swot analysis and porters model

1. Lecture 2 – SWOT Analysis &Lecture 2 – SWOT Analysis &
Porter’s Five Forces ModelPorter’s Five Forces Model
Steve MontgomerySteve Montgomery

2. 01/21/172
StrategyStrategy
● Overview of competitive strategy: What are the high levelOverview of competitive strategy: What are the high level
goals of any company?goals of any company?
• DifferentiationDifferentiation andand pricing powerpricing power
• SurvivalSurvival andand profitabilityprofitability
● Porter’s Five Forces ModelPorter’s Five Forces Model
• How to assess the landscape of your marketHow to assess the landscape of your market
● ““Blue Ocean” Strategy*Blue Ocean” Strategy*
• A toolkit to identify areas to explore – creating a competition-freeA toolkit to identify areas to explore – creating a competition-free
zone to reach the above objectiveszone to reach the above objectives
*Kim, W.C. and Mauborgne, R., 2005,*Kim, W.C. and Mauborgne, R., 2005, Blue Ocean Strategy – How To Create Uncontested Market Space and MakeBlue Ocean Strategy – How To Create Uncontested Market Space and Make
the Competition Irrelevantthe Competition Irrelevant, HBS Press. (We’ll also be using their HBR articles for brevity), HBS Press. (We’ll also be using their HBR articles for brevity)
End goal:End goal:
Understanding your business allows you toUnderstanding your business allows you to
pick smart projectspick smart projects
End goal:End goal:
Understanding your business allows you toUnderstanding your business allows you to
pick smart projectspick smart projects

3. 01/21/173
Lecture 2: SWOT & Porter’s 5Lecture 2: SWOT & Porter’s 5
Forces ModelForces Model
● Business strategy overview:Business strategy overview:
• Strengths, weaknesses, opportunities & threatsStrengths, weaknesses, opportunities & threats
(SWOT)(SWOT)
• Porter’s five forces modelPorter’s five forces model
● Class discussion: Microsoft’s marketClass discussion: Microsoft’s market
position and future options/opportunitiesposition and future options/opportunities
(freeform SWOT analysis + application of(freeform SWOT analysis + application of
Porter’s)Porter’s)

4. Introduction ToIntroduction To
SWOTSWOT

5. 01/21/175
SWOT Analysis: ThinkingSWOT Analysis: Thinking
StrategicallyStrategically
● SStrengthstrengths
• What aspects of a firm are its strengths?What aspects of a firm are its strengths?
– Can be structural, market based, IP, etc.Can be structural, market based, IP, etc.
– What gives a firm its competitive advantages?What gives a firm its competitive advantages?
● WWeaknesseseaknesses
• What aspects of a firm are weak?What aspects of a firm are weak?
– Can be structural, legal, market based, etc.Can be structural, legal, market based, etc.
– What hinders a firm from competing well?What hinders a firm from competing well?
● OOpportunitiespportunities
• What areas/markets are there that a firm can grow into?What areas/markets are there that a firm can grow into?
• Do the above strengths contribute, or do new capabilities need to be created?Do the above strengths contribute, or do new capabilities need to be created?
● TThreatshreats
• What will stop a firm from growing into new spaces?What will stop a firm from growing into new spaces?
• What out there threatens a firm’s existing market share and product line?What out there threatens a firm’s existing market share and product line?
• What is the nature of this threat?What is the nature of this threat?
– Competition?Competition?
– Political environment? Something else?Political environment? Something else?

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SWOT ScorecardSWOT Scorecard
Strengths: Threats:Threats:
Weaknesses: Opportunities:Opportunities:

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Steve’s Organization: An AppliedSteve’s Organization: An Applied
StrategyStrategy (Steve’s Boss)(Steve’s Boss)33
I/O GuyI/O Guy
(Steve’s Boss)(Steve’s Boss)22
I/O GuyI/O Guy
Steve’s BossSteve’s Boss
I/O GuyI/O Guy
Big GroupBig Group
In MassIn Mass
10+ I/O guys10+ I/O guys
Bob’s TeamBob’s Team
in Oregonin Oregon
12 I/O Guys12 I/O Guys
Staff Arch 1Staff Arch 1
(Needs help)(Needs help)
Steve’s TeamSteve’s Team
in WAin WA
4 Power4 Power
Circuit GuysCircuit Guys
Staff Arch 2Staff Arch 2
(Straddling(Straddling
Fence)Fence)
Staff Arch 3Staff Arch 3
(Out of Favor)(Out of Favor)
Jim’s Team in SCJim’s Team in SC
7 I/O Chip Guys7 I/O Chip Guys
Staff Arch 4,Staff Arch 4,
Wants to WorkWants to Work
on SOCson SOCs

8. 01/21/178
Some Background:Some Background:
● Steve’s team: Just coming off a successfulSteve’s team: Just coming off a successful
project. 100% functional on 1project. 100% functional on 1stst
design spin.design spin.
Product team decided not to do it.Product team decided not to do it.
• Steve’s boss: “You need to put thatSteve’s boss: “You need to put that
behind you. Work on this other stuff.”behind you. Work on this other stuff.”
● The environment: Cost-cutting hasThe environment: Cost-cutting has
everyone nervous. Headcount is undereveryone nervous. Headcount is under
pressure. Everyone is looking over theirpressure. Everyone is looking over their
shoulders.shoulders.

