Vexxhosts Potential Market - Case Study Example

Industry/Market Analysis Introduction and background Most organizations have resolved to the use of IT systems in their operations no matter the sizeas a result of data complexity, hence they will need to recruit personnel with relevant expertise to help in the management and mass processes. Thus, due to the rise in population and subsequent increase in the use of web-hosting firms such as Vexxhost, the providing firms have the capability to lessen costs and put forward efficiencies to customers. According to IBIS World statistics, the data processing and hosting industry is expected to grow at an annual growth rate of 4.9% to $5.9 within a pentagon year to 2019 while a 5% rise within this year alone. Therefore, this can be attributed to the upcoming sectors within the economy. This is so, since we have just a few companies concentrated around web hosting in the early stages of development. As a result, there is a consolidation (M&A) opportunity. The data processing and hosting industry emerged after the millennium year hence can be categorised as new industry rather than a more established sector. The period is characterised by increase use in internet services resulting into high demand. The demand however is viewed as more of an inelastic demand and will remain so despite any economic situations that might arise. For instance, this demand generated operating margins of approximately $606 in 2014 alone providing a more realistic business venture to invest in at present and in the future. Market Gap: The services that are offered by the major players in the market are relatively low leading to market opportunity. For instance, the four big firms in the data processing and hosting industry can only manage approximately 26.6% of the revenue from the sector at least according to the IBIS World survey in 2014. Hence, there is more left in the industry that should be exploited. The best opportunity in the industry is to offer cloud-computing. It is the fastest growing product and promises to be the future in the data processing and host industry. It is made possible since the main two organizations in IBM and HP majors on IT consulting and the core services that they offer. Thus, if Vexxhost can provide small and medium firms for low prices, they can attract more sales that generate profits to obtain a relative good share of the market. Hence, cloud-computing is our future. Industry Key Success Factors: 1) Effective quality control: security of the system is influences customers hence top management quality must be a priority. 2) Having a cost effective distribution system: For the firm to compete in prices, our operation costs must be relatively low. 3) Ability to quickly adopt new technology: the organization must be flexible to adjust to new technology so that we can conform to modern ways of production making us to be more competitive. 4) Ability to manage external contracts: In order to continue to deliver quality services, managing external contracts is essential The five competitive forces (Porter`s Model): 1) Threat of substitutes: High There is more market share that small companies can gear for since the two major firms’ only controls about 21.6% of the available. With, 2418 businesses in the Canadian data processing and hosting industries, competition are expected to be high. The rival firms however will majorly produce similar products since they are operating in similar industry hence creating room for more substitute’s products. As a result, customers will always be price sensitive and will only purchase goods and services that are within their budgets since they have a wider alternative. 2) Threat of new entrants: Medium 3 Barriers to entry: i) Capital Requirements → the industry requires more funds to enter since the operations tools such as big power processing powers are very expensive. ii) Economies of scale → more established companies have big servers that has more storage capacity hence have advantage since they can acquire more clients iii) Business contracts → big companies have more capital than small organizations hence can spend more on contracts such as advertisements to monopolize the market. 3) Rivalry among existing firms: High The firms produce almost similar products in the industry hence can only compete in low costs, quality, branding rather than prices. Hence, the rivalry is quiet high and the situation seems to remain the same in the foreseeable future and since entry is free. Competition will only intensify. Thus, firms that offer data processing and hosting industry will have to remain creative if they want counter their competitors and influence the market. 