Applying Micheal Porter’s Five Forces Model to the Web Design Industry

Micheal Porter’s Five Forces industry analysis and strategy development is a staple in most business schools. Having come across it again in book I was reading I decided to apply it to our web design industry to see what kind of analysis we get. The result was not promising.

Here are the five forces in a nutshell.

fiveforces

Now putting these forces in the web design industry perspective we get the following.

Bargaining Power of Customers – High

In our industry I would have to say that bargaining power of customers is very high. We are frequently pitted against each other for pricing and delivery concessions. Most customers have the luxury of interviewing over a dozen web designers for a single project. They also have access to freelance websites where literally thousands of designers can bid for projects.

Bargaining Power of Suppliers – Moderate

Suppliers to our industry including web hosting companies, software companies, subscription service providers etc. Since its a fragmented industry and most web designers rarely band together to demand a better price, so suppliers usually exert moderate pressure.

However the good news is that our suppliers are themselves in a competitive market hence web designers still do retain some clout. There are of course exceptions such as Google Apps who have refused to lower prices or provide flexibility.

Threat of New Entrants – Very High

The barriers to entry in our business is very very low. Any person with a laptop and a little knowledge of html can promote themselves as web designers. Everyday, hundreds of new companies,  tiny and small, jump into the fray.

This usually leads to two problems – they drive down prices and they drive down industry reputation. This hurts the long term players like us.

 Threat of Substitute Products – High

The threat per se is not to websites themselves but comes from an internal source. Ready-to-use off-the-shelf do-it-your-self cheap websites are the threat. A great web designer can add tremendous value to a website and the client’s business but this is now being seriously undermined by quick fix solution providers.

Of course these providers are filling a need for low cost, fast solutions but they are also bottoming out the market in terms of cost and quality. You can compare them to fast food like McDonald’s whereas we are the fine dine gourmet restaurants. I suppose there will be place for both in this industry but for high value solution providers like us, its a constant threat.

Competitive Rivalry within an industry – Very High

This is a highly competitive industry. It is not common for web designers to be pitted against 5-10 other rivals.  Web designers are notorious for under cutting each other. In this scenario no one wins, not even the client. This is a very tough industry to survive in, let alone thrive.

Conclusion – Stick to your value proposition.

Surviving in an industry where the 5 forces are so strong and prevalent is about choosing a strong value proposition and sticking to it. Changing often or trying different positions will kill you. The survivors will be the ones who successfully build and defend a value position. This is a marathon not a sprint. Stick to your knitting, try and build a unique position and you might be one of the winners when the dust settles.

Cheers,
Ron

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