9. 01/21/179
The Cast of CharactersThe Cast of Characters
● The staff: Years and years of doing I/OThe staff: Years and years of doing I/O (USB and PCIe(USB and PCIe
invented here)invented here)
• Big team: Has a culture of “I win, you lose”. Is at a remote site thatBig team: Has a culture of “I win, you lose”. Is at a remote site that
is out of the mainstreamis out of the mainstream
• Jim’s team: Doing a chip, on its 3Jim’s team: Doing a chip, on its 3rdrd
or 4or 4thth
design revisiondesign revision
• Bob’s team: Doing spec-related work. Has a big lab, but doesn’tBob’s team: Doing spec-related work. Has a big lab, but doesn’t
have silicon expertise.have silicon expertise.
• Staff Arch 1: Overworked and needs helpStaff Arch 1: Overworked and needs help
• Staff Arch 2: Waffles between Big and Steve’s team (tries toStaff Arch 2: Waffles between Big and Steve’s team (tries to
please everybody)please everybody)
• Staff Arch 3: Was Steve’s main advocate, told by Steve’s Boss toStaff Arch 3: Was Steve’s main advocate, told by Steve’s Boss to
find something else to do (laid off)find something else to do (laid off)
• Staff Arch 4: Was working on SOCs (big growth area for theStaff Arch 4: Was working on SOCs (big growth area for the
company), but told not do anything about itcompany), but told not do anything about it

10. 01/21/1710
What Should Steve Do?What Should Steve Do?
● So how should this be handled?So how should this be handled?
• Some topics of leading technical people in theSome topics of leading technical people in the
next class in the program!next class in the program!

11. 01/21/1711
SWOT Scorecard: Steve’s TeamSWOT Scorecard: Steve’s Team
Strengths:
●Best silicon guys, understand it
better than anyone in org.
●Understand relationship building
●Team very cross-trained
●Flexible, independent, respond well
to ambiguity and uncertainty
Threats:Threats:
●Big Group would love to minimizeBig Group would love to minimize
Steve’s teamSteve’s team
●Steve’s Boss (es) looking to lay low,Steve’s Boss (es) looking to lay low,
not take any risks (might cutnot take any risks (might cut
headcount – who needs a team of 4-headcount – who needs a team of 4-
5?)5?)
●Team hates new work, might quitTeam hates new work, might quit
Weaknesses:
●Angry and upset about product snub
●Perceived as junior power delivery
guys & politically unpopular with
bosses
●Main staff advocate going away
●Trying to play new game for first
time, going against veterans
●No lab, so no motivation to spend
money in WA
●Old network doesn’t apply here
Opportunities:Opportunities:
●Big Group on East Coast, far fromBig Group on East Coast, far from
action. Doesn’t work well with others.action. Doesn’t work well with others.
Also doesn’t own anything (but thinksAlso doesn’t own anything (but thinks
it does).it does).
●Staff Arch 1 owns lots of stuff andStaff Arch 1 owns lots of stuff and
needs help badly. Has boss’ ear.needs help badly. Has boss’ ear.
●Bob’s team has limited expertise butBob’s team has limited expertise but
a great lab. Also has boss’ ear.a great lab. Also has boss’ ear.
●Staff Arch 4 knows about growthStaff Arch 4 knows about growth
areaarea

12. 01/21/1712
SWOTSWOT
● Can be applied at all levels –Can be applied at all levels –
• Your careerYour career
• Your teamYour team
• Your businessYour business
• Your industryYour industry

13. 01/21/1713
Firm Example: AutomobilesFirm Example: Automobiles
● Question: How can the new GM competeQuestion: How can the new GM compete
against Toyota, Ford, et al. post-bailout?against Toyota, Ford, et al. post-bailout?

