The more companies that swim in the same pond and compete for the same customers, the more competitive the industry. Often some competition is better than none. But if jumping in to your industry is easy (for example, restaurants, online services, advertising agencies, and so on), the threat of new competitors is very high.
Conversely, if big startup costs and regulatory hurdles have to be crossed — like the construction, airline, and manufacturing industries — you may not feel as threatened. The barriers that exist or that you build determine how big of a threat looming competitors is. Key barriers include the following:
Economies of scale (when more units of a good or service can be produced on a larger scale, yet with, on average, less input costs, economies of scale are achieved)
The size of the capital or investment requirements
The ease or difficulty of switching from one company to another
The ability to access distribution channels
The likelihood of retaliation by existing companies
The number of companies developing and selling customer relationship management (CRM) systems grows every year. Companies in this space include Salesforce.com, Sage ACT!, Oracle, Intuit, and Microsoft with its Business Contact Manager. As more and more companies join the party, the current players see the threat of new competitors increasing.
The entry barriers are relatively low except one: the difficulty for customers to move from one platform to another. In fact, anyone who’s implemented a CRM system knows that the biggest challenge is getting people within the company to adopt the new system. Moving around from one platform to another is a time-consuming process and can kill your business.
Because this barrier is so high, the threat of new competitors to established companies is slightly diminished. The opportunity is to grab as much market share as quickly as possible.
