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The Threat of New Entrants

Instructor: Kaitlin Oglesby
Even established companies are not safe from the threat of new entrants. But what does that mean? As it turns out, IT companies have less to worry about than firms in other industries. In this lesson, we'll take a look at this peculiar aspect of the IT industry.

What is The Threat of New Entrants?

Information technology, from supplying chips to offering social media platforms, is a great way to make money for a company. After all, everyone uses it, and the new usages for information technology are becoming more and more apparent. However, at many levels of information technology, only a few companies are dominant. This is because of the fact that the Threat of New Entrants is relatively low in IT. Despite it being a fast growing industry with plenty of potential, there are many advantages possessed by the companies that are already there.

Why Enter IT Then?

Given all these advantages, why would a company even want to enter this sector? If you want the quick answer, pick up a copy of any financial newspaper and see how much is being invested in information-based companies. The most valuable company in the world sells computers, phones, and tablets, as well as quite a bit of data. However, even small startups can garner payouts for well over a few billion dollars. For companies that can find a way into the marketplace, there is plenty of room for growth, as has been demonstrated time and time again.

The Difficulties of Entering the Market

However, all the companies that are currently in the sector are quite happy limiting their future competition. Two companies dominate the high-end smart phone market, while another two companies make the vast majority of microprocessors used in the world. In short, in these situations, the established companies can often simply out-produce or out-price any challenger. They already have made sure that they are more efficient than their competitors, and at this point are just protecting their markets.

Need proof? Here's a few examples. Numerous profile-based social media outlets, from startups to Google, have tried to challenge the dominance of Facebook. While some are still around, none as much as put a dent into Facebook's success. On the hardware side of things, tech giant Amazon tried to introduce a phone to compete with the Galaxy from Samsung and the iPhone from Apple, but it ended up selling only around 35,000 units the first month, forcing Amazon to cut the cost of the phone to 99 cents to unload all of them.

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