14. 01/21/1714
SWOT Scorecard: The NewSWOT Scorecard: The New
GMGMStrengths:
●Partially owned by taxpayers and the
gov’t
●More nimble than before
●Starting to build some better vehicles
●Have a jump on electric vehicles, flex fuel
●Still have strong brand recognition
Threats:Threats:
●Backlash against bailoutsBacklash against bailouts
●Perception of weak qualityPerception of weak quality
●Strong product offerings from competitorsStrong product offerings from competitors
●Brand damaged by bankruptcyBrand damaged by bankruptcy
●Culture not really understanding of issuesCulture not really understanding of issues
(same people still running the show)(same people still running the show)
Weaknesses:
●Partially owned by the taxpayers and the
gov’t
●Union owns significant % of company
●Badly damaged brand image and
reputation for poor quality
●Operations damaged by restructuring
(have to take time to do this right)
Opportunities:Opportunities:
●Can load unproductive divisions/assetsCan load unproductive divisions/assets
into liquidation company and unloadinto liquidation company and unload
●Can use gov.’t ties to influence flex fuelCan use gov.’t ties to influence flex fuel
regulations, EPA standards, etc. to getregulations, EPA standards, etc. to get
aheadahead
●Can launch new ad blitz to re-introduceCan launch new ad blitz to re-introduce
themselvesthemselves
●Can re-boot dealer networkCan re-boot dealer network

15. 01/21/1715
What Should GM Do?What Should GM Do?

16. 01/21/1716
One Opinion:One Opinion:
● More marketing dollars to Chevy:More marketing dollars to Chevy:
● Chevy has near 100% brandChevy has near 100% brand
recognition – very hard to achieve –recognition – very hard to achieve –
capitalizecapitalize
● Chevy ~70% of GM’s salesChevy ~70% of GM’s sales
• 16 of GM’s 33 models16 of GM’s 33 models
• Spread offerings around all marketSpread offerings around all market
segmentssegments
• Make Buick, Cadillac, GMC nicheMake Buick, Cadillac, GMC niche
brandsbrands
● Chevy has near 100% brandChevy has near 100% brand
recognition – very hard to achieverecognition – very hard to achieve

17. 01/21/1717
Another Opinion:Another Opinion:
● Bankruptcy andBankruptcy and
restructuring couldrestructuring could
take yearstake years
● Build politicallyBuild politically
unpopular carsunpopular cars
● Still have too muchStill have too much
capacity andcapacity and
restrictive laborrestrictive labor
agreementsagreements

18. 01/21/1718
SWOT SummarySWOT Summary
● Is a good technique to get the strategy discussionIs a good technique to get the strategy discussion
goinggoing – puts a lot of high-level information in– puts a lot of high-level information in
contextcontext
● Use it to assess situations and think more deeplyUse it to assess situations and think more deeply
about tactical movesabout tactical moves
● If the SWOT picture looks really misaligned withIf the SWOT picture looks really misaligned with
the market/your firm, can tell you that your overallthe market/your firm, can tell you that your overall
strategy should be reassessedstrategy should be reassessed
● Is only as good as the thinking that went into itIs only as good as the thinking that went into it

19. 01/21/1719
Porter’s Five Forces ModelPorter’s Five Forces Model
● Five Forces Model: A framework for shaping competitiveFive Forces Model: A framework for shaping competitive
strategystrategy
● Like SWOT, gives a repeatable set of criteria to judge aLike SWOT, gives a repeatable set of criteria to judge a
situation bysituation by

20. 01/21/1720
Goal of Any Business –Goal of Any Business –
● Identify external threats and undueIdentify external threats and undue
influenceinfluence
● Maximize own influenceMaximize own influence
● Minimize negative influencesMinimize negative influences
● Create differentiationCreate differentiation
● By maximizing/minimizing influence, andBy maximizing/minimizing influence, and
creating differentiation you get pricingcreating differentiation you get pricing
power (assuming there is a market)power (assuming there is a market)

21. 01/21/1721
Threat Of New EntrantsThreat Of New Entrants
● AKA, “Barriers to Entry”AKA, “Barriers to Entry”
● Essentially: How hard is it for other firms to enter yourEssentially: How hard is it for other firms to enter your
business?business?
• Do you have IP protection, trade secrets, etc. that everyone elseDo you have IP protection, trade secrets, etc. that everyone else
doesn’t have?doesn’t have?
• Is there significant cost associated with entering your market?Is there significant cost associated with entering your market?
• Are there regulatory barriers?Are there regulatory barriers?
• Branding, marketing, advertising?Branding, marketing, advertising?
• Network effects? (More on this in a minute)Network effects? (More on this in a minute)
• Does one firm enjoy a production cost advantage?Does one firm enjoy a production cost advantage?
• High switching costs?High switching costs?

