First mover’s advantage refers to a competitive edge for a firm due to its being innovative and first of its kind in the market. It makes sense. Being innovative in technology, or marketing an innovative product or new approach to marketing can yield sufficient advantage to a firm. This happens mostly due to time-lag for other competitors to show up with similar products or processes in the market. This time-lag enables the new firm to quickly brand a product and get a permanent pie of mind share. It is comparable to what is known as “Blue Ocean Strategy” today. You enter an uncontested market space and get an upper-hand since no competition is there yet.
However, there are many studies and researches across the globe that found a good number of opposing cases to this phenomenon. Since many “first movers” in many categories are out of market today, some researchers argue that fist mover’s advantage is more of a conditional proposition rather than a universal phenomenon. According to a study by Stanford Business School, USA, researchers found four disadvantages of first mover companies.
First, first movers are the first risk takers to create a market and do the investment (in terms of advertising, R&D, infrastructure etc.). Late entrants may capitalize on this already established market as free riders, with less investment. Second, late movers can gain an edge over first movers by solving market imperfections or through technological improvement. For example, when Toyota was planning to enter the US market, it interviewed the drivers of Volkswagen- the leading competitor in the small car segment at that time. Information on what users of Volkswagen liked and disliked greatly influenced the design process of new Toyota. As a result, Toyota succeeded as a late entrant in the US market. Third, customer needs, as well as technology, are dynamic in nature. They keep changing over time. First movers are not always aware of the technology changes (even though innovative technology could have been the reason of its being the first mover!), and later fall behind in keeping themselves updated. This is how late entrants replace the first mover. Even though the customer base might stay the same, it would already be taken over by the improved tech adopter. Fourth, first movers may fail because sometimes “success could be a pillar of failure”! Once a firm is successful and gets big, it suffers from “inertia”, the established rule of success become difficult to change at every level of organization. Even though they might be aware of new technology, it takes time for them to change. This inertia makes late entrants adopt new technology quickly and move ahead of those erstwhile first movers.
It seems that, while some companies showed their successes because of early entry, first mover’s advantage is not a universal phenomenon. Rather, a lot of failures can be traced where first mover’s disadvantages wiped them out from the market. So what is the conclusion: does it exist or not? In the next write-up, we will explore the “conditions” under which first movers’ advantage will likely to exist and bear fruits to its followers. (to be continued)