First Mover Advantage?

From a young age, we are taught that coming first is important. First place, first in line, first man on the moon. We feel the need for speed. Out of this, the first-mover advantage was born.

“It’s better to be first than to be the best!”

Ben Rosenfield, 22 Immutable Laws of Marketing

Being first is quite a different scenario than being the second, third or twentieth company in a category. You’re not trying to convince customers that your solution is the best amongst a set of others, but that they have a real problem and there are solutions worth investing in that address it. And therein lies the problem and the opportunity.

When you’re a leader in a bicycle-race, you pour a lot of energy into fighting wind resistance. Trailblazing is hard. A first-mover in a market or product category also faces headwinds. Not only are you going up a mountain, but you don’t have a map and hit potholes or even fall off a cliff along the way.

Meanwhile there are competitors watching. Particularly if you start being successful and prove this might be feasible – others will follow you.

Having observed the mistakes of the first mover, these secondary movers can more accurately target, plan, and maximise their investment to capture this now larger market you helped to grow.

There are many examples of successful products that won in their markets that weren’t first movers:

  • iPod was not the first MP3 player
  • Uber was not the first ride-share app
  • VHS was not the first video cassette player
  • BluRay was not the first high-definition disc format

The reasons these products were so successful are varied. However in many cases, they had a superior offering in part from lessons learned from mistakes of first movers. On the back of that, they also employed powerful network effects and switching costs which built up a competitive advantage over time.

There are however times when 1st mover advantages will propagate. The Collection Action Analytical Framework (Brandon Lee, 2018) helps us navigate these situations.

Let us say you are looking into a virtual reality software offering. The market is still relatively new, the hardware is evolving, and the business case and practical applications are not yet widely accepted. Would you benefit from being a first mover here?

Using the above framework, you could argue the market infrastructure is not yet sufficiently developed. The penetration of VR headsets is relatively low, and there are various App store platforms vying for supremacy. As per the model, you can ask “Will your contributions make a substantive difference in that infrastructure?”

Let us say that yes, they will. You have developed a business model that gets more VR headsets into consumers hands (e.g. renting, bolt-on device to smart phone, bundle deal with Playstation, etc). Now the infrastructure is developed and ready to consume your product. Up to this point, you have  done all the hard work and taken all the risk. Can you now capture the lion’s share of value?

There might be many ways to achieve this:

  • Exclusive relationship with the supplier
  • Certain patents
  • Application bundled with each device
  • Ecosystem or switching costs
  • Etc.

Then yes, you will have a first mover advantage.

However if you have no real reason to stop people selecting another entrant, imitators will come in and steal market share from you.

Instead of creating the next killer VR app, you would be better placed to create infrastructure that reduces the barrier of entry for other apps to get to market.

This is equivalent to the story of those that profited from the gold rush. It wasn’t the thousands of fortune seekers that toiled away, sifting for nuggets in the river. It was the humble equipment tents that popped up around them, selling shovels, boots and sifting pans that consistently made a good amount of money.

Tip: For new markets, develop the infrastructure to capture the lion’s share of value. Do not legitimize the segment only for others to swoop in and take your profits.