22. 01/21/1722
Barriers to Entry - ExamplesBarriers to Entry - Examples
● Microprocessors: Large capital $$$$ required to build a fabMicroprocessors: Large capital $$$$ required to build a fab
• NOT true anymore!NOT true anymore!
• More companies going fabless, more quality competition from foundriesMore companies going fabless, more quality competition from foundries
● Pharmaceuticals: FDA approval required for sale of new drugs + patentPharmaceuticals: FDA approval required for sale of new drugs + patent
protectionprotection
• Lengthy process, thousands of pages of documents + multiphase clinical trials =Lengthy process, thousands of pages of documents + multiphase clinical trials =
massive non recurring costsmassive non recurring costs
● Automobiles: Big 3 + foreign firms have extensive relationships withAutomobiles: Big 3 + foreign firms have extensive relationships with
suppliers and large, modern factoriessuppliers and large, modern factories
• Extensive regulatory protectionExtensive regulatory protection
• Collective bargaining: UAW in play (gets great deal from Big 3)Collective bargaining: UAW in play (gets great deal from Big 3)
• Is this still true? New electric car firms popping up to take advantage of ‘green’ shiftIs this still true? New electric car firms popping up to take advantage of ‘green’ shift
● Back-office software: High switching costs keep existing IT infrastructures inBack-office software: High switching costs keep existing IT infrastructures in
placeplace
● WARNING: Today’s barrier to entry could be a liability tomorrow!WARNING: Today’s barrier to entry could be a liability tomorrow!

23. 01/21/1723
Barriers to Entry – cont.Barriers to Entry – cont.
● Network effects: Arise when your product is usedNetwork effects: Arise when your product is used
by a large group of users…by a large group of users…
• ……and the value of the product increases the moreand the value of the product increases the more
people who use itpeople who use it
– Examples: Telephone, iPod, MySpace, Facebook (and all socialExamples: Telephone, iPod, MySpace, Facebook (and all social
networking media & content), Windows, MS Office, Xbox Live!,networking media & content), Windows, MS Office, Xbox Live!,
● Network effects can be an extremely powerfulNetwork effects can be an extremely powerful
barrier to entrybarrier to entry
• Your entry forces other people to change theirYour entry forces other people to change their
behavior. VERY tough to do!behavior. VERY tough to do!

24. 01/21/1724
Barriers to Entry, cont.Barriers to Entry, cont.
● One more thought on network effects:One more thought on network effects:
• Network effects often determine winner and losers, even if theNetwork effects often determine winner and losers, even if the
loser is the superior product.loser is the superior product.
● Example: Network effect loserExample: Network effect loser
• Sony BetamaxSony Betamax
– Better picture quality than VHS, better sound, smaller tape sizeBetter picture quality than VHS, better sound, smaller tape size
– But JVC opened up the VHS standard and allowed it proliferate in the market,But JVC opened up the VHS standard and allowed it proliferate in the market,
sacrificing high prices for volumesacrificing high prices for volume
– End result? Consumers snapped up cheap VHS VCRs.End result? Consumers snapped up cheap VHS VCRs.
● Example: Network effect winnerExample: Network effect winner
• Apple’s iPodApple’s iPod
– Dozens of MP3 players on market + millions of songsDozens of MP3 players on market + millions of songs
– Apple launches iPod using MPEG-4 encoding (.mp4)Apple launches iPod using MPEG-4 encoding (.mp4)
– Co-launched iTunes as a complementary product. Users could easily buy a fullCo-launched iTunes as a complementary product. Users could easily buy a full
album or 1 song at a time legally from central pointalbum or 1 song at a time legally from central point
– iPod/iTunes sales took off, dominating market (Apple now world’s largest musiciPod/iTunes sales took off, dominating market (Apple now world’s largest music
retailer)retailer)

25. 01/21/1725
Power Of SuppliersPower Of Suppliers
● Put simply: How much influence doPut simply: How much influence do
suppliers have over your business?suppliers have over your business?
• Are you dependent on a component toAre you dependent on a component to
succeed?succeed?
• Are people buying your product because itAre people buying your product because it
contains x or y from another supplier?contains x or y from another supplier?
• Are there high switching costs to use anotherAre there high switching costs to use another
firm?firm?
• Are there any substitutes?Are there any substitutes?

26. 01/21/1726
Power Of Suppliers - ExamplesPower Of Suppliers - Examples
● (High power example)(High power example)
• PC Business: Intel >>> Dell, Compaq, etc. forPC Business: Intel >>> Dell, Compaq, etc. for
computers (buying decision was Intel Inside)computers (buying decision was Intel Inside)
● (Low power example)(Low power example)
• Dell computer: Dell is ruthless at keeping partsDell computer: Dell is ruthless at keeping parts
costs low. (Also Apple)costs low. (Also Apple)
• US Auto industry: Parts suppliers dependentUS Auto industry: Parts suppliers dependent
on Big 3 for large orders (changing. Why?)on Big 3 for large orders (changing. Why?)

