The Last Mover Advantage: that created monopolies like FAANG.
We all have heard about the first mover advantage in an untouched market. Then, why don’t we usually see tech monopolies that were the actual first movers in their respective segments!? More importantly, why do we have monopolies like Apple, Google, Amazon, Facebook, Netflix, or even Gillette or Coca-Cola when they are quite opposite of the first movers i.e. the last movers?
Now, the reason I mentioned ‘tech’ and ‘FAANG’ above is that there is a huge difference between technical and nontechnical monopolies. For example, natural monopolies like the railway sector and electricity generation(usually come under the control of the government) require enormous amounts of investment and workforce to just get started with operations, as a result, multiple entities can’t provide services efficiently and inexpensively. However, the same is not true for the tech world.
Note: Monopolies lie(in terms of the degree of competition) for obvious business reasons. So, it’s up to you to consider companies like FAANG monopolies or not. The discussion is not about that.
Let’s get started with some quick examples(later I’ll post individual business case studies).
Note: Just for the sake of reading, this will be the only detailed example.
1996: Larry Page and Sergey Brin, Ph.D. students at Stanford University came up with the ‘BackRub’ search algorithm for their research project.
The later Iteration of the algorithm was named ‘PageRank’.
1998: Google was officially launched (with PageRank(IP) to compute their search results).
But, how did Google compete with Yandex, MSN, or the pioneer of paid search GoTo.com? To answer this let’s briefly understand their tech & plan.
The thing is that the ‘PageRank’ was not any other search algorithm, it was exponentially better than the rest. It produced results that matched our(humans) perception of importance. Additionally, Google identified 2 problems with the current model of GoTo.com:
1. Powerful companies bought keywords of weaker companies to overshadow them in ads. Google solved this why maintaining a ‘Quality Score’ which considered the relevance of the ad w.r.t. the searched query.
2. Small companies were discouraged to buy advertisement keywords due to the price domination by big players. To counter this, Google came up with a variant of the Vickery Auction Model (second price auction), in brief, the large gap between the bids was eliminated, and to buy a keyword you only had to pay slightly more than the previous bid.
So, the combination of these 3 ‘inventions’ made Google’s tech exponentially better than others and made them stand out.
Once Google dominated the search engine market, it kept expanding by covering the adjacent markets (2002: Google AdWords, 2004: Gmail, etc.).
So far we know that for Google it was an exponentially better solution than any other substitute and a plan to expand in the future.
Obviously, there are many other important factors including timing and marketing, but the starting point is what we just learned. Next example: Amazon.
Amazon
I do not understand why people think Amazon had an early mover advantage in eCommerce. eCommerce is not a market, it’s a solution.
Amazon entered an existing books marketplace with already big players like Barnes & Noble. What was new with Amazon was its exponentially better solution of selling books online, this allowed them to keep a library much bigger than any other physical store without needing to stock the actual books. As a result, more people were attracted as they can choose and try out new reads. Once an order was placed, Amazon got the book from the distributor and sent it to the buyer. Even the choice of books was strategic as they are easier to pack and most books have the same size.
Once the books marketplace was dominated they covered the adjacent markets of CDs, movies, games, etc., and kept on expanding till it covered everything from A->Z.
Hmm, so again we see a ‘monopoly’ that was never a first mover but had an exponentially better solution and a plan to expand (even reflected in the name).
Others
Facebook entered the already dominated social networking segment by players like MySpace. But Facebook insisted on users using their real names which allowed the triadic closure property(mutual friends) to play its part and generate a deep-rooted network that was again exponentially better than others. This created more trust and connections among users. And Facebook dominated the social networking segment just through word of mouth.
After that Facebook expanded by introducing third-party integration which transformed it from being a product to a platform.
Apple
Apple understands the late-mover advantage better than anyone. They didn’t invent the mobile phone, tablet, or the computer itself. But they improved them to a great extent.
Motorola invented the first mobile phone. Later in the early 2000s Nokia and BlackBerry dominated the market. Then came the iPhone with no clunky buttons, no stylus, a great touch screen, better service and an outstanding user interface, all this made iPhone (I think now you can guess it ;) )an exponentially better phone than any other. People went crazy for it (and still are as it is Apple’s biggest revenue-generating product).
After dominating the phone segment, Apple expanded this ecosystem by introducing the App Store, MacBook, iPad, etc. which created an ecosystem so robust and fit that people seldom think of leaving.
Coca — Cola
We can talk about more tech companies in future articles. For now, let’s look into Coca-Cola to see how the last mover advantage worked for them.
Cola-Cola or Coke is almost everyone’s favorite soft drink, but if you think it is because of its ‘unique’ taste, you couldn’t be more wrong. Once the labels are off you won’t be able to tell the taste difference between Coke or Pepsi (see how confidently wrong these people are). Anyways, So Coca- Cola originally was a knockoff of Vin Mariani (containing actual cocaine and caffeine through natural sources, although Coke changed its recipe later) and was marketed as a patent medicine, on top of that there were other players like Dr. Pepper. It wasn’t until Asa Griggs Candler came up with his exceptional marketing strategy of distributing free Coke coupons to the top customers of nearby pharmacies that Coke became famous, soon they realized that have been limiting the market by promoting it as a medicine and started to promote it as a refreshing drink for everyone. using the idea of sex sells: banners of attractive women holding Coke in their hands were placed, and Christmas banners with Coke were put up(to target the young audience), During WWII soldiers carried Coke bottles with them which associated Coke with patriotism in the eyes of the common man, overall you can say their marketing was exponentially better than any other brand. Although some tactics like contracting schools to generate loyalty among young consumers might be considered wrong.
Obviously, Coca-Cola expanded over time but let’s not correlate it with our tech world as things are much faster for us. The purpose of this example was to clarify that a late mover can do well in the non-tech world as well.
Gillette: Like Coke, many people think Gillette had the first mover advantage(problem with understanding old companies). It did not. I’ll leave this example for you to explore on your own.
Lessons learned
I know there are synonyms for the words exponentially, dominate and expand. But I repeated them on purpose because those are our lessons.
- Exponentially Better Solution: Identify the pain in the current system and come up with an exponentially better proprietary solution that others can’t even touch and creates a lasting advantage.
- Dominate: Don’t run after the whole market(you are limited in terms of money and manpower, you are small so start small :P ), Start with a small segment and dominate it.
- Expand: expand to adjacent markets.
In the upcoming articles, we will discuss the importance of Timing and Marketing with some good and bad examples for both. So make sure you subscribe :). Thanks for reading!
