dealerships as part of the e-commerce solution and are still paying commission when
sales are achieved online. This also helps protect their revenue from the lucrative parts
and services market.Bargaining power of suppliers
This can be considered as an opportunity rather than a threat. Companies can insist, for
reasons of reducing cost and increasing supply chain efficiency, that their suppliers use
electronic links such as EDI orInternet EDI to process orders. Additionally, the Internet
tends to reduce the power of suppliers since barriers to migrating to a different supplier
are reduced, particularly with the advent of business-to-business exchanges. However, if
suppliers insist on proprietary technology to link companies, then this creates soft lock-
in due to the cost or complexity of changing supppliers.Barriers to entry reduced
For traditional companies, new online entrants have been a significant threat for retail-
ers selling products such as books and financial services. For example, for the banking
sector in Europe, traditional banks were threatened by the entry of completely new
start-up competitors, such as First-e (www.first-e.com) (which later became financially
unviable), or of traditional companies from one country that use the Internet to facili-
tate their entry into another country. US company Citibank (www.citibank.com) and
ING Direct (www.ingdirect.co.uk) from the Netherlands used the latter approach. New
companies were also created by traditional competitors, for example, Prudential created
Egg (www.egg.com), the Abbey, Cahoot (www.cahoot.com), and the Co-Operative Bank,
Smile (www.smile.co.uk). ING Direct has acquired millions of customers in new markets
such as Canada, Australia and the UK through a combination of offline advertising,
online advertising and an online or phone application process and account servicing.
These new entrants have been able to enter the market rapidly since they do not have
the cost of developing and maintaining a distribution network to sell their products and
these products do not require a manufacturing base.
However, to succeed, new entrants need to be market leaders in executing marketing
and customer service. These are sometimes described as barriers to successor ‘hygiene fac-
tors’ rather than barriers to entry. The costs of achieving these will be high, for example,
First-e has not survived as an independent business. This competitive threat is less
common in vertical business-to-business markets involving manufacture and process
industries such as the chemical or oil industries since the investment barriers to entry
are much higher.Threat of substitute products and services
This threat can occur from established or new companies. The Internet is particularly
good as a means of providing information-based services at a lower cost. The greatest
threats are likely to occur where digital product and/or service fulfilment can occur over
the Internet. These substitutes can involve the new online channel essentially replicating
an existing service as is the case with online banking or e-books. But, often, online can
involve adding to the proposition. For example, compared to traditional music retailers,
online legal music services such as Napster (www.napster.com) offer a much wider choice
of products with different delivery modes (real-time streaming to a PC or the capability to
burn onto a CD or download to a portable music device such as an MP3 player). In bank-
ing, new facilities have been developed to help customers manage their finances online
by aggregating services from different providers into one central account. Such added-
value digital services can help lock customers into a particular supplier.CHAPTER 2· THE INTERNET MICRO-ENVIRONMENT
Internet EDI
Use of electronic data
interchange standards
delivered across non-
proprietary Internet
protocol networks.
Business-to-
business exchanges
or marketplaces
Virtual intermediaries
with facilities to enable
trading between buyers
and sellers.