27. 01/21/1727
Power Of BuyersPower Of Buyers
● Flip side of supplier powerFlip side of supplier power
● Put simply: How much influence do buyers/customersPut simply: How much influence do buyers/customers
have over your business?have over your business?
• Are you a commodity? (Customers can get what you have fromAre you a commodity? (Customers can get what you have from
anywhere)anywhere)
• Do buyers of your product have significant negotiating leverage?Do buyers of your product have significant negotiating leverage?
• Are you dependent on 1 or 2 buyers for the majority of yourAre you dependent on 1 or 2 buyers for the majority of your
business?business?
• Are you developing a standard product?Are you developing a standard product?
• Low switching costs to go to something else?Low switching costs to go to something else?
• Can your buyer threaten to produce your product themselves?Can your buyer threaten to produce your product themselves?
• Where are the end-users eyeballs?Where are the end-users eyeballs?

28. 01/21/1728
Power of Buyers - ExamplesPower of Buyers - Examples
● PC Memory vendors – Prices set on open market,PC Memory vendors – Prices set on open market,
designs driven by JEDEC, so no ability todesigns driven by JEDEC, so no ability to
differentiate or charge moredifferentiate or charge more
● Suppliers to MSFT – MSFT has enoughSuppliers to MSFT – MSFT has enough
resources to work-around most software inputsresources to work-around most software inputs
● Apple’s iPhone – Customers head to AT&TApple’s iPhone – Customers head to AT&T
wireless to buy the phone, not the servicewireless to buy the phone, not the service
● Orange sellers to TropicanaOrange sellers to Tropicana
● Lettuce to Subway or McDonald’sLettuce to Subway or McDonald’s

29. 01/21/1729
Threat Of SubstitutesThreat Of Substitutes
● Put simply: Is there something else out therePut simply: Is there something else out there
similar to your product that’s “Good Enough”?similar to your product that’s “Good Enough”?
• Interwoven with power of buyers/suppliersInterwoven with power of buyers/suppliers
• Undifferentiated products never earn high profits –Undifferentiated products never earn high profits –
market mechanisms (supply and demand) take overmarket mechanisms (supply and demand) take over
• When there is an acceptable substitute out there, youWhen there is an acceptable substitute out there, you
will require another edge (marketing, branding,will require another edge (marketing, branding,
regulatory edge, etc.)regulatory edge, etc.)
• New technologies can make products obsoleteNew technologies can make products obsolete
● Sometimes economic conditions come into play,Sometimes economic conditions come into play,
making other substitutes more attractivemaking other substitutes more attractive

30. 01/21/1730
Threat Of Substitutes - ExamplesThreat Of Substitutes - Examples
● Land lines vs. cell phonesLand lines vs. cell phones
● DSL vs. FIOS vs. Cable InternetDSL vs. FIOS vs. Cable Internet
• Steve very happy with his new Cable internet serviceSteve very happy with his new Cable internet service
● Cable TV vs. SatelliteCable TV vs. Satellite
● New technology displacing old:New technology displacing old:
• Zip DrivesZip Drives  Killed by CDR’sKilled by CDR’s  Killed by FlashKilled by Flash  Killed by net backupKilled by net backup
● Economic conditions: (In this case, the weak dollar)Economic conditions: (In this case, the weak dollar)
• Rising aluminum prices makes carbon fiber more competitiveRising aluminum prices makes carbon fiber more competitive
• Biodiesel vs. Regular dieselBiodiesel vs. Regular diesel
● Sometimes, substitutes can cross industry lines (we’ll see this whenSometimes, substitutes can cross industry lines (we’ll see this when
we look at Southwest Air next time) – key is proper frame of referencewe look at Southwest Air next time) – key is proper frame of reference
(in this case, the *travel* industry)(in this case, the *travel* industry)

31. 01/21/1731
Rivalry Among CompetitorsRivalry Among Competitors
● The more energy you put into fighting off competition, the less youThe more energy you put into fighting off competition, the less you
have for profitabilityhave for profitability
• Potential for price wars (everyone loses) – subject of game theoryPotential for price wars (everyone loses) – subject of game theory
• Increased expenditures for marketing, ads, etc.Increased expenditures for marketing, ads, etc.
● Intensity increases where there are:Intensity increases where there are:
• Mature, slow growth industries ($$$ pie is fixed)Mature, slow growth industries ($$$ pie is fixed)
• Participants enjoy roughly same amount of powerParticipants enjoy roughly same amount of power
• Products and services are indistinguishableProducts and services are indistinguishable
• Fixed costs are high, marginal costs lowFixed costs are high, marginal costs low
● Rivalry can be good for all:Rivalry can be good for all:
• For average consumer, competition tends to lower prices and drive newFor average consumer, competition tends to lower prices and drive new
offerings to marketofferings to market
• For market participants, competition leads to better productsFor market participants, competition leads to better products
and profitable market segmentation (Blue Ocean Strategyand profitable market segmentation (Blue Ocean Strategy
module – Toyota example)module – Toyota example)

