Is the first mover advantage a fact or fallacy?

Common thinking is that quite often being the first mover puts you at an advantage over later entry market competitors. In theory this does hold some truth, but the reality is that simply being there first is no guarantee of initial or longer term success.

There are some fundamental considerations that may determine potential success…
Is the new service or product accepted by the market or does the first entrant need to create an awareness and acceptance of the offering? There is nothing more costly than creating and educating a market to new ways and could be so costly as to crush the company entering, unless they have deep pockets or substantial venture funding.

Particularly in the software and technology market, the transition within the product adoption cycle from ‘innovators’ to ‘market majority’ is fraught with difficulty. The concept is well defined as Moore’s Chasm; the failure to extend usage and adoption beyond the ‘innovators’ and ‘early adopters’. This has been the downfall of many first movers. Second entrants can then capitalise on the groundwork already done by the failed first mover.

If you have a legal patent that affords a number of years of protection then you probably have the best opportunity to build a first mover advantage, despite the issues detailed previously. An example of this was when Xerox invented photocopying and enjoyed 15 years of protection of their technology, going on to build a successful global empire.

Where the product or service has little or no patentable technology or methodology, the challenge of maintaining a market advantage is substantial. The easier it is to mimic or copy the product, the quicker the competitors will arrive. Quite often this is the case with software products, where due to various factors, legal protection is not available or not affordable. If there is money to be made, a raft of competitors will arrive, copy and out-market the incumbent.

To retain a first mover advantage, the entry company will have to aggressively deconstruct and re-invent their product and brand in order to keep one step ahead, constantly innovating and adapting to changing market conditions.

The advantage to market followers is that the first mover has done the hard yards, developing the market, learning what works and what is acceptable, usually at considerable financial cost. Market followers simply pick up from an advanced position and have the opportunity to improve on what’s already in place.

There are numerous examples of the follower improving on and stealing market leadership from the first mover:

  1. Google was not the first search engine, but learned from others and made a better product, now being the market leader by a country mile.
  2. Netscape was the predominant browser in the early days of the web, but players like Mozilla’s Firefox, Microsoft’s Explorer and now Google’s Chrome have taken ownership of the market. Chrome is a very late arrival, but is rapidly gaining substantial market share.
  3. Facebook was not the first player in social media, but through innovation, product differentiation and clever integration into people’s social networks and lives has become today’s leader.

There are also many examples of first movers that have retained a leadership position:

  1. Microsoft invented desktop computing and has managed for many years to be the dominant force, despite competitive and legal efforts to unseat them. The genius of Microsoft was not in creating a dominant market position, but in maintaining and extending it. Whilst they have been challenged aggressively, they still dominate in their core market.
  2. Interestingly though, in other areas where Microsoft has been a late entrant, such as in browsers and search engines, they have been unable to develop a dominant market position, despite having the benefit of learning from what others before them had done.
  3. In 1964, Phil Knight founded Nike as a specialist running shoe company. He created a new market for a new type of product, and today Nike is still the world’s largest manufacturer of running shoes and apparel. However, they didn’t achieve this by sitting on their hands.

One of the ways that today’s emerging online brands secure market leadership is through integrating themselves into the user’s lives’ or their clients business practices and methods. Cloud-based SaaS companies provide a great service at a low cost, one of the chief concerns against cloud-based applications is that of data extraction in the event of a falling out with the provider.

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