Five Forces Model Analysis of the Smartphone

Five Forces Model Analysis of the SmartPhone Market

The Five Forces Model (Porter, 2008) provides a useful framework for evaluating the dominant competitive forces that influence the size, direction and intensity of competition in a given industry. The Smartphone industry is analyzed in the Five Forces Analysis completed in this paper, and is shown in Figure 1.

Smartphone Five Forces Analysis

(Apple, Investor Relations, 2012) (Bernoff, Li, 2008) (Lee, Kwak, Kim, Kim, 2009) (Porter, 2008)

What is immediately apparent from evaluating the role of Substitute Products, Bargaining Power of Suppliers, Bargaining Power of Buyers and New Market Entrants is the speed and breadth of innovation occurring in this industry. Social networking's pervasive adoption globally is also completely reordering the supply chain for smart phone components and assemblies, hastening product lifecycles in the process as well (Bernoff, Li, 2008). Apple's continual focus on innovation and the rapid product lifecycles they have actually put the Five Forces Model into an accelerated state as well (Apple, Investor Relations, 2012).

Substitute Products

There are a plethora of substitute products available, from the black market counterfeits being produced throughout Asia, specifically China, to the rapid advancement of new technologies at Microsoft, Nokia and HTC with the Android operating system (Apple, Investor Relations, 2012). Substitute products are increasing the acceleration of innovation in this market as well. At the very low-end of the smartphone market, contract manufactures including Flextronics continue to offer entire Android platforms are 30% the production cost of an Apple iPhone for example (Apple, Investor Relations, 2012).

Bargaining Power of Suppliers

Apart from the bargaining power of buyers, suppliers have very significant impact on this industry from a competitive standpoint. The growing adoption of EV-DO chipsets for example, which make it possible to turn a smartphone into a Wi-Fi hotspot, are increasingly commonplace (Lee, Kwak, Kim, Kim, 2009). In conjunction with these technological advancements, there is also the development of entirely new services programs and pricing plans for advanced smartphone features that are pay-as-you-go which Virgin Mobile and others have had for nearly a decade (Apple, Investor Relations, 2012) that are being modified for higher-end functions. The supplier base is also attempting to design in compatibility and connectivity to social networks as well, looking to differentiate themselves at the software level (Bernoff, Li, 2008).

Bargaining Power of Buyers

The buyers are setting this industry into a feverish pace of innovation as well, with the early adopters replacing smart phones an average of every 18 months, with the typical cycle being 3 years (Apple, Investor Relations, 2012). Buyers are also reordering the services contracts offered by telephone and telecommunications providers to be more competitive for tablet PCs including the iPad (Apple, Investor Relations, 2012). All of these factors taken together show the clout that the buyer has for revolutionizing the smart phone industry. Their impact is directly influencing each area of the Five Forces Model and forcing the cost of manufacture to continually drop as well.

New Market Entrants