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Search Engine Industry Analysis
Transcript of Search Engine Industry Analysis
Growth prospects are enormous
in the top 20 countries, internet adoption rates average to only 36.1%
Barriers to entry are low
Legal landscape is convoluted and different across regions
Risk of obsolescence is high
Less cyclical and dependent on the business cycle than average Financial Strength As the industry grows more laws are necessary to protect users.
Tracking mechanisms built by internet sites have lead to privacy right disputes.
Different country regulations affect the industry competitiveness.
Increased lawsuits against internet sites for sharing unwanted information.
Some governments, such as those of Burma, Iran, North Korea, the People's Republic of China, Saudi Arabia, and the United Arab Emirates restrict what people in their countries can access on the Internet, especially political and religious content. Legal Environment Companies in this industry provide internet services for consumers.
This industry is fairly new (only about 20 yrs old).
Main form of revenue from advertisements.
Some revenue is derived from services (Ancestry.com)
Trading information for money, or information is free but comes with advertisements
High growth fast paced industry
Investments considered above average market risk. Background Conclusion GICS Sector: Information Technology
Sub - Industry: Internet Information Providers Robert Feeney & Courtney Brandt NAICS: 519130 Google - 246.75B - United States
Facebook - 46.40B - United States
Baidu - 40.84B - China
Info Edge LMT - 38.13 -India
Yahoo - 18.92B - United States
Sina Corp - 4.29B - China
Groupon - 3.11B - United States Peer Group Threat of New Entrants Bargaining Power of Buyers Threat of Substitutes Bargaining Power of Suppliers Rivalry Among Existing Competitors Threat of Substitutes HIGH Many internet and advertisement Information Providers in the Industry
Provides users with many options to spend their time and money.
Driven by speed and effeciency for consumer preference.
There are other advertising options outside of the internet and search engine industry.
Switching costs are fairly low.
Can switch from one sight to another.
Low costs to get out of the business all together.
Risk of obsolescence if a competitor creates new technology for a better internet site. MEDIUM Threat of New Entrants
Fairly low cost of entry
Since the industry is crowded need a competitive advantage and niche. (Twitter vs. Facebook) Medium Rivalry Among Existing Competitors Competition to gain market share in a market of fickle consumer and advertising trends
Low barriers to exit
Rapidly changing technology
Winner-takes-most environment (Myspace vs Facebook)
High industry growth, lots of niche markets and new markets developing http://searchenginewatch.com/article/2207431/Microsoft-to-Safari-Users-Google-Tracked-You-So-Try-Bing
finance.yahoo.com - for industry financials and Google Finance
Work Cited MEDIUM Bargaining Power of Buyers Two Types of Buyers Users of internet sites - Medium
Services are generally free which makes switching easy
Users tend to have favorites, and get cozy with add ons which strengthen user loyalty
Buyers of advertisements - Medium
Advertisers have the choice to choose between numerous sites to spend money.
Lose bargaining power on sites with high market share(e.g Google, Facebook).
The price/sales ratio is popular with analysts of this industry because revenue indicates marketplace acceptance and market share MEDIUM Bargaining Power of Suppliers Portals generally have little power over suppliers because they do not own much of the information
However, there are a lot of suppliers
Internet information providers rely on telecoms to provide bandwidth
Prices continue to fall, but it is hard to switch to another provider. Global economic outlook improving in the sense that the threat of sharp slowdown has eased
According to the IMF "Weak recovery will likely resume in the major advanced economies, and activity will remain relatively solid in most emerging and developing economies."
Slowdown in China can be viewed as positive or negative
Recovery is fragile
Commodities prices continue to rise
Uncertainty over policy looms large in US Macroeconomic Outlook Data done by S&P compared the Internet Software & Services Sub- Industry to S&P1500 and showed a return of 22.6% vs. 15.6%. Industry Includes Hundreds of Companies This industry has higher risk than the market average.
Low barriers to entry & high competition
There is going to be ongoing increase in regulation matters in industry.
The Macroeconomic view will not affect this industry as much as consumer adoption rates across the world
The financials of this industry outperform the S&P 500/1500.
Much of future growth will come from Mobile Google 35.32% Revenue Growth for Top 3 Companies (last 4 Quarters) Baidu 59.77% Yahoo (.91%)