Additional Ways to Networking
Threat of Substitute Products The potential of a substitute product in the marketplace depends on the buyers’ willingness to substitute, the relative price‐to‐performance ratio of the substitute, and the level of switching costs a buyer faces. Information resources can create advantages by reducing the threat of substitution. Substitutes that cause a threat come from many sources. Internal innovations can cannibalize existing revenue streams for a firm. For example, new iPhones motivate current customers to upgrade, essentially cannibalizing the older product line revenue. Of course, this is also a preemptive move to keep customers in the iPhone product family rather than to switch to another competi- tor’s product. The threat might come from potentially new innovations that make the previous product obsolete. Tablets have reduced the market for laptops and personal computers.
GPS systems have become substitutes for paper maps, digital cameras have made film and film cameras obsolete, and MP3 music has sharply reduced the market for vinyl records, record players, CDs, and CD players. Free Web‐based applications are a threat to soft- ware vendors who charge for their products and who do not have Web‐based delivery. Revolutions of many kinds and levels of maturity seem to be lurking everywhere. Cloud services are a substitute for data centers. Uber offers a substitute for taxicabs. Managers must watch for potential substitutes from many different sources to fully manage this competitive threat.
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40 Strategic Use of Information Resources
Industry Competitors Rivalry among the firms competing within an industry is high when it is expensive for a firm to leave the industry, the growth rate of the industry is declining, or products have lost differentiation. Under these circumstances, the firm must focus on the competitive actions of rivals to protect its own market share. Intense rivalry in an industry ensures that competitors respond quickly to any strategic actions. Facebook enjoys a competitive advantage in the social networking industry. Other sites have tried to compete with Facebook by offering a different focus, either a different type of interface or additional ways to network. Competition is fierce and many start‐ups hope to “be the next Facebook.” However, Facebook continues to lead the industry, in part by continued innovation and in part by its huge customer base, which continues to raise the bar for competitors.
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