“First mover advantage”- An overrated myth …
“First to market” and “second mover advantage” have always bugged us as terms because they are framed from the point of view of the startup and the other startups in the space rather than in form of a coalesced market strategy
New technology markets get created when a new technology opens the possibility to deliver a new value proposition to masses. When these disruptive technology events occur, the market will be satisfied by a startup; the only question is which one and when and how will they do it?
Sometimes the market is initially but not fully satisfied by earlier startup who succeed with early innovative customers but cannot scale their beyond those of early customers. Sometimes the first entrant does scale, some times it fails.
So what makes a start up fail or succeed. Which is the best strategy to move forward and under what condition it is best to move fast.
First lets consider this,It is true that by starting earliest, first movers have more time than later entrants to accumulate and master technical knowledge.
The second way is by preempting later arrivals’ access to scarce assets — for example, a location on a city’s main street, talented employees, or key suppliers.
The third is by building an early base of customers who would find it inconvenient or costly to switch to the offerings of later entrants.Again the two most important factors are the pace of technology evolution and the pace of market evolution.The faster or more disruptive the evolution of technology, the greater the challenge for any one company to control it.
So basically there are two factors are at play here that is market and technology.And considering their rate of change i,e fast or low we get four possible combination.
Let’s consider the four segments individually
1. When the Waters Are Calm
Gradual evolution in both technology and markets provides first movers with the best conditions for creating a dominant position which is long lasting. This makes it hard for later entrants to differentiate their products from those of the first entrant. Even if competitors discover some means of doing so, the differences are not drastic enough to prevent the first mover from mastering them and folding them into its product line in a timely fashion.
The initially slow pace of market growth also tends to favor the first mover by giving it time to cultivate and satisfy new market segments.
One of the most important asset is brand recognition. Others are physical assets, such as strategic locations, and financial resources. Of course, having abundant resources and the most valuable skills is always desirable, but in calm waters, a first entrant lacking above advantages might still have the lthe means to defend its product against competitors.
2.When the Market Leads and Technology Follows
In this case the market’s expansion rate is exponential and potential size.Some mistake it by assuming that only a short-term advantage would be available to the first mover. However holder of superior resources like design skills, marketing muscle, and strong brand might over come the competion in a short period of time.
3.When Technology Leads and the Market Follows
Here technology changes abruptly but the market is slow to accept the new product category. Early movers face many years of flat sales and operating losses . At the same time, the pace of technological change brings in new competitors, who hope that latest product with better feature might lure the customer to their products. A durable advantage is unlikely for any. A peculiarity is observed that many customer eagerly waits for the next big update pass the current available product in favour of future however uncertain that is.
Only a company with substantial financial muscle will venture into that segment. Deep pockets allow the firm to wait until the pace of technological change slows and capable R&D capability keep it at the technological forefront.
4.When the Waters Get Rough
In this case both technological innovation and consumer acceptance advance rapidly .In these conditions, it is very difficult for companies to gain durable first-mover advantages.
If a product’s technology changes very rapidly, the item becomes obsolete very fast. Most of the times such products are overtaken by versions from new entrants, Some researchers have used the term “vintage effects” to characterize the tendency of new generations of technology to produce successful entrants.
A fast-growing market adds to a first mover’s challenges by opening attractive new competitive spaces for later entrants to exploit. It tends to be at a disadvantage, since it often lacks the production capacity or marketing reach to serve a rapidly expanding customer base.
Only a first mover with mighty resources, far superior to those of competitors, has any chance of achieving longer-term first-mover advantages when both technology and markets are moving rapidly. For instance, all else being equal, a first entrant with a very strong brand name will be more successful in retaining customers than one without a recognized brand name.
This can be summered in the following table:
So finally the lesson here is rather than moving to a new market blindly one must realize own strength and that of possible entrants and also have a macro view of market responsiveness in the product segment.