In marketing, first-mover advantage or FMA is the advantage gained by the initial (“first-moving”) occupant of a market segment. It can be referred to as Leadership in technology in our industry.
This advantage may stem from the assumption that the first entrant can gain control of resources that followers may not be able to match. Sometimes, the first mover is not able to capitalize on its advantage, leaving the opportunity for another firm.
A firm can gain FMA when it has had some sort of upper-handed breakthrough in its research and development (R&D) resulting from a direct breakthrough in technology. A learning curve can provide sustainable cost advantage for the early entrant if learning can be kept proprietary and the firm can maintain leadership in market share. The diffusion of innovation can diminish the first-mover advantages over time, and can be triggered via workforce mobility, publication of research, informal technical communication, reverse engineering, plant tours, corporate espionage, cyber theft etc. R&D expenditures can also provide technological leadership, theoretically at least. The technological pioneers can retain their advantage if they protect their R&D through patents or if they successfully keep them as trade secrets. All of this is difficult to manage in the real world business life.
A well-established competing firm can employ lot of resources to essentially minimize your first mover’s advantage. American firms are great at innovating but Chinese are champions of reverse engineering. Sometimes, it is better to wait and learn where a new offering lacks and then improve it to re-launch it with your sticker. I always have doubted that marketing law which says that it’s better to be first than it is to be better because more recently Chinese apparently were able to build better trains that Germans or British. Afghanistan had no legacy so they went straight to 3G so in the long run probably everything levels out and there is no such thing as FMA.
eBay was first to market with an online consumer auction process and all latecomers have withered into darkness. Xerox invented photocopying and used their 15-year head start (protected by patents and 15-year head start is very rare these days in any case. In those days information was a tortoise) as the springboard for a global business. Coca-Cola is still considered one of the most valuable brands in the world 130 years after they launched the first cola drink. Gillette in Razors, Nike in running shoes, Microsoft in desktop computing—just a few examples of businesses whose reward for being first on the scene was decades of robust business.The owner of sex.com reportedly sold it for $14 million dollars. (That’s a great return on a ten-dollar investment!)
Now let’s take a look on the other side. The pioneering efforts of Netscape, the first to market an Internet browser, briefly produced enormous gains for shareholders until the stock price plummeted in 1997 following the rise of Microsoft’s browser, Explorer. Apple declined more gradually—it was profitable for several years before pressure from Microsoft and Intel took a toll, forcing it to restructure in the early 1990s. Apple in June 2007 launched iPhone and Google launched its first Android commercial phone HTC Dream in 22nd October 2008. Steve Jobs was furious that Google stole his idea (Eric Schmidt was on Apple’s board in those days) who himself famously gave WIRED magazine an interview in which he said this famous sentence “Lesser artists borrow; great artists steal” quoting Picasso. He also used to say it’s more fun to be a pirate than to join the navy.Steve was a mean Chinese. In 2013, Android has 80% market share but Apple is still highly profitable. Market share doesn’t mean higher profits in this case because of both company’s different business models. Apple’s first mover advantage is not the reason it is highly profitable. The reason for its high profitability is target market (rich and affluent middle class), brand recognition and quality of its products. Android is playing a different game where it has more users meaning higher search revenues, more users in Google’s cloud and phones for practically all target markets. Android’s quality is getting better every day and in the long run, I think it will have the last laugh and Apple will return to its days 1990s where it had a strong cult following but no large market share like Microsoft. This time it is Google instead of Microsoft. Google was born as a web services and cloud company so it would be much easier for them to build Cloud phones which will be the next generation of Mobile operating systems. Google can only struggle if someone really gave them a competition in search/Mobile Advertising where almost all of its revenue is generated. But now they are diversifying with products like Google Apps and Google Cars which can potentially bring in more revenue. Google essentially subsidizes everything from its search revenues and their biggest strength is also their biggest weakness.
Essentially, there are four stages of building a mass market success.
- Idea (If your idea is not patented or protected, you will lose this advantage quickly)
- Creation (If the product or service is not designed and built properly, you will not be able to capitalize on your idea’s originality. I consider better service as part of this creation stage)
- Mass Distribution (If you don’t have the right go to market strategy at a massive scale, you might not be able to capitalize on your idea and product. The key is to get to the 15% of the market share before your competition. Just look at the figure below)
- Next Iteration or Release (Once the product is initially successful, it is imperative to keep building on the momentum with additional features or new innovations. There is this general rule of thumb that a $100 Billion revenue company normally beats the S-curve at least 10 times to reach there. Look at the diagram below.
Great businesses have market-changing ambitions. They look farther out. They are happy working on seven-to-10-year time frames. They also take a long-term view for talent, too. In my view, great business leaders know what is about to become a necessity or what can be made into a necessity. That’s why leaders are so rare that they can balance all this with current account balances and quarterly numbers. That’s exactly why it will be difficult for Apple will to find another Steve Jobs and that’s why some men are indispensable in their time. )
Just to sum this all up, there are five things that a business must possess in order to do really wellin my opinion and all expensive consulting firms would also tell you the same or at least some part of it with a fat invoice.
- Get to market now rather than to delivering a marginally better product later. It never pays to be late.
- Don’t be the first to dive into a pond without checking for rocks. Being the leader can put you at a significant disadvantage if it locks you into an approach, technology or position.
- Betterbeats first. Betamax created the video-recording market with “technically” superior quality; VHS followed with good-enough quality and twice the recording time.
- Serve customers quickly. Don’t confuse customer-responsiveness with speed-of-innovation. While the quality of innovation is far more important than the pace, the importance of rapid customer response can’t be overstated.
- Find a leader who is passionate about the idea who can inspire and motivate men in times of turbulence. Courage, intelligence, big picture thinking, team building and perseverance is a very rare combination and that’s what it takes to be a leader. It is like finding a man who has different personalities in different situations.
Nothing lasts forever because change is the life of evolution. Coming up with the right idea and execution on right time in the right market with a right leader is difficult to say the least. And last but not least, knowing the difference between Management and Leadership is also important. Management is efficiency in climbing the ladder of success; leadership determines whether the ladder is leaning against the right wall.Good luck with all your original ideas.
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