32. 01/21/1732
Rivalry - ExamplesRivalry - Examples
● Airlines:Airlines:
• Fare cuts and price wars are commonFare cuts and price wars are common
● Cell phones:Cell phones:
• Warring rate plans and feature offeringsWarring rate plans and feature offerings
● Boeing/AirbusBoeing/Airbus
● Intel/AMDIntel/AMD
● Microsoft/GoogleMicrosoft/Google
● Fox/MSNBC/CNNFox/MSNBC/CNN
● Automotive IndustryAutomotive Industry
• Interesting one: Different types of competition across different marketInteresting one: Different types of competition across different market
segmentssegments
– Who makes the highest MPG car?Who makes the highest MPG car?
– Who makes the toughest truck?Who makes the toughest truck?
– Who makes the fastest sports car?Who makes the fastest sports car?

33. 01/21/1733
Rivalry - ExamplesRivalry - Examples
● Steve’s friend Sean in grad school:Steve’s friend Sean in grad school:
• Every 2 months, would get a call from a long distance phoneEvery 2 months, would get a call from a long distance phone
providerprovider
– ““Hi, this is ---- from Sprint and we have a deal for you! Would you beHi, this is ---- from Sprint and we have a deal for you! Would you be
willing to switch your long distance service?”willing to switch your long distance service?”
– Sean:Sean: “Sure. What are you offering?”“Sure. What are you offering?”
• The next month, he’d get a call from AT&T asking why he leftThe next month, he’d get a call from AT&T asking why he left
• Needless to say, Sean was a nightmare customerNeedless to say, Sean was a nightmare customer
– He wheedled better and better deals out of all of his suitors every otherHe wheedled better and better deals out of all of his suitors every other
monthmonth
– Also had a way to get “free” electronics from TargetAlso had a way to get “free” electronics from Target
● Example of rivalry leading to better deal for end user.Example of rivalry leading to better deal for end user. OfOf
course, in the end, no phone company ever made anycourse, in the end, no phone company ever made any
money off of Seanmoney off of Sean..

34. 01/21/1734
Five Forces SummaryFive Forces Summary
● Is a goodIs a good genericgeneric framework; is as detailed as you make itframework; is as detailed as you make it
● Curious treatment of the government – should there be a 6Curious treatment of the government – should there be a 6thth
force?force?
● Complementary products can make or break an offering –Complementary products can make or break an offering –
• iPod exampleiPod example
• Cars are pretty useless without roads or gas stationsCars are pretty useless without roads or gas stations
• Airlines irrelevant without airportsAirlines irrelevant without airports
● Does not tell you how to exploit a market, just helps ID the forcesDoes not tell you how to exploit a market, just helps ID the forces
driving itdriving it
• There are other strategies for thatThere are other strategies for that
● Industry structure changes: Another item to watch forIndustry structure changes: Another item to watch for
• Example: Newspapers. News is available 24/7 on the web. Is print dead?Example: Newspapers. News is available 24/7 on the web. Is print dead?
• Does it make sense for big city newspapers to have foreign bureaus?Does it make sense for big city newspapers to have foreign bureaus?
● Like other tools, is applicable up and down the chainLike other tools, is applicable up and down the chain

35. 01/21/1735
How These Tools Relate To YouHow These Tools Relate To You
● Using SWOT and Five Forces in tandem allows you to:Using SWOT and Five Forces in tandem allows you to:
• Identify the strategic environmentIdentify the strategic environment
• Make an assessment of your strength relative to other playersMake an assessment of your strength relative to other players
• If you’re thorough in gathering information and disciplined in itsIf you’re thorough in gathering information and disciplined in its
presentation, the right answer can leap off the pagepresentation, the right answer can leap off the page
● Apply these tools to:Apply these tools to:
• Your companyYour company
• Your business unitYour business unit
• Your organizationYour organization
• Your teamYour team
• YouYou
● Strategy is a mindsetStrategy is a mindset

36. Class Discussion: Microsoft vs.Class Discussion: Microsoft vs.
GoogleGoogle

37. 01/21/1737
Intro And The PlayersIntro And The Players
● Who are the players?Who are the players?
● What’s MSFT’s motivation in pursuingWhat’s MSFT’s motivation in pursuing
search?search?

