition. If you face multiple competitors offering similar products, then you don\u2019t have much negotiating strength to drive higher profits.<\/li>\n
  4. Threat of Substitution<\/strong>: This force is similar to what competitors you face and how \u201cgeneric\u201d your product or service is; for example, if your service can be performed by your customers, then a price ceiling exists \u2013 above that price will result in zero sales, as your customers will simply do your service or build your product themselves.<\/li>\n
  5. Threat of New Entry<\/strong>: This force is the threat of the unknown, so to speak. Worse case is if it costs little in time or money to enter your market and compete \u2026 if your profits suddenly increase and anyone can enter your market, then it won\u2019t be long for profits to drop. Those seeking to create or sustain monopolies are trying to address this force.<\/li>\n<\/ol>\n

    So What\u2019s Going on with the Google Announcement?<\/h3>\n

    I would propose each of the above listed forces might be in play, with some more so than others. Google doesn\u2019t have a monopoly in providing handsets. Samsung and Apple are viable competitors. Google admitted in the article that the last thing they want to do is to disrupt their current sales model selling Android phones to the carriers; Google must tread lightly.<\/p>\n

    Another key factor for Google is the last force \u2013 the cost of entry. The wireless Telecom industry has a significant barrier to entry \u2026 in the billions of dollars range. If you want to be a national carrier, then you will need to build out a nationwide footprint, and, you will then have to replace it every 7-10 years as new technology advances go mainstream. This is a big investment, and one that Google won\u2019t take lightly. In the announcement, it was mentioned that Google has established wholesale agreements with the carriers, so is not looking to make that big investment today.<\/p>\n

    What Should the Carriers Do?<\/h3>\n

    Right now, after perhaps losing a heartbeat or two, the best response is that of a calm business partner seeking to expand a mutually beneficial relationship. This strategy is quite common in the Telecom industry, primarily based on the fact that the cost of entry is so high. Revenues get allocated between the carriers, but, it is a big revenue \u201cpie\u201d to share from.<\/p>\n

    Google explained in this latest announcement that their intent is to test new technologies and to ascertain what innovations are possible from a Telecom or infrastructure provider\u2018s perspective.\u00a0 For now, this is likely a true statement. The Public Relations team working at Google should be very careful what future announcements are publicized, as well as the specific wording of such future communications. Clearly it is in both parties interest to maintain a civil relationship. Should the Telecom provider\u2019s relationships sour with Google in the years that follow, then that might not be taking the best long-term perspective, given the enormous buying power of Google \u2013 as a customer and as a supplier.<\/p>\n","protected":false},"excerpt":{"rendered":"

    How do you assess strategic threats from suppliers? What if they are Google? 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