The sudden change in the industry landscape got me thinking about a classic tool for understanding any industry. Harvard Business School professor Michael Porter created the “Five Forces” framework in 1979, and it still serves as an excellent way to understand the overall picture of a given industry. Note that this is a way of characterizing a industrynot an individual business.
So, for example, the first force, “threat of new entrants”, means: “Is this an industry in which new companies could easily compete, or not?” If the answer is: “This strength is weak”, this would mean that there is little risk of new entrants entering this sector, which would be good news for incumbents. We interviewed expert analysts Charlie Dai of Forrester and Arun Chandrasekaran of Gartner and ours Fortune AI experts for context on how each force could affect Google Gemini and OpenAI.
Force One: Threat of new entrants. Chandrasekaran sees the industry becoming “a three-horse race” with OpenAI, Google and Anthropic; he doesn’t see how a new company could “be on par with those three.” Dai sees formidable obstacles for new entrants in “the cost of computing, scarcity of talent, and complexity of regulation.” Conclusion: This strength is weak, which bodes well for the incumbents. Google may be better positioned than OpenAI given the scale of the AI value chain it controls.
Second force: negotiating power of suppliers. Dai says chip suppliers hold significant power because only a few companies, including Nvidia, AMD and Huawei, design the best chips and can’t deliver them fast enough. The situation here is similar to the large amounts of AI cloud capacity that AI providers must purchase or build. Chandrasekaran notes that major LLM companies train their models by crawling the Internet and scraping data, but some data providers now demand money. This force is strong. Google could be better protected by controlling its own chips, its own cloud, and almost all of its necessary infrastructure.
Third force: bargaining power of buyers. It’s tempting to think that buyers aren’t very powerful in negotiations, because over time they will effectively become locked into a supplier’s system. “If [OpenAI’s] “ChatGPT is integrated into your workflow and processes, getting out of an app like ChatGPT isn’t exactly easy,” says Chandrasekaran. But buyers are increasingly using multiple models and finding that they can be compatible. This strength is moderate to strong. Google has stronger structural lock-in, but OpenAI has more brand affinity from consumers.
Force four: threat of replacements. “Open source alternatives like DeepSeek and Qwen will play a key role” in the industry, Dai says. What’s more, Chandrasekaran says, “we’re starting to see smaller linguistic patterns challenging larger patterns in very specific areas.” This strength is average and getting stronger and stronger. Google and OpenAI are about equally capable of dealing with it.
Force five: rivalry between existing companies. Our experts agree: this force is strong and getting stronger. OpenAI and Google are virtually tied, although OpenAI has fewer defensive moats and must innovate quickly to maintain its lead.
Bottom line: In what is perhaps the most important industry ever, OpenAI has a fragile lead but faces an imposing foe that could benefit more from the Five Forces taking action on the sector. In five years, will he be the clear winner? Or will a Chinese competitor show that we have seriously underestimated the “threat of new entrants”? Reviewing your industry’s Five Forces framework can be a demanding exercise, but it’s worth it for leaders in any industry. When done well, it will spark debate, ideas – and maybe even a code red.Geoff Colvin
Contact the CEO daily via Diane Brady at diane.brady@fortune.com
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CEO Daily is compiled and edited by Joey Abrams, Claire Zillman and Lee Clifford.