38. 01/21/1738
Case QuestionsCase Questions
● Questions to ponder for the MSFT case:Questions to ponder for the MSFT case:
• What’s MSFT’s motivation in pursuing search?What’s MSFT’s motivation in pursuing search?
• Has Marc Andresson’s vision come true? How does this relate toHas Marc Andresson’s vision come true? How does this relate to
Google’s overall strategy (you may need to Google Google’s strategy ifGoogle’s overall strategy (you may need to Google Google’s strategy if
you’re not familiar already.)? Have Gates’ fears come true?you’re not familiar already.)? Have Gates’ fears come true?
• How has MSFT fared historically in its strategic moves?How has MSFT fared historically in its strategic moves?
• What key insight about the search market did Yahoo! overlook andWhat key insight about the search market did Yahoo! overlook and
Google exploit?Google exploit?
• Did Google rest on its search accomplishments, or did it branch out?Did Google rest on its search accomplishments, or did it branch out?
– Can you see a pattern in the functions Google created?Can you see a pattern in the functions Google created?
– In light of your answer above, does MSFT’s moves make sense? Why or whyIn light of your answer above, does MSFT’s moves make sense? Why or why
not?not?
• In the search market, outline Porter’s five forces for discussion. UseIn the search market, outline Porter’s five forces for discussion. Use
MSFT as your reference pointMSFT as your reference point

39. 01/21/1739
SWOT Scorecard - MSFTSWOT Scorecard - MSFT
Strengths: Threats:Threats:
Weaknesses: Opportunities:Opportunities:

40. 01/21/1740
SWOT Scorecard - GOOGSWOT Scorecard - GOOG
Strengths: Threats:Threats:
Weaknesses: Opportunities:Opportunities:

41. 01/21/1741
Steve’s SWOT Scorecard: MSFTSteve’s SWOT Scorecard: MSFT
Strengths:
●LOTS of cash. Can buy technology or
companies if they need to
●Own the world’s most popular OS,
browser and have >>> hardware
experience than rivals
●#1 browser
●Are excellent strategists (Linux)
●Has extensive partner network w/MSN,
Netflix, etc.
Threats:Threats:
●Google’s domination of searchGoogle’s domination of search
●Apple has the ‘cool’ factor and is harmingApple has the ‘cool’ factor and is harming
MSFT’s brand with adsMSFT’s brand with ads
●Caught looking the wrong way WRTCaught looking the wrong way WRT
mobile devices - biz model compromisedmobile devices - biz model compromised
Weaknesses:
●#3 in search
●Considered to be Big Brother
●Has run afoul of regulatory agencies
before
●Profitability depends on OS, Office sales
– market trending away from these (and
toward GOOG’s model)
Opportunities:Opportunities:
●Can still buy Yahoo! Or Facebook.Can still buy Yahoo! Or Facebook.
●IE is the internet portal of choice – canIE is the internet portal of choice – can
interlink Bing into code and minimizeinterlink Bing into code and minimize
GOOG– have enough infrastructure toGOOG– have enough infrastructure to
negate GOOG’snegate GOOG’s
●Can adopt new usage model and beatCan adopt new usage model and beat
GOOG to online app gameGOOG to online app game
●Can intertwine Bing with Xbox, MSN, etc.Can intertwine Bing with Xbox, MSN, etc.
sites & partners – have an existing networksites & partners – have an existing network
alreadyalready

42. 01/21/1742
Steve’s SWOT Scorecard: GoogleSteve’s SWOT Scorecard: Google
Strengths:
●Invented the best search algorithm
●Is considered the ‘it’ company for the
internet
●Quirky culture drives lots of
innovation
●High stock price = ready access to
capital
Threats:Threats:
●MSFT has cash and a will to winMSFT has cash and a will to win
●GOOG’s phone overshadowed byGOOG’s phone overshadowed by
iPhoneiPhone
●No real hardware expertise; willNo real hardware expertise; will
need help from INTCneed help from INTC
●Apple owns content, OS, devicesApple owns content, OS, devices
Weaknesses:
●Main product dependent on
connection speed
●Security and privacy concerns
among users
●Main source of content (YouTube) is
constant focus of legal action – rivals
have much more and better content
Opportunities:Opportunities:
●Can try to influence new regulatoryCan try to influence new regulatory
structure (Net Neutrality)structure (Net Neutrality)
●Market trend is towards mobileMarket trend is towards mobile
devices, supporting cloud computingdevices, supporting cloud computing
theorytheory
●Can draw on MSFT’s unpopularityCan draw on MSFT’s unpopularity
●Can cut into MSFT’s profits byCan cut into MSFT’s profits by
launching more net appslaunching more net apps

43. 01/21/1743
Porter’s Five Forces Model:Porter’s Five Forces Model:
SearchSearch
● Threat of new entrants?Threat of new entrants?
● Bargaining power of buyers?Bargaining power of buyers?
● Threat of substitutes?Threat of substitutes?
● Bargaining power of suppliers?Bargaining power of suppliers?
● Rivalry?Rivalry?

