Marketing models and Search - Porter 5 forces

In this and following posts I want to handle some well-known marketing strategy models and apply them to the search market. Starting today with the five forces analysis by Michael Porter.

The Five Forces Model
With the five forces analysis Porter describes the forces that influence the competitiveness and attractiveness of a market. An industry where a combination of the forces has a major impact on profitability is unattractive.

How will this model look like in the search industry? I'm not gonna describe the search industry itself, but how it looks like if your an advertiser in insurance services and want to start advertising in Search.

The threat of substitute products
A search result page (SERP) could list over 30 resources to click on, within highly competitive industries, all of these 30 are used on the SERP's. The threat of substitutional products is very high and very easy for the user to get distracted to.

Threat of new entrants
Google and other paid search networks make it easier and easier for you (and your competitors) to make it to the (paid) search results. Almost everybody can set up a webpage nowadays and it's only a matter of hours from start to be listed in the paid results. Because of their flexibility and large fees, it could be very easy and attractive for other parties to enter the market. On the other hand the current bids for keywords in the financial segment are raising so much, that new, less wealthy companies have a hard time to drive a profitable business on a short-run.

Threat of suppliers bargaining power
This is depend on your position in the chain. If you're providing the services yourself, the only threat (in this case) you have to deal with, are the paid search networks. All though they sometimes do a great job in frustrating advertisers, they also are dependable on those advertiser.

If you are an intermediate in the insurance industry, the bargaining power of the service providers could give you a hard time. They do have the budgets to buy their way in the listings and often have a long haul, compared to less powerful intermediates. On the other hand, the flexibility you have as an intermediate (and the big companies are missing) could give you huge opportunities to beat them.

The bargaining power of customers
The up come of the internet and web 2.0 could also be described a little "power to the people!". It's very easy for people to compare their suppliers and make a buying decision based on far more objective information then we were used to. Especially in search results on financial services, customers can compare all providers very easy. Just click on a providers' result, get the information, go back and repeat this with the next in line. This is a threat even when you have already paid for your visitors' click. But because the same happens to your competitor, this could be an opportunity if you manage to give the customer the best possible offer.

Threat of intensive segment rivalry
When we take a look at the other forces, we can already conclude that the Insurance paid search is not really an attractive market at this moment. You see bid prices go sky high and several players in the field use aggressive techniques to at least gain some traffic for a reasonable price to their websites.

Recap
If we take a look a the 5-forces analysis in the Paid search market for Insurance, we can conclude that paid search is a very hard marketing source for advertiser to be a part off. Easy entrance, high competition, customer power and lot's of substitutes put an enormous power on this market. You see players who are paying far to much for an insurance they sell, just to reach their new customer goals.

So, why is paid search interesting for the insurance industry? Well, it's still a lot cheaper compared to other sources, it's transparent and delivers highly relevant visitors to their websites.