A Fresh Look at Industry and Market Analysis by Stanley Slater and Eric Olson updates Michael Porter’s 5 Forces framework for competitive analysis. The most interesting adjustment to Porter’s model comes in the Market Analysis section. The authors review the following market influences:
- Composite Competitive Rivalry
- Customer Power
- Supplier Power
These areas vary from Porter because they discuss interaction among parameters. They combine direct competition and new entrants as a composite factor. The threat of new entrants is often a type of substitute. Because they don’t often exist independently, they can be combined. Also, complementors considers network effects and that complementary products may make the primary good more valuable. By reconsidering the role of independence among parameters, Slater and Olson strengthen Porter’s model.
This model adjustment is exemplified by Lightsquared. Lightquared, a wholesale wireless firm, acts as both a composite competitor and a complementor. Lightsquared owns an LTE wireless technology network. This is the new standard that both ATT and Verizon Wireless, the largest wireless carries, are moving too. However, instead of competing with the firms directly, Lightsquared leases spectrum to other firms. This allows others to avoid capital costs while still servicing their clients. Lightsquared does not offer service directly to customers, so it can work with these established players as a partner instead of as a direct competitor.
Lightsquared also works with minor players MetroPCS and Leap Wireless. MetroPCS and Leap serve urban markets that primarily value price. By renting spectrum, instead of having upfront capital costs, they can lower keep their pricing low by sharing costs with firms that are potentially competitors. These firms compete with Verizon and ATT to some degree, so Lightquared benefits by increasing the rivalry for other firms in the market.
Lightsquared is a composite competitor because it can substitute for existing firms while it offers a new product. The firm is also a complementor because other wireless firms are better off when using its products. Because Lightsquared is at the forefront of a new generation of technology, it also positions its technology as a preferred standard by adding to the scale that the largest wireless companies have established in adopting LTE for their next generation technology.
Many firms fit Olson and Slater’s model. Lightsquared is a good example because it exposes how Porter’s basic framework is good, but that cooperation is also part of a competitive strategy. Dependence and independence are often temporary, yet strategies must incorporate them. This consideration allows firms to predict with see substantial opportunities that would have been overlooked under Porter’s model. This creates value and validates the benefits of the model.
Stanley Slater and Eric Olson, A Fresh Look at Industry and Market Analysis, Business Horizons, Indiana University, HBS Publishing, 2002
Lightsquared - http://www.lightsquared.com/, Web, Accessed 03/29/2011
Bloomberg News - http://www.bloomberg.com/news/2011-03-03/metropcs-looking-at-everything-in-wireless-spectrum-search-cfo-says.html, Web, Accessed 03/29/2011