44. 01/21/1744
MSFT’s Entry Into Search: SomeMSFT’s Entry Into Search: Some
CommentsComments
● Google’s overall strategy = Make the internet the new PCGoogle’s overall strategy = Make the internet the new PC
• Reduce the PC to a old-style terminal (‘Green screen’ box hooked to aReduce the PC to a old-style terminal (‘Green screen’ box hooked to a
mainframe)mainframe)
• Eliminate the need for local OS (operating system) or apps – put them allEliminate the need for local OS (operating system) or apps – put them all
on the web. Offer net storage of data to eliminate need for local hardon the web. Offer net storage of data to eliminate need for local hard
drives, etc.drives, etc.
• Maximize eyeballs to Google’s search engine and ad machines, whichMaximize eyeballs to Google’s search engine and ad machines, which
could then custom-tailor ad views to your contentcould then custom-tailor ad views to your content
• Willing to influence government to set regulations beneficial to GoogleWilling to influence government to set regulations beneficial to Google
● MSFT’s revenue in this scenario is compromised severelyMSFT’s revenue in this scenario is compromised severely
• PC and OS combination would lose relevance – no need for localPC and OS combination would lose relevance – no need for local
performance or storage – big cash cow for MSFTperformance or storage – big cash cow for MSFT
• MSFT needs to rethink its business model somewhat to encompassMSFT needs to rethink its business model somewhat to encompass
mobile devices – old model of high $$$$ OS is threatened by cheapmobile devices – old model of high $$$$ OS is threatened by cheap
netbooks & smartphonesnetbooks & smartphones

45. 01/21/1745
MSFT’s Entry Into Search, cont.MSFT’s Entry Into Search, cont.
● MSFT hasMSFT has no choiceno choice but to enter search, to affect GOOGbut to enter search, to affect GOOG
• They have a track recThey have a track rec
● Sometimes companies go against their image to get what they need:Sometimes companies go against their image to get what they need:
• MSFT embraced Linux, found a way to protect business and make moneyMSFT embraced Linux, found a way to protect business and make money
while defusing threatwhile defusing threat
• Google creating lobbying effort and attempting to influence governmentGoogle creating lobbying effort and attempting to influence government
despitedespite
● Some hidden players: Cable companies, i.e. Comcast, AppleSome hidden players: Cable companies, i.e. Comcast, Apple
• The internet is about content. Whoever has the content wins, no matterThe internet is about content. Whoever has the content wins, no matter
the gatewaythe gateway
– Comcast, Apple own significant chunks of online content. Comcast in reportedComcast, Apple own significant chunks of online content. Comcast in reported
talks to buy NBCtalks to buy NBC
– MSFT has partnership with Netflix on Xbox and Windows MediaMSFT has partnership with Netflix on Xbox and Windows Media
– Google’s content offerings consist of what its users supply (YouTube, etc.)Google’s content offerings consist of what its users supply (YouTube, etc.)

46. 01/21/1746
One OpinionOne Opinion
● Remember: FirmsRemember: Firms
respond torespond to
incentivesincentives
• Why shouldn’tWhy shouldn’t
Google want toGoogle want to
exploit the rules?exploit the rules?
• Google recentlyGoogle recently
hired Sen. Dorgan’shired Sen. Dorgan’s
top staffer (who wastop staffer (who was
working on networking on net
neutrality) forneutrality) for
“Federal Policy“Federal Policy
Outreach Manager”Outreach Manager”
positionposition

47. 01/21/1747
Strategy TakeawaysStrategy Takeaways
● Sometimes the competition isn’t obviousSometimes the competition isn’t obvious
● Pay attention to what people say andPay attention to what people say and moremore attention toattention to
what people dowhat people do
● Incentives matter!Incentives matter!
● When you’re profitable, others will attempt to take it away.When you’re profitable, others will attempt to take it away.
No business model is permanentNo business model is permanent
• Therefore, always look to defend your ability to differentiateTherefore, always look to defend your ability to differentiate
• Sometimes, it will mean throwing your strength against others’.Sometimes, it will mean throwing your strength against others’.
Find ways to leverage yours in unexpected waysFind ways to leverage yours in unexpected ways

48. 01/21/1748
For Next Time:For Next Time:
● Blue Ocean StrategyBlue Ocean Strategy
● Read:Read:
• Kim and Maubornge, “Blue Ocean Strategy”Kim and Maubornge, “Blue Ocean Strategy”
• (Either the paper or the book. You’ll get more(Either the paper or the book. You’ll get more
out of the book)out of the book)
● At the end of the session, you’ll receiveAt the end of the session, you’ll receive
your first HW assignment (and mostyour first HW assignment (and most
important)important)