4) Bargaining power of suppliers: Medium I) Supplier concentration: There are a few suppliers that supply a product with an inelastic demand to a large number of buyers II) Switching costs: High III) No attractive substitutes 5) Bargaining power of buyers: Low → there is relatively reduced number of suppliers in the industry creating an inelastic demand that is associated with oligopolistic market. Hence, the buyers cannot negotiate for prices and will have to buy at the sellers proposed one. Thus, they spends more making their costs high. Target Market: Vexxhost target specific and options market are quiet large but the major one is the small to medium companies and entrepreneurs. Other option includes large companies, government firms, individuals, organizations, universities, and websites. Nonetheless, the non-financial firms cannot be ignored as the surveys shows that, they account for 45% of the industry revenue ($2,115 Billions). Their main needs are retail data, logistics information and supply chain information. Hence, regardless of which industry, sector, be it a department within the state, Vexxhosts experience can only be ignored at their own peril. .Vexxhost deals with 2000 customers from 140 countries. The company mostly deals with developers and small businesses; they are easier to adapt and are price sensitive. Major Markets: Key External Drivers: → Demand from IT consulting → Demand from professional, scientific and technical services → Number of mobile telephone subscriptions → Corporate Profit Market Potential: Vexxhost`s potential market can be divided into three different market segments: business process management, data management service and application service provisioning. As reported by the IBIS World Industry Report, ca. 40% of industry revenue is represented by business process management (use of technology to improve efficiency). Website-hosting is an emerging area of revenue as in today`s highly globalized world every company regardless of its size or mission needs a website as this functions as the “shop front of the business”. PEST Analysis 1) Political/Regulatory Factors: Canada laws and regulation is relatively medium towards the data processing and hosting industry even though it is expected to rise over time. At the moment, the only legal requirement is provided under the intellectual property right. However, this is just but a measure that provides security to our property so that the software is patent against our rivals. But the industry is expected to grow over the future and profitability will be high. Thus, there will be possibilities in new government guidelines may be in taxes but we are prepared for any changes that may arise from the state department. 2) Economic Factors: i) Demand from e-commerce and online auctions ii) Demand from professional, scientific and technical services iii) Corporate Profit iv) Demand from IT Consulting The year 2015 is expected to generate a lot of demand. From the e-commerce to online public sale that will necessitate a huge data use. Demand from e-commerce and online auctions are expected to increase in 2015. Furthermore, the size of the population with accessibility to mobile phones will rise that will results in increased demand for internet usage and the subscribers are expected to follow suit over the same period. Moreover, in the same year, the world funding has increased on research and development. Hence, the modern systems both from the technical and professional nature have a more desire for data processing and hosting services. On the other hand, the IT consulting is not left behind as its services are expected to increase as organizations will be needed to provide data for accessibility of the websites to the public. Hence, more opportunities will be generated as companies will have more faith to invest in large and future projects and as that increase their profits. Thus, a business entity is about psychology and taking chances for it to succeed. 3) Technological Forces: i) Number of mobile telephone subscriptions ii) Greater computing power with larger servers and more advanced hardware Market Potential:YOUR RESEARCH BEGINGS HERE Vexxhost`s potential market can be divided into three different market segments: business process management, data management service and application service provisioning. As reported by the IBIS World Industry Report, ca. 40% of industry revenue is represented by business process management (use of technology to improve efficiency). Website-hosting is an emerging area of revenue as in today`s highly globalized world every company regardless of its size or mission needs a website as this functions as the “shop front of the business”. 1,087,803 Million Small to medium size firms in Canada. About 99,000 new small firms created each year in Canada. Vexxhost targets the 1-2% of the new small firms, so around 1000-2000 new potential customers. 1st Intro Plan = $34,99 2nd Intro Plain = $49,9 our potential customers is thus equivalent to 1,087,803 that’s is represented by our key product in business process management represented by a penetration ratio of 40%. Market volume = penetration ratio × potential customers = 1,087,803 × 40% = $435121.2 Hence market size = market volume × average price = 435121.2 × 34.99 = $15224890.8 But the company expects an a annual increase in potential customers, making the firms size to grow over the same period, hence Increase in market volume on the pessimistic side = 1000×40% = 400 Change in market size = 400× 49.9 = $19960 Increase on market on the highest side = 2000×40% = 800 Change in market side = 800×49.9 = $39920 Thus, the company has a 40% market share within the existing business process department. Nonetheless, the market size will have an annual increase with approximately 0.1% to 0.2%. the slow growth may be attributed to the competitive nature of the industry. Read More