It’s important to mention that all this is related to manufacturing industry. We’ll explain briefly the Porter’s seeing of each force.
Negotiating power of suppliers is decreasing
Traditional products (and components) are losing value because of IoT and appropriate “smart” components and their connectivity. Therefore, the products are losing importance and value, and manufacturing companies need new suppliers and service providers and manufacturers of “smart” components. So, service providers are needed: from connectivity, software solutions to data storage, as well as manufacturers of integrated technologies that are experiencing constant innovation and price reduction at the component level.
Caution! Some of them are really big: Google, Apple, Amazon, Microsoft … and “something” that is now free may become too expensive in the future. This is my attitude, not Porter’s, but you need to keep this in mind even when you want to start using someone’s API. Open API and “free personal use” are the marketing tricks of some players for creating and spreading the community … around the product and/ or brand.
Threats of substitutes are increasing
Related industrial products can offer superior performances, functionalities, maintenance and better and more customized user experience in relation to the traditional industrial products. The Product-as-a-Service model expels the necessity of ownership and enters into more flexible method of payment (service subscription).
Risk of new entrants (rivals) is changing
It can be increased but also reduced. It depends on how and where it is viewed. Input costs in already established and industry- related products are quite large and not anyone can choose them. Existing players can lift these barriers if they constantly innovate existing products and this is the battle in Red Oceans. On the other hand, the entry of a new player can significantly shake the balance of forces on the established market.
There is also a place for swimming in the Blue Ocean, for innovators of new technologies whose entry into the market is actually the creation of a new business and access, and hence, not only taking over some part of existing clients, but the acquisition of new ones.
Industry competition will fade out
Yes, we purposely skipped the Buyer or the End User – Payer.
The products will not differ in price (mostly for the mass usage), but by performances and functionalities, services that go with them, personalisations and gathered data from clients.
Still, companies will be confronted with temporary increase of costs in order to enable IoT functionalities of their products, but this testifies to retreating from the clasic industry competition based on reducing production costs and its optimization or acquiring of larger number of clients (which will never die away).
After all, companies that appear on IoT technological stack and that are not influential or recognized can become important because of already existing giants or new large companies.
Negotiating power of the buyer will weak?
Yes, that was what I thought, because I was a buyer in 99% of all my life – just keep on reading.
Smart, connected products dramatically widen the possibility of product differentiaton, removing the competition and the bidding from the price. If the price becomes something that is not spoken off because it is appropriate, then you won’t be the “problem” who needs negotiating. Based on the collected data from and about the end users, it is possible to segment them and adjust the products (services) that are provided, so the offer becomes appropriate. It will better sustain itself and the aditional price also.
All of this leads to strengthening the bonds with users and raising their loyality. Historical data that is accumulated about you and your usage “makes more difficult” to go to another provider of the same or similiar services. “Similiar” breaks already aquired accomodity and customs – hearth of loyality and empathical access in everyone of us.
On the other hand, in support of the headline thesis, connected industrial products enable companies to reduce the dependency to already existing providers and partners because their number is growing (technologies are getting more progressive and cheaper, in most cases). So, the profit grows, but partly the final service price is getting lower (product or service).
Makes sense? Sometimes it’s good to ask ourselves less questions. This doesn’t mean I’m not a User and that I’m not in the Focus!