Imagine a fast-growing billion dollar market. Initial analysis shows that customers are clamouring for a solution. Better yet, your company has the technology and the know-how to give them what they want. Sounds like a great opportunity? Not if you don't know who loses.

Pick any book on new business creation and you'll find at least one section on Market Analysis. The rationale for analyzing your target market is simple: If you're going to invest a lot of time and money in your new venture, you better make sure that you can answer the following three questions:

1. Will there be demand for my product?
2. How big is this demand?
3. How fast will this demand grow?

Together with understanding demand, you'll need to know which forces govern the industry you are entering: How stiff is the competition? Are there any regulatory hurdles you'll need to jump over? Will you have to convince your customers to change the way they do business?

The most important work in this field was carried out in the early 1980s by Michael Porter. In what is now called "Porter's Five Forces" model, the Harvard professor listed five forces that shape any given industry. These forces are:

1. Customer Power (the amount of power buyers have on companies in the industry)
2. Supplier Power (the amount of power suppliers have on companies in the industry)
3. Barriers to Entry (limitations to entering a market, such as government regulations, patents, high upfront investments and so on)
4. Threat of Substitutes (the extent to which products from other industries can do the same thing as your products can)
5. Degree of Rivalry (the intensity in which firms in a given industry compete with each other)

Who pays for all this fraud? Well, it depends. If the transaction is offline, meaning it occurred face to face, as in a restaurant or in a store, then the bank that issued your card pays for any fraudulent use. But when the transaction is online (via the web, phone or mail order), things are a bit different. First, your credit card company refunds you for all the items that were purchased without your authorization. Then the merchant from which the goods were purchased pays back your credit card company the full amount it charged your card.

On the face of it, the market for reducing credit card fraud seems to be a great one to enter. The market is big, and growing at a pace of $200 million a year. There also seems to be a high demand for any company that has a product which can reduce credit card fraud.

Or is there?

Recall those online transactions? When your card gets used fraudulently, the merchant has to pay your credit card company the full amount that was taken off your card. But according to a recent article in the Wall Street Journal, it doesn't end there. In addition to paying back the credit card company, merchants are charged a "processing fee" of $100-$1000 for each fraudulent transaction they're involved in. These numbers add up, and last year credit card companies made over $500 million from these fees.

Ask any merchant who experienced credit card fraud and they'll tell you that credit card companies aren't exactly eager to reduce fraud, nor help merchants track down who stole the card in the first place. The end result, of course, is that we all have to pay more, as merchants increase their prices to offset the fees they have to pay for credit card fraud.

With such a significant additional revenue stream for the credit card companies, what's their incentive to reduce fraud? The answer is unclear. But the implications for any company planning to enter this market are.